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THE WEALTH REPORT

A GLOBAL PERSPECTIVE ON PRIME PROPERTY AND WEALTH 2011 THE SMALL PRINT

TERMS AND DEFINITIONS HNWI is an acronym for ‘high-net-worth individual’, a person whose investible assets, excluding their principal residence, total between $1m and $10m. An UHNWI (ultra-high-net-worth individual) is a person whose investible assets, excluding their primary residence, are valued at over $10m. The term ‘prime property’ equates to the most desirable, and normally most expensive, property in a deﬁned location. Commonly, but not exclusively, prime property markets are areas where demand has a signiﬁcant international bias. The Wealth Report was written in late 2010 and early 2011. Due to rounding, some percentages may not add up to 100.

For research enquiries – Liam Bailey, Knight Frank LLP, 55 Baker Street, London W1U 8AN +44 (0)20 7861 5133

Published on behalf of Knight Frank and Citi Private Bank by Think, The Pall Mall Deposit, 124-128 Barlby Road, London, W10 6BL.

THE WEALTH REPORT TEAM

FOR KNIGHT FRANK Editor: Andrew Shirley Assistant editor: Vicki Shiel Director of research content: Liam Bailey International data coordinator: Kate Everett-Allen Marketing: Victoria Kinnard, Rebecca Maher Public relations: Rosie Cade

FOR CITI PRIVATE BANK Marketing: Pauline Loohuis Public relations: Adam Castellani

FOR THINK Consultant editor: Ben Walker Creative director: Ewan Buck Chief sub-editor: James Debens Sub-editor: Jasmine Malone Senior account manager: Kirsty Grant Managing director: Polly Arnold

Illustrations: Raymond Biesinger (covers), Peter Field (portraits) Infographics: Leonard Dickinson, Paul Wooton, Mikey Carr Images: 4Corners Images, Getty Images, Bridgeman Art Library

PRINTING Ronan Daly at Pureprint Group Limited

DISCLAIMERS

KNIGHT FRANK The Wealth Report is produced for general interest only; it is not definitive. It must not be relied upon in any way. Although high standards have been used in the preparation of the information, analysis and views presented in The Wealth Report, no responsibility or liability whatsoever can be accepted by Knight Frank for the contents. We make no express or implied guarantee of its accuracy. As far as applicable laws allow, we do not accept responsibility for errors, inaccuracies or omissions, nor for loss or damage that may result directly or indirectly from reliance on its contents. The Wealth Report does not necessarily reflect the view of Knight Frank in any respect. Readers should not take or omit to take any action as a result of information in The Wealth Report. In preparing The Wealth Report, Knight Frank does not imply or establish any client, advisory, financial or professional relationship. ThroughThe Wealth Report, neither Knight Frank nor any other person is providing advisory, financial or other services. In particular, Knight Frank LLP is not authorised by the Financial Services Authority to undertake regulated activities (other than limited insurance intermediation activity in connection with property management).

Reproduction of this report in whole or in part is not permitted without the prior written approval of Knight Frank LLP.

Knight Frank LLP also trades as Knight Frank. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names. The Wealth Report is compiled from information contributed by various sources including Knight Frank LLP, its direct UK subsidiaries and a network of separate and independent overseas entities or practices offering property services. Together, these are generally known as ‘the Knight Frankglobal network’. Each entity or practice in the Knight Frank global network is a distinct and separate legal entity. Its ownership and management is distinct from that of any other entity or practice, whether operating under the name Knight Frank or otherwise. In any event, no entity or practice operating under the name Knight Frank (including Knight Frank LLP) is liable for the acts or omissions of any other entity or practice. Nor does it act as agent for or have any authority (whether actual, apparent, implied or otherwise) to represent, bind or oblige in any way any other entity or practice that operates under the name Knight Frank (including Knight Frank LLP). Where applicable, references to Knight Frank include the Knight Frank global network.

