Super-rich populations are rising, but Europe is slipping down the ranks of the world’s wealthiest regions, according to new numbers compiled for The Wealth Report. Gráinne Gilmore investigates
The theme of the 2018 World Economic Forum in Davos was 'Creating a Shared Future in a Fractured World'.
While the world has faced an array of stiff economic and political challenges since global business leaders and policy-makers first began meeting in Switzerland in 1971, the theme reflected a recognition that the threats being faced by individuals, businesses and states are more widespread and diverse than ever.
But while delegates at the forum absorbed the cheery news about the re-emergence of “geostrategic fissures” on multiple fronts, the economic picture has brightened. Investment bank Goldman Sachs’ global economic outlook for 2018 is called 'As Good as It Gets'.
Longer term, though, the picture is less clear, with the IMF and other commentators, including this report’s keynote interviewee, the financial historian Niall Ferguson, predicting headwinds for global economic growth in the not too distant future.
So what does a potentially time-limited economic upswing coupled with geopolitical uncertainty mean for ultra-wealthy populations around the world? New data prepared exclusively for The Wealth Report by wealth data specialist Wealth-X shows that the number of ultra-wealthy people (those with net assets of $50 million or more) rose by 10% in 2017.
This is in line with the results of The Wealth Report Attitudes Survey, in which 72% of respondents said their clients’ wealth had increased during the year. This took the global population to 129 730 with a total worth of US$26.4 trillion.
According to Vincent White, managing director at the Wealth-X Institute, this is an auspicious time for wealth creation. “There have been ‘Goldilocks’ economic conditions, not too hot and not too cold. These make it easier to do business, provide a good environment to raise capital and, above all, encourage entrepreneurialism – the key to wealth creation.”
For this edition of The Wealth Report, the focus is on those with US$50 million or more in net assets, as well as demi-billionaires (over US$500 million) and multi-millionaires (over US$5 million).
That 10% rise in the ultra-wealthy population marks a notably more rapid rate of growth than in the previous five years, where there was a cumulative 18% increase – indeed, The Wealth Report reported that ultra-wealthy populations actually fell in 2015. It mirrors the growing momentum of the global economy since the start of 2017 – but this is only one aspect of the methodology used by Wealth-X.
In addition to GDP growth, the performance of stock markets and other investments are taken into account, as are wealth distribution trends within countries – calculated using Wealth-X’s proprietary models.
Currency also plays a significant role. The wealth data is shown in US dollars, and, as a result, the movement of local currencies against the dollar will also have an impact.
“Many currencies gained strength against the US dollar last year, which has resulted in a net increase in our estimates,” confirms Mr White. “However, the relationship is not linear. There is an interplay between this and the other factors affecting wealth growth.”
When it comes to assessing how ultra-wealthy populations have fared over the past five years, the picture is mixed. While the number of people with US$50 million or more in net assets rose in North America (+31%), Asia-Pacific (+37%) and Europe (+10%) between 2012 and 2017, there were falls in the remaining five regions, most notably in Latin America and the Caribbean (-22%) and Russia and CIS (-37%).
Some of these trends reversed in 2017. Russia and CIS bounced back by 26%, coinciding with Russia’s exit from recession at the start of the year. However, the number of people with US$50 million or more in net assets is still 37% lower than at the start of 2012. At 2,870, the number of ultra-wealthy living in Russia and CIS account for around 2% of the global total.
North America remains the world’s largest wealth region. Some 35% of the world’s ultra-wealthy are based there, and their ranks rose by a further 5% last year, taking the total to 44,000.
Europe, however, failed to fend off a strong Asian challenge, narrowly losing its second place spot in rankings, despite a 10% rise in the number of people with US$50 million or more in net assets that took the total population to 35,180. A 15% rise in Asia’s ultra-wealthy cadre took the total population to 35,880.
In China, the ultra-wealthy population will more than double in the next five years, according to Wealth-X. This will come on the back of expected economic and stock market growth, as well as expectations for more stringent rules about keeping money onshore.
There will also be strong growth in Japan (+51%), India (+71%), Indonesia (+66%) and Malaysia (+65%). Overall, the outlook for the Asia region is “highly optimistic”, Mr White says.
Agathe L'Homme, Asian Analyst at the Economist Intelligence Unit, adds: "We have revised up our economic outlook for the region owing to a rosier Chinese growth forecast in the short term. Steady demand from final consumer markets and rising commodity prices will support exporting countries in the region, while expectations of a very gradual monetary tightening will underpin growth overall".
