Unlike the financial hurricane of 2008, the pandemic of 2020 did not do lasting market damage and, as a result, the ranks and assets of high net worth individuals weren't hit. On the contrary, their wealth increased. These findings are in the 25th annual World Wealth Report from Capgemini.

The COVID-19 pandemic and policy responses to the crisis caused global equities to oscillate violently in the spring of 2020. However, evidence shows that as far as wealthy individuals are concerned, their assets grew and there were more of them last year.

In the 25th edition of its annual World Wealth Report, issued yesterday, Capgemini said that the number of high net worth individuals rose by 6.3 per cent last year, and their total wealth rose by 7.6 per cent. The ultra-HNW segment rose by 9.6 per cent in numbers, and its total wealth expanded by 9.1 per cent. 

The figures point to a decoupling between financial markets – often influenced by massive central bank money printing and government fiscal stimuli – and the underlying real economy. The pandemic accentuated this fact. Tech stocks, often benefiting from the shift to working from home and social distancing, have boomed. 

And, in a move that has halted five years of Asian leadership, North America again overtook the Asia-Pacific region to lead total HNWI population and wealth, with 10.7 per cent and 11.9 per cent growth, respectively, last year.

The 52-page report is the third of the “big three” annual wealth studies in June – Boston Consulting Group and Credit Suisse being the authors of the other two. All three have shown that whatever turmoil the pandemic and policy reactions created, the fortunes of the HNW/UHNW populations in much of the world have progressed. That is likely to be a politically sensitive issue.

The Capgemini figures showed that last year, North America was home to 7 million HNW individuals; for Asia, there were 6.9 million, Europe was home to 5.4 million; the Middle East had 800,000, Latin America 600,000 and Africa, 200,000. As for actual wealth, North American HNW individuals held $24.3 trillion, Asia-Pacific HNWIs had $24 trillion, Europeans $17.5 trillion, Latin Americans had $8.8 trillion; Middle Eastern HNWIs had $3.2 trillion and Africans, $1.7 trillion. 

An eye-catching feature of the report was growth in the UHNW population cohort and wealth holdings. Factors driving this are these individuals’ greater exposure to equities, and active exploration of other market opportunities. For example, a study by Capgemini in the first quarter of this year showed that UHNW individuals parked 17.7 per cent of their portfolios in alternative investments such as private equity, versus 11.8 per cent for HNW individuals. 

Financial markets rise above the real economy
The report noted that in contrast to the financial market crash of 2008/09, brought on by the implosion of sub-prime mortgages in the US, the impact of the pandemic in 2020 has been markedly different. 

“The current crisis is profoundly different from the previous global financial crises which were characterised by a major financial shock that lasted a long time on the markets. In the present scenario, the financial markets are already making a recovery though there may be a more long-lasting impact on the real economy,” Mario Buquicchio, head of wealth management, Credit Agricole Italia, said in the report. 

Who’s in the lead?
Reflecting on a quarter-century of its reports, Capgemini noted how Asia overtook Europe and later North America as the world’s wealthiest region, only to slip back behind North America in the latest report.

Another theme running over the years has been how, Capgemini said, HNW individuals are now more involved in their investments and demanding how to grow their new, largely tech-driven wealth. Meanwhile, one move in the past decade was how in the first half of the 2010s, clients preferred to work with a single wealth management firm and dedicated point of contact, a fact that appeared to hold across the wealth spectrum. 

As digital channels grew more mainstream, HNW clients wanted more digital interaction and real-time reporting 24/7, but they haven’t lost a desire for in-person contact. Client expectations of what services they should receive have also increased. 

The report also noted how over the years and a range of mergers and acquisitions, the world’s wealth industry remains in some ways highly fragmented. 2020 was a busy year for large deals, such as Morgan Stanley’s purchase of E*Trade and the Charles Schwab acquisition of TD Ameritrade. The value of US investment management M&A activity in 2020 was $28 billion, the highest since 2000 when deals amounted to $29 billion. 

Changing demographics
The report said that the client profile is changing, with younger, more tech-connected clients coming to the fore. The share of women in the client pool is rising because of inheritance and female entrepreneurship. In the US, for example, there are 114 per cent more women entrepreneurs than 20 years ago, and 40 per cent of US firms are owned by women.

The Capgemini report examined areas such as the industry needing to keep improving clients’ experiences and make better use of data, particularly given that HNW individuals’ expectations are shaped by other business sector innovations. 

Digitally savvy
“In the current digital marketplace, customers are more demanding than before. Investors are searching for the intuitiveness, personalisation, and proactive interactions they have with BigTechs from their wealth management firms,” Shaka Rasheed, managing director, capital markets, US financial services, Microsoft US, said in the report. 

“Hyper-personalisation is where the action is in wealth management. For firms, there’s an opportunity to get closer to clients by explaining the use of data and how it can be used to hyper-personalise the client experience,” April Rudin, founder and CEO, The Rudin Group, said. (Rudin is also a member of Family Wealth Report’s editorial advisory board.)