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In the United Kingdom, Citibank N.A., London branch and Citibank International plc, Canada Square, Canary Wharf, London E14 5LB, are authorized and regulated by the Financial Services Authority. The contact number for Citibank N.A. London branch and Citibank International plc in the United Kingdom is +44 (0)20 7508 8000. In Jersey, this document is communicated by Citibank N.A., Jersey Branch which has its registered address at PO Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission to conduct deposit taking business under the Banking Business (Jersey) Law 1991 and investment business under the Financial Services (Jersey) Law 1998. Citibank N.A., Jersey Branch is a member of the Depositors Compensation Scheme as set out in the Banking (Depositors Compensation) (Jersey) Regulations 2009. Further details of the scheme are available on request.

WELCOME

ANDREW Much has changed since The Wealth is the key driver when buying a SHIRLEY Report was first published by Knight second home for many Asian HNWIs. EDITOR Frank and Citi Private Bank in early On page 41, in one of our exclusive 2007. Indeed, given the small matter HNWI interviews, one of China’s CONTRIBUTORS of a global credit crunch and a richest men explains why it is so This year, we growing number of historic political important to him. ANDREW SHIRLEY can claim an Andrew edits The Wealth Report events, how could the world not be This year, we can claim an even and is also Knight Frank’s head of even better rural property research. He previously a vastly different place? better understanding of what worked in the agriculture sector in In some aspects, it undoubtedly motivates UHNWIs around the world understanding Europe, Asia and Africa. is. Egyptians look forward to a when it comes to their attitudes of what future without President Mubarak. towards wealth and the decisions VICKI SHIEL motivates Vicki is a former journalist and is part of Asia is the world’s new economic that shape their investments. The Knight Frank’s residential research team. UHNWIs She delves into the world of vineyards for powerhouse. Some of the US’s most results of our unique Attitudes Survey this issue of The Wealth Report. renowned banks are no longer are more global than ever before around the in existence. The UK and other and reflect the sentiments of almost world when LIAM BAILEY European countries face some of 5,000 UHNWIs worth on average Liam is head of Knight Frank’s residential it comes to research team and has a special interest in the most stringent government more than $100m each. super-prime property markets around the spending cuts ever seen. The French Property clearly remains close their attitudes world. He is often quoted in the media. may have to retire at 62, not 60. to their hearts. According to the towards But, in the midst of this tumult, survey, it makes up 35% of the RICHARD COOKSON wealth and the Richard is Citi Private Bank’s chief the resilience shown by the world’s average UHNWI’s investment investment officer. He wasThe decisions that Economist’s Japan correspondent and most exclusive residential property portfolio and is their most important founder of its Buttonwood column. destinations remains constant. investment after their own business. shape their In some cases, it has even been Other results from the survey are investments TINA FORDHAM enhanced. Our data on page 60 highlighted throughout the report Tina is Citi Private Bank’s senior political analyst. She was a director at political risk confirms the strength of the and a more detailed synopsis of its analyst Eurasia and is an associate fellow at Chatham House. recovery in prime property values findings is contained in our new in London and New York. The Databank section. RANDALL WILLETTE performance in leading Asian The Wealth Report continues Randall is an expert on the international cities has been nothing short of to evolve. Apart from the extra art market and is the founder and managing director of consultant Fine spectacular. Although, as we explore information in the Databank section, Art Wealth Management. on page 26, this itself is cause for our Prime International Residential new concern. Index on page 26 covers even more JOSH SPERO Josh is editor of Spear’s magazine and is As our wealth distribution map locations this year. There is more also an expert on the rarefied world of the on page 10 illustrates, wealth is once expert insight from leading property ultra-high-net-worth individual community. again being created at a remarkably and investment advisers at Knight rapid rate, especially in Asia. And Frank and Citi Private Bank. And we STEPHEN WALL Stephen is a director of Scorpio the factors that encourage the also reveal the results of our new Partnership, which advises a wide range wealthy to seek out and buy the very Vineyards Index on page 38. of international clients from the wealth management sector. best property in cities such as London I hope you find The Wealth Report have, if anything, become even more interesting and informative more important. than ever before. If Knight Frank Twin themes run through or Citi Private Bank can be of help, this year’s report. The first is the please do not hesitate to get in touch. ongoing rise of Asia. The second is You can find a full list of contacts on the importance of education. This pages 66-67. CONTENTS THE 2011 WEALTH REPORT 6

SIGNPOST MONITOR PERFORMANCE 10 EAST LEADS 26 RICH REVIVAL Attitudes Survey BY STEPHEN WALL Where are the centres of A PLACE IN wealth across the globe? THE WORLD BY LIAM BAILEY

