High Net Worth Individuals Lose $8 Trillion In Just One Year!

We have blogged in prior years about the Capgemini Merrill Lynch World Wealth Report, since the results are fascinating and the numbers are simply mind-boggling. The 13th annual 2009 report was just released hours ago, and we bring you their (rather sobering) findings and our take.

See our 2006 post - http://bigfouralumni.blogspot.com/2006/07/capgemini-tells-you-more-about-uber.html

See our 2008 post - http://bigfouralumni.blogspot.com/2008/07/10-million-wealthy-folks-own-astounding.html


Simply put, at the end of 2008, global HNWI (High Net Worth Individuals) population dropped 15% from 10 million in 2007 to 8.6 million in 2008 and their wealth dropped 20% or $8 trillion from $41 trillion in 2007 to $32.8 trillion in 2008. As Capgemini says, “The declines were unprecedented, and wiped out two robust years of growth in 2006 and 2007.”

Don’t feel sorry yet for this loss, as the average HNWI still had a nice pot of $3.8 million at the end of 2008 after enduring 16 months of ravaging global stock and real estate bear markets. The bigger story is that 1.5 million folks did drop out of the HNWI population, which means their wealth fell below the threshold of $1 million.

What caused all this drop? Sinking stock markets, especially in emerging markets in late 2007 and much of 2008 led to a lot of wealth destruction, coupled with falling real estate, rising commodity prices, global economic slowdown and general business malaise had their unfortunate effects on the ultra rich. As expected, many of them moved quickly to safety putting their money in cash, short term instrument and T bills to escape further deterioration.

In terms of geography in 2008, North America had 2.7 million HNWIs, 31% of the total, followed by Europe with 2.6 million (30%) and Asia Pacific with 2.4 million had 28% of all the world’s HNWI. The annual % drop in HNWI population was most pronounced in North America with 19% as 600,000 folks dropped below the threshold from 2007 to 2008. In Europe, half a million individuals didn’t make the cut and in Asia Pacific 400,000 had to be content with not calling themselves HNWIs.

The wealth destruction of these 10 million individuals was a staggering $8 trillion from 2007 to 2008 or a loss of about $800,000 per individual. We did some math to try to reconstruct somewhat the underlying numbers behind these results:

The number of global billionaires dropped from 1, 123 in 2007 to 793 in 2008 (according to Fortune magazine), and the total wealth of this jet-set dropped around 40% from $4.8 trillion to $2.8 trillion, and these thousand-or-so folks accounted for a staggering drop of $2 trillion from one year to the next. On a per individual basis, the decrease for this uber-rich billionaires was $2 billion. Those who had the most, appropriately enough, lost the most!

The number of Ultra High Net Worth Individuals (UHNWI – those with assets greater than $30 million) dropped from about 103,000 in 2007 to about 78,000 in 2008, and their net worth dropped (by our estimates) from about $15.6 trillion in 2007 to $12.9 trillion in 2008 or a drop of about $2.7 trillion. On a per individual basis, the decrease for these UHNWIs was $29 million.

For the subset of UHNWI minus the billionaires, the wealth destruction was around $700 million or about $7 million per individual.

Then come the folks don’t belong in these two above exclusive segments - just the run of the mill millionaire - with a net worth between $1 million and $30 million - dropped from 10 million folks to 8.5 million and their net combined worth dropped from $24 trillion in 2007 to $19 trillion in 2008 or a drop of about $5 trillion. On a per individual basis, the decrease for these HNWIs was only $0.6 million.

After you generally get used to the trillions of dollars that are bandied about in this report (but then of course, you need to be talking in trillions to get attention today!), wealth advisors can dig deeper to see how to help these folks manage their riches. Others can simply delight in the miseries of the ultra-riche and be comforted that even they were equally impactd by a global crisis which has not left anyone untouched.

A fascinating read, and you can find it at http://www.capgemini.com/resources/news