Europe’s 10% growth in its ultra-wealthy population last year may seem counterintuitive, given the political challenges facing the region, not least continued Brexit discussions and the weakened political power of German Chancellor Angela Merkel after last September’s election.
Yet many European countries saw a marked upswing in economic performance last year, with the euro zone outperforming the UK and US economies in terms of GDP growth in 2017. The European Central Bank (ECB) also held off tightening monetary policy, unlike central banks in the UK, Canada and the US.
However, as James Roberts, Knight Frank’s chief economist explains, the ECB is set to taper its quantitative easing programme this year. There was also a bounce back in ultra-wealthy populations in Latin America and the Caribbean in 2017, a 20% rise after the 22% decline seen since 2012.
The total number of ultra-wealthy (4,220) is still lower than in 2012 (5,380), but the figure is expected to continue to grow by 20% over the next five years. Brazil, the biggest wealth hub in the region, also saw strong growth last year.
Ian Bremmer, Head of Eurasia Group, a leading political risk consultancy, told The Wealth Report: “It’s largely an economic recovery story. The stock market and bond market have performed extraordinarily well this past year.
"While the ultra-wealthy took a hit in 2016, in 2017 there was a clear rebound. Note that this took place in a context where the Brazilian real went through an important devaluation as well. So in dollars, there was a real improvement.”
In the US, new tax policies aimed at trying to encourage more corporates to move money onshore may have ramifications for the whole economy and, in turn, ultra-wealthy populations.
Late in 2017, President Donald Trump announced a raft of tax changes, including an ultra-low 15.5% tax rate for companies bringing their money on shore. In addition, he cut the rate of corporation tax to 21%, as well as cutting some income tax rates and boosting family allowances.
Under current economic forecasts, the US is expected to see a 38% rise in its ultra-wealthy population over the next five years. However, the change to corporation tax could have an impact in the future, especially if it encourages more investment across the US.
“In terms of fiscal policy,changes in corporation tax and capital gains tax have the largest impact on ultra-wealthy populations, although it can take some time for the changes to be felt,” explains Winston Chesterfield, Director of Custom Research at Wealth-X.
It follows then that a change in political leadership can also affect ultra-wealthy populations. One such change recently in South Africa may well have an impact, according to Dr Bremmer.
“Investor and consumer confidence will rise in the wake of the election of Cyril Ramaphosa as head of the ANC,” Dr Bremmer said. “Wealthy South Africans are likely to continue moving money abroad and acquiring dual citizenship, although they are now more likely to still reside in the country since they are supportive of the new ANC leader.”
South Africa is forecast to see a 20% uplift in its ultra-wealthy population over the next five years, after a 14% rise in 2017, coinciding with a sharp strengthening of the rand after the ANC elections.
Dr Bremmer’s comments raise a salient question about where some ultra-wealthy people are actually based. The methodology used by Wealth-X looks at residences and/or the location of business operations.
While the majority will have their primary residences in the country from where their wealth is derived, a significant number of ultra-wealthy are globally mobile.
“There is no financial wealth band that dictates whether ultra-wealthy people will have a global footprint – such as houses in countries around the world. The switch between using hotels and investing in property is triggered by many factors, such as nationality, age and the industry in which the individuals are involved,” Wealth-X’s Mr White says. “Culture and lifestyle also play a very significant part in these decisions.”
The global mobility of the ultra-wealthy is noticeable in such countries as Monaco. There are around 50 people worth US$50 million+ with a primary residence in the principality, according to the Wealth-X model.
However, once the definition of residence is extended to all of those who have a home or presence in the country, this number rises to 542, making Monaco one of the most densely populated countries in terms of ultra-wealthy people per head of population.
Looking ahead, there are likely to be an increasing number of economic and geo-political headwinds, not least monetary tightening across the board. However, ultra-wealthy populations are expected to continue to grow in the medium term.
“Even when overall conditions are negative, we have traditionally seen more resilience among ultra-wealthy populations,” Mr White says. However, he also adds a note of caution, which echoes some of the major themes discussed at Davos this year.
“There are societal changes that are going to take place over the longer term – the reaction to wealth inequality is a pressure that shouldn’t be ignored. There may well be a point where the growth in ultra-wealthy populations doesn’t automatically continue on its current trajectory.”
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