What the wealthy think about Knight Frank’s Prime everything from property to 12 International Residential philanthropy to private jets A YEAR OF LIVING Index reveals the DANGEROUSLY phenomenal growth in PIRI BY TINA FORDHAM Asia’s luxury markets 2011 Turbulence across the world means political risks may trap The ultimate guide to the best prime residential unwary investors in 2011 34 property on Earth HOW THE WEALTH LAND LIES TALK 14 BY ANDREW SHIRLEY BACK TO THE The Knight Frank Farmland Index reveals the state of play Exclusive insight from leading OLD SCHOOL lights and trendsetters in the BY RICHARD COOKSON in agricultural investments world of wealth Established markets could be a better bet for investment than 38 emerging economies LIQUID GOLD BY VICKI SHIEL There are scores of 16 opportunities for winemaking, as the Knight Frank Vineyard Index reveals TALES OF THE CITIES BY LIAM BAILEY 41 New York and London retain the lead in our global cities THE EASTERN index – but for how long? ANGLOPHILE MR XU ‘Korea could be Why English education very interesting 23 is top of the class once North and THE GLOBAL South merge, as ADVENTURER JIM ROGERS they inevitably will’ Why the wealthy wanderer Jim Rogers p23 has headed east THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

PORTFOLIO DATABANK CONTACTS

44 60 66 DATA KNIGHT BY KNIGHT FRANK FRANK VIEW FROM THE TOP The performance of the world’s BY KNIGHT FRANK AND CITI PRIVATE BANK leading prime residential and Our experts pick their best office property markets 67 property investments CITI PRIVATE 62 BANK 50 ATTITUDES SURVEY POWER PLAY BY THE WEALTH REPORT BY ANDREW SHIRLEY What the wealthy think about Which investments will benefit everything from global warming from global change? to investing in Africa 52 THE GOLDEN EGG RACE BY LIAM BAILEY We play fantasy finance 54 ART IN HEAVEN BY RANDALL WILLETTE Why buying artwork should be more business than hobby 57 APRES LE DELUGE MODERATION BY JOSH SPERO Shrewd investment eclipses showy consumption ‘We’ve a big obligation 59 to demonstrate our THE SOCIAL work’s social impact’ CAPITALIST Stephen Dawson p59 STEPHEN DAWSON Smart money for smart causes

MONITOR

GEOPOLITICAL 12 14 16 23 TRENDS AND Flash points Old gold Top towns Eastern promise LOCATIONS Tina Fordham analyses Richard Cookson says Knight Frank reveals Why legendary US the key political investors should not the locations that really investor Jim Rogers UNDER THE risks that could affect turn their backs on matter to the world’s has quit New York MICROSCOPE the wealthy’s established markets in wealthy in its Global for a new life investments in 2011 the developed world Cities Index in Singapore MONITOR GEOPOLITICAL TRENDS AND LOCATIONS UNDER THE MICROSCOPE

