A continued consolidation of wealth across the globe, particularly in emerging economies and amongst the ultra-wealthy, will drive demand for services such as family offices, industry experts say.
Last week, Merrill Lynch/Cap Gemini issued their annual World Wealth Report 2008, which showed further concentration of assets amongst the world’s wealthy last year as the fortunes of those with $1 million or more in investable assets grew faster than their numbers (9.4 per cent compared to 6 per cent).
However, the credit crunch took its toll and there was a decline in the rate of growth in numbers of wealthy individuals in 2007 from 8.3 per cent in the previous year, as well as a decline in the rate of growth of their wealth (from 11.4 per cent in 2006).
It appears that the super wealthy got rich even faster than their merely rich counterparts as UHNW individuals ($30 million plus in investable assets) posted the highest gains of any wealth band both in population, up 8.8 per cent, and total assets, up 14.5 per cent.
Whilst all areas saw a concentration of wealth, this was driven by Latin America and emerging markets which proved resilient to the credit crunch and converted high commodity prices into profitability and growth through exports. Here wealth grew even more quickly than wealthy populations due to GDP growth and higher savings rates than the G7.
The figures imply a new distribution of wealth across the globe and individuals who have already made their fortune seem to be creating even more wealth out of what they already have.
Ted Wilson, senior consultant, Scorpio Partnership, thinks that there will be increased demand for family office services as developing economies grow, wealth moves between generations and family-owned companies mature and the families exit.
“Take Singapore for example, there were relatively few family offices serving the region until recently, but with many families exiting their businesses there has been a surge in private equity crystallisation by entrepreneurial families. This has created a strong increase in demand for true family offices, both multi and single family offices, and family office type services such as those offered by Pictet.”
Mr Wilson points to the recent opening of a Fleming Family & Partners office in
Michael Maslinski, director of wealth management consultancy Maslinski & Co, agrees that as wealthy families are expanding their wealth more rapidly in developing parts of the world whilst growth is stuttering in more mature markets, there will doubtless be demand for some form of family office type services to meet their needs. He believes that the challenge is providing the right type of services.
“We should not pretend that it will be plain sailing for firms to offer family office type services in new markets. Assets will often still be tied up in the founding business and so wealth management firms need to look at their orientation, which might mean helping to direct the business rather than traditional asset management capability. It requires a different set of skills,” he said.
Whilst firms with commercial banking or investment banking arms might seem the most obvious candidates to deal with wealthy families, Mr Maslinski contends that such firms often struggle to bridge the gap between their own deal-led culture and that of the private client world.
Meanwhile, as the
Whilst the number of wealthy individuals in the
Mr Maslinski believes that very often office openings by wealth management firms are planned during boom times, to be implemented once the boom has come to a halt.
“Like many long term investment projects, the timing is a little off. The flurry of regional openings implies that a little too much demand was predicted and economic circumstances might dictate that firms have to retrench slightly. We might see one or two closures,” he said.
Mr Maslinski believes that for a year or two the UK will see little to no growth, as many wealthy individuals are experiencing declining wealth and it will take a while for the new wealthy to come through and replace them.
He also believes that many cities, such as
“Whilst there are just a handful of private bankers in a region, entrepreneurs are keen to meet them. As bankers' numbers inevitably grow, prospective clients become sick to death of being approached by private bankers and invited to events, and come to view them as just another bunch of salesmen,” said Maslinski.
However, the majority (44 per cent) of those that responded to a recent WealthBriefing poll felt that the recent rapid expansion by private banks into the
Looking forward, Barclays Wealth’s view is that by 2017, in aggregate wealth terms (which includes property), wealth management firms will have the potential to serve 60 per cent more £1 millionaire ($2 million) households, or a total 2.4 million, with a combined wealth in excess of £6.9 trillion. The number of households with £5 million aggregate wealth is expected to increase 120 per cent to 126,000 from 56,000 in 2007.
On this basis, Michael Dicks, head of research and investment strategy at Barclays Wealth, believes that the