Merrill Lynch and Capgemini Publish World Wealth Report

    June 10, 2005
    Chris Crum

Yesterday, Merrill Lynch and Capgemini, published the 2005 World Wealth Report. It said that last year, high net worth investors (HNWIs), took a “hold and see” stance as interest rates began to rise and stock market returns moderated from the year before.

HNWIs include all people whose assets amount to at least US$1 million. It also said that equities continued to represent the highest percentage of HNWI portfolio assets but were reduced slightly to 34% last year from 35% in 2003.

Millionaires Take

According to the report, fixed income investments were the next largest percentage of HNWI portfolios, increasing to 27% in 2004 from 25% in 2003. Cash also increased over that period, from 10% to 12%, as well as alternative investments including private equity, from 13% to 14%.

“High net worth investors and their advisors try to anticipate rather than follow market trends and get ahead of the curve in their investing strategies. The asset allocation changes that we saw in 2004, while subtle, are slightly more defensive and are also consistent with the kind of anticipatory behavior we have seen from HNWIs in the past,” said James P. Gorman, Executive Vice President of Merrill Lynch & Co. Inc. and Head of Corporate Acquisitions, Strategy and Research.

The most dramatic change occurred in real estate investments. They fell from 17% to 13%, indicating that HNWIs took some profits in 2004 after several years of strong returns in an investment class that includes direct real estate investments and REITs.

“While HNWIs remain well diversified worldwide, there are clear regional differences in asset allocation. Wealthy investors in North America remain the most committed to equities, while Latin American HNWIs maintained the lowest average percentage of equities in their portfolios. Real estate investments in Asia-Pacific and Europe remained higher than the global average, and investors worldwide lowered their exposure to the U.S. dollar,” said Capgemini’s Global Wealth Management Practice Vice President Petrina Dolby.

The report says that among alternative investments, private equity attracted renewed interest, with substantial investment flows into this asset class during the second half of 2004. HNWIs were attracted by strong performance, as the US private equity index outperformed other market indices in 2004.

As Merrill Lynch says in a press release, many financial advisors interviewed for the 2005 World Wealth Report said that their clients reduced their rate of investment in hedge funds from 2003 to 2004, consistent with a declining rate of return in this asset class over that time period. Increasingly, hedge funds are viewed as a source of portfolio diversification rather than generators of out-sized returns.

HNWIs continued to use foreign investments to diversify their portfolios. While North America remained the preferred destination for investment, high returns generated in the emerging markets drew investment to the Asia-Pacific region. Foreign exchange is expected to become more popular with HNWIs for enhancing returns and hedge risk.

Chris is a staff writer for WebProNews. Visit WebProNews for the latest ebusiness news.