10 EAST LEADS RICH REVIVAL

THE HUGE INCREASE IN CHINESE BILLIONAIRES IS LEADING A NEW

RISE IN THE WORLD’S WEALTHY CANADA 251,000

UNITED STATES 2,866,000

STEPHEN WALL SCORPIO PARTNERSHIP DIRECTOR MEXICO 71,000 aking the world’s wealthy as one community, the collective wealth of high-net-worth individuals (HNWIs) shot back up last year by 22% as investment markets rebounded, T COLOMBIA confidence returned and opportunities resurfaced. Wealth creates 10,000 wealth – for those already in the game, the good times were back. Very few needed to work too hard to see their numbers rise again. Our Wealth Distribution Model confirms that the big story is KEY the money now sitting in Asia Pacific – $11tn. While still third behind North America ($13tn) and Europe ($11tn), it is fast catching NUMBER OF BRAZIL HNWIs 147,000 up and contains two of the world’s four largest wealth markets – CHILE Japan ($4tn) and China ($2tn). Bar a huge economic crisis nobody is 19,000 predicting, it will snatch second spot from Europe by the end of the CANADA ARGENTINA 22 29,000 year. North America – and the world lead – is in its sights. The market to watch in the Asia-Pacific region is China. One key metric is the huge rise in billionaires – up 140% over the year. According to Forbes, China was the 35th ranked country by TOTAL MEXICO 9 number of billionaires in 2005. By 2010, it was second. NUMBER OF China may eclipse the US in billionaire numbers before Asia BILLIONAIRES COLOMBIA 2 USA Pacific overtakes North America. That growth may be strengthened 396 BRAZIL by the range of wealth sources driving economic growth. China 16 will see more entering the billionaires’ club, backed by a steadier pool of money that is less at risk from dramatic gains and falls than CHILE 4 that in Russia, for example, with its volatile commodity markets. Other markets aren’t out of the global game, however, with more ARGENTINA 1 to the wealth story than just Asia Pacific. North America remains centre stage, but there is wealth to be made in Brazil, Australia, the NORTH LATIN Gulf states and, boring though it may be, old Europe. AMERICA AMERICA

The data is based on Scorpio Partnership’s proprietary Wealth Distribution Model. This model combines TOTAL HNWI macro-economic and micro-economic data to estimate the ‘true’ spread of wealth across different WEALTH 13 2 countries. The distribution data is based on parametric distributions of wealth, and builds in particular on (US$ TN) the work of Vilfredo Pareto and subsequent academic developments in the fields of both economics and statistics. Parameterisation of the wealth distribution is validated against a number of statistical sources, including data from the IMF, UN, national household surveys, national balance sheets and rich lists. Growth GROWTH IN figures are measured in both real terms and local currencies in order to allow for adjustment for inflation HNWI WEALTH and exchange rate fluctuations. Scorpio Partnership is an international business consultancy firm to the 2010 +15% wealth management industry. www.scorpiopartnership.com +25% THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

UNITED KINGDOM 448,000 RUSSIA 118,000 SWEDEN 49,000 GERMANY 862,000 FRANCE 383,000 SWITZERLAND 222,000 ITALY 179,000 JAPAN 1,650,000 ISRAEL 6,000 INDIA 127,000

SAUDI CHINA ARABIA 477,000 IRELAND 278,000 41,000 SOUTH UK KOREA 42 SPAIN 128,000 143,000 TAIWAN UNITED 104,000 PORTUGAL ARAB JAPAN 16,000 EMIRATES 23 182,000 HONG KONG 57,000 RUSSIA 58 INDIA SINGAPORE 47 219,000

SWEDEN 6

INDONESIA 32,000 GERMANY CHINA 43 72

SOUTH AUSTRALIA AFRICA 174,000 FRANCE 34,000 SOUTH 12 KOREA 10

TAIWAN 27 SWITZERLAND 14

ITALY HONG 11 KONG ISRAEL 7 29

5 IRELAND SAUDI 7 SINGAPORE ARABIA 10 INDONESIA 5 SPAIN 12 5 UNITED ARAB EMIRATES 11 AUSTRALIA 2 PORTUGAL 3 SOUTH AFRICA

EUROPE MIDDLE EAST/ ASIA AFRICA PACIFIC

12 2 11 +20% +5% +35% MONITOR GEOPOLITICAL TRENDS AND LOCATIONS UNDER THE MICROSCOPE 12 A YEAR OF LIVING DANGEROUSLY 2011 HAS ALREADY WITNESSED SOME HISTORICAL POLITICAL EVENTS. CITI PRIVATE BANK’S TINA FORDHAM EXPLAINS WHY WE SHOULD GET READY FOR MORE TURBULENCE

