Global wealth soared last year, even during the economy-straining pandemic, with financial assets held by individuals jumping 8.3% to a record US$250 trillion, Boston Consulting Group (BCG) reported on Thursday.
Combined with real assets—primarily real estate—and excluding liabilities (such as mortgages), total global wealth rose 7.9% to US$431 trillion, BCG said in its 22nd annual global wealth report. Real assets, in fact, effectively doubled the size of the global wealth pool last year, the firm reported, generating US$235 trillion in wealth.
There were “two main levers” to this extraordinary rise, says Anna Zakrzewski, global leader of the BCG’s wealth management segment and a coauthor of the report.
One of these was a 10.6% spike in net new savings—cash and deposits—marking the biggest annual rise in 20 years. “The world was in lockdown and there were not that many alternatives to spend and invest, so people saved,” Zakrzewski says.
This was true even in European nations where interest rates are negative—meaning the value of an individual’s savings could actually go down—cash and deposit rates went up, she says.
The second lever was stock-market performance. Investments in capital markets rose 11.5% globally in 2020, fueled by the continuance of easy money policies by the world’s central banks. Even before the crisis, low interest rates prompted investors to shift assets to stocks, and to alternative investments ranging from real estate, to private equity, and venture capital, to get more yield, Zakrzewski says.
Total wealth—that is, financial assets and real assets minus liabilities—rose by 7.2% in North America to US$136 trillion; by 9.5% to nearly US$117 trillion in Asia ex-Japan; and by 4.1% in Western Europe to US$103 trillion in 2020, BCG said.
In growth markets, such as parts of Asia ex-Japan, real assets make up 63% of overall wealth, while in mature markets such as the U.S. and Western Europe, financial assets dominate, making up 59% of overall wealth.
One reason is that in much of Asia outside of major financial hubs such as Hong Kong and Singapore, the financial markets are not as sophisticated in terms of available investment opportunities, Zakrzewski says.
But BCG expects this dynamic to shift in the next five years, as these markets become more advanced. The firm predicts financial assets to grow 7.9% in the next five years in Asia compared with only a 6.7% rise in real assets.
That will happen as more local and regional financial services companies, many of which rely on digital models, “allow more clients in high-growth markets to tap into investment opportunities they haven’t been able to in the past,” Zakrzewski says.
The global surge in new wealth created 6,000 new ultra-wealthy individuals, those with assets of US$100 million or more. That dramatic rise represents year-on-year growth of 9% from 2015, the report said.
There are now 60,000 individuals in this rarefied category who hold a combined US$22 trillion in investable wealth, BCG said. That figure amounts to 15% of total global wealth, up from 12% in 2019, according to BCG.
“The ultra segment is the fastest growing globally,” Zakrzewski says.
Nowhere is this more true than in China, which recorded a nearly 24% upswing in the number of ultra-wealthy individuals in 2020 to 7,800; the U.S. has 20,600. In terms of investable wealth, the absolute level of growth over the next five years will be higher in China, Zakrzewski says.
According to the report, ultra assets will reach US$10.4 trillion in China by 2029 compared with an estimated US$9.9 trillion in the U.S.
Besides offering a global snapshot of where global wealth is heading, BCG’s annual report provides insights to the wealth management industry on how they should be positioning themselves in response to a constantly changing market.
The report points out, for instance, that wealth managers can’t attempt to attract the ultra wealthy with a single approach, given this group represents many ages, various sources of wealth, and a range of financial sophistication. The next generation of individuals in this group is experiencing “huge growth,” for instance, Zakrzewski says, and wealth managers shouldn’t assume their loyalty.
“Most wealth managers today are still focused on the first generation of ultra,” she says. “This loyalty is not a given going forward.”
As wealth in China grows, financial centers are shifting, with Hong Kong expected to become the lead cross-border booking center by 2023, according to BCG. Switzerland currently claims that spot, but is expected to slip into second. Singapore is the third largest cross-border center this year, a rank it’s expected to retain.
While wealth management firms often focus efforts on the wealthiest investors, the report makes a case for not ignoring the “new surging middle class,” as Zakrzewski calls them. This group, with assets between US$100,000 and US$3 million, includes about 331 million individual clients with US$59 trillion in investable wealth.
These clients generally have simple investment needs and limited financial knowledge, but they are worth paying attention to as they are expected to achieve a compound annual growth rate of 4.1% within the five years through 2025.
Winning and keeping these clients will depend on providing a mix of digital capabilities and access to human advisors—who can leverage technology to deliver tailored services. That could even include access to investments once out-of-reach for such clients, including private equity or hedge funds.
“All of these things are relevant to this surging middle class, so that they feel they are being served,” Zakrzewski says. “At the moment, they are squeezed in the middle.”