Wealth – and the number of wealthy people – declined over the past year. Unsurprisingly, the worldwide recession that has hammered portfolios has caused the number of millionaires in the world to fall. Those that remain generally aren't as rich as they used to be. Among those dethroned is the entirety of North America, which now lags Europe in assets under management.
A study by Boston Consulting Group, Delivering on the Client Promise: Global Wealth 2009, finds that wealth declined by 11.7 percent globally to $92.4 trillion in 2008, from $104.7 trillion the year before. Last year was the first in which assets under management fell in nearly 10 years. The lost money, of course, is not gone for ever. Just wait patiently for the next six years, BCG says, as that's how long it will take for world wealth to reach 2007 levels.
Those who had the most, lost the most. North America was slammed most severely. Wealth management firms saw assets under management plunge 21.8 percent to $29.3 trillion, mostly because of equity market performance. The amount of wealth held in equities in North America reached 38 percent in 2008, down from 50 percent in 2007, but the region still had the highest allocation to this asset class.
Europe's $32.7 trillion in assets under management reflects a drop of 5.8 percent year-over-year but was still sufficient to overtake North America. The only region in which wealth increased was Latin America, where assets under management edged higher by three percent last year, from $2.4 trillion to $2.5 trillion.
A bad year for wealth, of course, translates to a bad year for the wealthy. BCG reports that the number of millionaire households worldwide declined 17.8 percent , from 11 million in 2007 to 9 million in 2008. North America and Europe felt the worst of it, with each region losing 22 percent of its millionaires. The United States still has the most millionaire households, with close to four million. Singapore, however, has the highest concentration of millionaires at 8.5 percent.
Offshore wealth took a dive. Reaching $7.3 trillion in 2007, wealth stowed away in money-havens dropped to $6.7 trillion. Switzerland was able to hold on as the largest country in this category, with 28 percent of all offshore wealth ($1.8 trillion) held comfortably within its anonymous borders.
Regulatory scrutiny is threatening the value of these parts of the world, according to Peter Damisch, BCG partner and coauthor of the report, says, "Once their tax and legal advantages evaporate, so too will their appeal. He continues, "Being inconspicuous is a tenuous value proposition in an era of increasing oversight."
The decline in wealth has affected not just the wealthy: wealth managers have also sustained a serious blow. BCG's survey of 124 institutions found that the median pretax profit margin fell from 36.4 percent in 2007 to 30 percent in 2008. Nonetheless, this performance could have been much worse, and wealth managers have shown resilience throughout the financial crisis. Among the greatest challenges they faced was behavioral, as clients reacted to losses by moving their assets to simple investments that offered thinner margins for money managers.
"Dazzling product complexity is no longer seen as a positive attribute-if it ever really was," said Bruce Holley, a BCG senior partner and a coauthor of the report. "It is unclear when-and to what extent-assets will migrate back to high-margin investments, but wealth managers cannot count on a strong resurgence of these products in the short term."
Success in the wealth management market – and for the wealthy in general – will be made more difficult by a slow recovery, which BCG expects to begin in 2010. From the end of 2008 through the end of 2013, wealth is expected to grow at a four percent annual rate. But, some recovery beats none at all.