ate last year, we identified 2011 as the Year of FEARS FOR THE FUTURE the Middle East and North Africa (MENA) will almost Living Dangerously. We believed increasing social GLOBAL POLITICAL certainly continue. INSTABILITY Land political upheaval and intensifying sovereign According to Attitudes Survey data, investor concern debt dynamics would converge, testing the strained about the state of the global economy and global political capital of world leaders. political instability increased compared to last year, Events since then have strengthened our view. In across regions. Similarly, the World Economic Forum’s January, a US congresswoman was shot, changing the % Global Agenda Council identified the world’s shifting dynamics of the country’s highly polarised political balance of power as the single most important trend discourse. A middle-class revolution then removed a 63UHNWIs MORE CONCERNED defining the next 12-18 months. These surveys were longstanding leader from power in Tunisia, followed STATE OF THE taken before events in Tunisia triggered a series quickly by Egypt. These developments highlight the GLOBAL ECONOMY of political protests; such sentiment is likely to be potential for rapid political change – and perhaps stronger now. signal the dawn of a new political era. As the post-global-financial-crisis balance between The year 2011 will feature a number of critical government, markets and society recalibrates, political signposts for investors. In the European Union, 80% and social factors will lag economic and financial regional and national elections from Ireland to indicators. At the core are a handful of cross-cutting Germany will determine the trajectory of the euro- themes: anti-establishment sentiment, sometimes zone’s political drama, while fierce partisan tensions leading to new political movements; growing will dominate US budget negotiations, and possibly UHNWIs MORE CONCERNED social tensions; the influence of new technology; trigger another government shutdown. A meeting the globalisation of public expectations; and rising between the US and China will set the agenda for the For more commodity prices, especially food. world’s most powerful relationship. Nigerians will Attitudes Survey How can investors adapt to this complex, fast- results, and to find out vote amidst heightened sectarian tensions and more which global locations moving political environment? One way is to ensure volatile global oil markets. The political unrest in should be on investors’ their investments are politically diversified. radars, see Databank on p60 2011 POLITICAL SIGNPOSTS Few major elections are scheduled for 2011, a welcome respite in the midst of continuing uncertainty. But political volatility in mature democracies will be inflamed by budget and debt limit disputes in the US and austerity and sovereign debt concerns in the EU. As austerity bites, early elections could be triggered in EU member states such as Spain, Portugal and Italy. Some contests in emerging markets could prompt spikes in violence or worse, conflict relapse. ,

Y T NEW US CONGRESS SEATED NEW US CONGRESS OF STATE HEADS EU COUNCIL US BUDGET PRESENTED TO OBAMA BY CONGRESS REDEMPTIONS DUE, DEBT, PORTUGUESE $14BN DEBT $22BN SPANISH IRISH PARLIAMENTARY ELECTIONS EU SUMMIT NIGERIAN ELECTIONS TURKISH PARLIAMENTARY ELECTIONS HEAD APPOINTED NEW ECB ELECTIONS GREEK PARLIAMENTARY EU SUMMIT

JANUARY FEBRUARY MARCH APRIL MAY JUNEJULY AUGUST SEPTEMBER OCTOBER THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

Previously, political risk analysis focused on assessing perceived higher risks in less transparent 0-0- emerging market countries, mainly for developed world investors. RISING FOOD PRICES CYBER WARFARE Since the global financial crisis, the tables Food prices can be a trigger for The advent of cyber warfare have turned. Political risk is evident in both the popular uprisings. At the end of heralds a new era of risk as well developed world – as the role of the state has last year, food price inflation was as new methods for combating expanded – and in emerging markets, where running at 25%. Harvests have it. The Stuxnet virus is thought events in MENA have exploded the myth of TINA been hit by bad weather, and to have eliminated as much as political stability. Investors now need to follow FORDHAM some crops have also become a fifth of Iran’s nuclear capacity national and even regional eurozone elections, CITI PRIVATE BANK’S substitutes for energy in the and slowed its suspected nuclear much as they used to track elections in Brazil SENIOR POLITICAL form of biofuels. programme by years. or Russia. In MENA, initial suggestions that ANALYST Tunisia’s Jasmine Revolution would be an outlier RISK were proved wrong. Instead, it has provided a remarkable demonstration effect for the RUNDOWN phenomenon of ‘people power’, reversing decades As the post-economic-crisis of political apathy. landscape evolves, new and The uprisings in MENA are a reminder that old risks are intersecting, economic growth doesn’t necessarily ensure often in unexpected ways. political stability, especially where gains are overly Here are the most concentrated. Rising food prices – one trigger important for the recent unrest – remain a risk factor that could see a return to the food riots of 2008. But, typically, it is the middle classes and not the poor WAR & TERRORISM PROTESTS & who spearhead revolutions. The same population A major war could set back DEMONSTRATIONS growth and new middle classes in the emerging the global economic recovery, There is increasing evidence markets that prompted so much foreign direct especially if it were to disrupt of rising social tensions investment and helped power growth could now global trade. The risk of and political violence, but bring trade-offs. conflict relapse increases the triggers vary. Austerity The MENA unrest is likely to dominate the during times of falling living measures in many European 2011 political agenda, continuing and possibly standards. Meanwhile the threat countries could prompt larger- worsening before the region stabilises. of terrorism continues scale protests. Violence can For leaders, courage and vision will be key a decade on also be a by-product of greater to tackling these new demands, especially in from 9/11. political polarisation. an era of reduced state resources. For investors, in addition to monitoring political risks more closely, diversification to reduce their exposure to sometimes sudden political upheaval may be NUCLEAR CLIMATE CHANGE in order. PROLIFERATION Changing weather patterns or Curtailing the spread of nuclear one-off environmental events weapons has been a key priority such as floods or drought can for foreign policy for the put crop production and human Obama administration, which populations at risk, especially in sponsored a major international the developing world. gathering on the topic last year. Yet the pursuit of nuclear power by rogue states

