Dhe year 2022 has been one of the worst years for investing. Both the equity and bond markets suffered severe price losses. These are also reflected in the current World Wealth Report by the consulting firm Capgemini.
Accordingly, the number of people with fixed assets of more than one million dollars decreased by 3.3 percent to 21.7 million. Their wealth shrank from $86 trillion to $83 trillion. In the current year, the situation on the stock exchanges is more positive, which is why Klaus-Georg Meyer, who is responsible for financial service providers at Capgemini in Germany, believes that rising numbers are possible again in 2023.
But last year, according to the World Wealth Report, the strongest decline in ten years had to be digested. This applies to the number of millionaires as well as to their wealth. The consultants attribute this to geopolitical and macroeconomic uncertainties. Russia’s invasion of Ukraine triggered a significant rise in energy prices. The central banks had to react to the escalating inflation with painful interest rate hikes. This difficult situation created a strong headwind for the stock exchanges.
$18 trillion less
The global stock index MSCI World fell almost 20 percent, which meant a decline in market capitalization of $18 trillion. The rich North Americans suffered the most from this. Their wealth fell 7.4 percent to $25.6 trillion. The 7.6 percent decline in the United States was greater than Canada’s 3.3 percent.
In Europe, the wealth of the wealthy shrank 3.2 percent to $18.2 trillion and in Asia it fell 2.7 percent to $24.7 trillion. In contrast, in the Capgemini report, Africa, Latin America and the Middle East showed resilience and recorded financial growth in 2022, driven by strong developments in the oil and gas sector.
Slight decline in Germany
In Germany, the number of millionaires fell by only 1.3 percent or 20,900 people to 1.6 million. Their wealth fell 2.2 percent to $6.14 billion after rising 7.4 percent in 2021. The consultants at Capgemini cite the low economic growth, the decline in market capitalization by 23 percent, property prices that have been falling again for a long time, the increased lending rates and high inflation as the reasons for this.
All of this also had an impact on the allocation of fixed assets. Globally, the rich reduced their shareholdings from 29 percent to 23 percent. Bonds accounted for only 15 instead of 18 percent of assets. To this end, cash holdings were increased from 24 to 34 percent. Real estate remained stable (unchanged at 15 percent) and alternative investments at 13 after 14 percent. These also include company investments (private equity).
German millionaires increase shareholding
The preferences of German millionaires differ mainly in two respects: On the one hand, they have increased their equity share from 23 to 26 percent, bucking the trend, and on the other hand, they have reduced the real estate share from 20 to 14 percent. Cash holdings were increased from 21 to 31 percent, while bonds were cut from 17 to 14 percent and alternative investments from 19 to 14 percent.
Looking at the wealth managers who have focused on the wealthy clientele, Capgemini still finds some shortcomings. The rich continue to be interested in private equity investments, but asset managers are hesitant to turn to this asset class. Capgemini expert Meyer attributed this to limited regulatory oversight and low transparency during Wednesday’s press briefing in Frankfurt.
The rich are also very interested in sustainable investments, which are summarized in the financial market under the abbreviation “ESG” after the English terms for environment (environment), social development (social) and good corporate governance (governance). Despite the economic uncertainty, with just 23% of the wealthy in the Capgemini report saying they have seen better returns from ESG investing, they continue to express interest in such products: 41% of respondents see ESG-related investing as top priority. 63 percent said they have requested ESG ratings for their investments.
A turning point for wealth managers
However, only around half of the wealth managers (52 percent) see the analysis of ESG data and its traceability (31 percent) as a top priority. Of the relationship managers surveyed, 40 percent told Capgemini they needed more data to understand ESG impacts. Almost 1 in 2 said they need more ESG information to effectively engage with their customers.
Meyer sees asset managers at a critical turning point: “The zeitgeist calls for a change in mindset and business models in order to achieve sustainable earnings growth.” In order to remain relevant, he advises the industry to increase its added value for customers, customer advisors technically better to support them and to open up new growth opportunities for themselves. He attests to the insufficient digital maturity of asset managers. He sees mastering them as decisive for success.
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