S continues. This presents RADICAL POLITICS S

ON a largely hidden and yet New political movements have powerful and potentially lethal sprung from the global ﬁnancial

/ risk at a time when there is crisis: the Tea Party in the US NS a reduced will and means to and a host of ultra-rightwing Tina Fordham is Citi Private Bank’s tackle global problems. parties in central Europe. senior political analyst and has more than a decade’s experience in international policy analysis and political risk assessment. Before joining Citigroup in 2003, she was director of global political risk at the international consultancy Eurasia Group. She is an associate fellow at Chatham House and ARGENTINE PRESIDENTIAL/ ARGENTINE ELECTIONS PARLIAMENTARY PRESIDENTIAL ELECTIONS EGYPTIAN G20 SUMMIT ELECTIONS THAI PARLIAMENTARY ELECTIONS RUSSIAN PARLIAMENTARY chair of its Central and Eastern NOVEMBER DECEMBER Europe task force. MONITOR GEOPOLITICAL TRENDS AND LOCATIONS UNDER THE MICROSCOPE 14 BACK TO THE OLD SCHOOL RICHARD COOKSON SAYS ESTABLISHED LOCATIONS COULD BE A BETTER BET FOR INVESTMENT AT THE MOMENT THAN EMERGING MARKETS

RICHARD COOKSON CITI PRIVATE BANK GLOBAL CHIEF INVESTMENT OFFICER

e are used, are we not, to crises blowing – governments the world over have massively over? That is the lesson of these past loosened fiscal policy. W30 years, from the Latin debt crisis on. At On the face of it, these policies have worked. the 11th hour, helped by aggressive policy action, Growth and consumer spending have mostly the winds die down and the waves of started to pick up. Company profits have soared. the financial world begin to calm. What of this Stock markets have climbed vertiginously since latest episode, probably the greatest financial their nadir in March 2009. Spreads on corporate crisis in history? During the past three years, bonds have almost normalised. Commodity prices policymakers have poured huge amounts of oil on have soared, due in part to growth in the emerging the crashing waters. Developed-world central banks world that has returned with a vengeance. have cut short rates to their lowest level But for many countries, especially those in the in recorded history and where this has been developed world, this is a crisis delayed, not solved deemed insufficient, they have simply printed – there have been many unintended consequences more money. With the private sector refusing that are starting to hurt. The huge fiscal largesse to spend, governments did the job for them has left governments the world over with THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

Problems with emerging markets, such as inflation, are starting to appear in their huge amounts of debt. Since the over-indebted because much of the rest of the emerging world hitherto near- developed-world private sector wouldn’t borrow is, in effect, a proxy China play, thanks to surging cloudless skies and spend, governments did the job for them. But demand for imports, not least of all, commodities. markets have become very nervous about their In 1999, China accounted for 7% of global demand ability to service these debts in one way or another. for industrial commodities; in 2009, the figure The problems are, of course, most acute in the was 46%. eurozone, where countries have lost not just an From an investment viewpoint, all this matters independent monetary policy, but also the ability hugely. Investors have been more than a little to devalue their way to growth. Policymakers have enthusiastic about all things emerging-market for been treating what is, essentially, an insolvency the past couple of years. While this seems sensible problem with expensive liquidity support. That in the long term, given the structural problems in might work for a while, but if those hugely the developed world, inflation that is getting out of indebted countries aren’t growing, borrowing hand is likely to lead to a short-term reassessment rates that are higher than their nominal of the allure of emerging assets. Investors are, growth rates will mean that their debts (and we think, likely to turn again to developed-world worries about them) will continue to mount. assets that they have shunned, especially those in Even those countries that have kept their Europe and Japan. You don’t need to believe that monetary sovereignty are likely to suffer at some such countries are about to start motoring to buy point, for the simple reason that, when it comes to their stock markets; they aren’t. the likes of the US and the UK, the private sector All you need to believe is that it is not only – particularly households – is very likely to carry those countries that have problems – and on deleveraging, because unemployment and therefore that the difference in what, in effect, household debts are still so high, thus providing you pay for growth and value at the moment a drag on growth. You can see this quite simply by is extreme. We think it is. According to our looking at the continued fall in household credit. sums, implied equity returns for even core Of course, such countries could export their way European equities are twice as high as those for to growth – were the emerging world to continue emerging equities. to grow at such a giddy speed. Yet problems are Richard Cookson is the global chief investment officer of Citi Private Bank. starting to appear in their hitherto near-cloudless He started his career as a bond trader for a Japanese bank before moving to skies. Inflation is climbing worryingly fast. Much journalism, including a total of almost 10 years at The Economist, for which he spent three years as its Japan correspondent and was, before he left for of this is food-price inflation, but certainly not all the second time, the paper’s international finance editor and founder of the of it. The fact is that monetary policy is just too Buttonwood column. loose in most parts of the emerging world. China is a big concern here, not only because inflation – For more Attitudes Survey especially house-price inflation – is climbing, but results, and to find out which global locations should be on investors’ radars, see Databank GOVERNMENTS BACKED TO HELP ECONOMIES on p60

HOW WEALTH ADVISERS RATE THE CURRENT ECONOMIC POLICIES OF THE COUNTRY WHERE MOST OF THEIR CLIENTS ARE BASED Africa Europe India Middle North Russia Latin East Asia Global East America & CIS America

They offer a viable and long-term solution to the economic issues facing the country at the moment 33 57 50 38 28 50 10 38 39 They may improve the economic situation in the short term, but do not provide a long-term solution 67 17 19 23 48 50 50 35 33 They will improve an already good economic performance 0 0 31 23 4 0 40 27 18 They are unlikely to have any meaningful impact 0 9 0 8 16 0 10 16 11 They will hamper the country’s ongoing economic recovery 0 13 0 15 16 0 0 0 7 They will make a bad situation worse 0 13 0 0 4 0 0 0 3

THE IMPACT WEALTH ADVISERS THINK THESE POLICIES WILL HAVE ON THEIR CLIENTS’ WEALTH Africa Europe India Middle North Russia Latin East Asia Global East America & CIS America

They will make it easier for my clients to create wealth 33 4 75 50 21 50 45 40 35 The global economy is more important to their wealth than national economic policy 33 40 19 14 24 50 18 37 29 They will make it harder for my clients to create wealth 0 32 6 21 55 0 36 21 29 They could force my clients to relocate 33 24 0 0 0 0 0 2 6 They will actively reduce my clients’ wealth 0 0 0 14 0 0 0 0 1 % of advisers in each region who agreed with the statement MONITOR GEOPOLITICAL TRENDS AND LOCATIONS UNDER THE MICROSCOPE 16 TALES OF THE CITIES

THE DOMINANCE OF WESTERN CITIES IS BEING CHALLENGED BY UP AND COMING CENTRES IN BRAZIL, RUSSIA, INDIA AND CHINA, FINDS LIAM BAILEY THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

A rise up the ranks of global cities is on the horizon for Moscow MONITOR GEOPOLITICAL TRENDS AND LOCATIONS UNDER THE MICROSCOPE 18

THE PRESENT

he Knight Frank Global Cities Euro crisis. As we confirm on page and Australian city living. The rise Survey has become a well- eight, with a HNWI population in London’s ranking may raise a Tregarded monitor of city-level double that of China, German wealth few eyebrows. However, arrival at power shifts since it was created is likely to increasingly influence London’s refurbished St Pancras in 2008. As in previous years, our regional asset price performance. station or to Heathrow’s Terminal objective has been to assess key When we look at Political Power, Five show that London has invested markets across the world in terms we can see a more nuanced version in infrastructure in recent years. of their provision of investment of the West-to-East narrative. The Some of the widespread changes opportunities and their influence majority of risers in this category are in this year’s Knowledge and on global business leaders and claimed by North America. With San Influence ranking, with 32 out of the political elite. Francisco and Toronto leading the 40 cities changing place, can be This year’s survey reveals 14 charge, it appears to be those cities attributed to improved datasets cities sliding down the rankings with most appeal to Asian investors we have been able to rely on this and 16 moving up. The biggest that are seeing improving fortunes. year. However, this volatility is also movements, unsurprisingly, came Singapore’s rise in this category an indication of the level of in our Economic Activity category. might raise eyebrows. The city-state competition between cities that The ongoing West-to-East shift in is a relative minnow in terms of are seeking to exert power through economic might is highlighted by its population, military and global investment in knowledge industries. the fact that eight of the 13 jumps in economic power – its success in The overall winners this year are this area were by Asian cities, led by influencing regional powers is due to a diverse grouping, with Boston, Shanghai and Kuala Lumpur. its skills of coercion and attraction. Munich, Milan, Mumbai and Rio de But the West is not without Rises in our Quality of Life Janeiro among the biggest climbers its successes. Munich’s rise in indicator from Sydney and Zurich in our rankings. At the top of the this category points to the new will no doubt be greeted by weary table, however, there is no change – confidence in Germany – its star acceptance from a world long New York holds the pole it stole from has been rising strongly during the inured to the superiority of Swiss London last year.

THE KNIGHT FRANK GLOBAL CITIES INDEX ECONOMIC ACTIVITY City Rank Rank 2010 2011 Change New York 1 1 0 2011 City Economic Political Quality Knowledge Change London 2 2 0 Overall activity power of life & inﬂuence in ranking Tokyo 3 3 0 Rank 2010-11 Paris 4 4 0 1 New York 1 2 9 1 0 Shanghai 7 5 +2 2 London 2 5 5 2 0 Singapore 5 6 -1 3 Paris 4 6 1 4 0 Hong Kong 6 7 -1 4 Tokyo 3 7 7 3 0 Seoul 9 8 +1 5 Brussels 15 3 11 12 +1 Beijing 8 9 -1 6 Los Angeles 10 16 10 7 -1 Los Angeles 10 10 0 7 Singapore 6 13 18 8 0 8 Beijing 9 4 22 16 +1 9 Toronto 17 20 3 11 +1 POLITICAL POWER 10 Berlin 23 12 2 15 -2 Washington DC 1 1 0 11 Chicago 12 19 15 6 0 New York 2 2 0 12 Washington DC 31 1 12 10 0 Brussels 3 3 0 13 Seoul 8 18 16 14 0 Beijing 4 4 0 14 Frankfurt 11 25 4 20 +1 London 5 5 0 15 Sydney 14 33 13 9 +1 Paris 6 6 0 16 San Francisco 20 23 14 13 +1 Tokyo 7 7 0 17 Hong Kong 7 32 27 5 -3 Cairo 9 8 +1 18 Shanghai 5 17 29 22 +1 Istanbul 8 9 -1 19 Mexico City 29 10 23 25 +2 Mexico City 10 10 0 20 Bangkok 18 14 30 24 -2 21 Moscow 16 31 19 21 +1 22 Zurich 26 39 6 17 -2 23 Munich 25 27 8 30 +3 QUALITY OF LIFE 24 Taipei 13 15 33 31 -1 25 Sao Paulo 19 21 24 29 -1 Paris 1 1 0 26 Buenos Aires 34 11 26 23 +1 Berlin 2 2 0 27 Istanbul 28 9 36 27 -2 Toronto 3 3 0 28 Milan 24 29 20 32 +2 Frankfurt 4 4 0 29 Boston 27 38 21 19 +3 London 6 5 +1 30 Miami 30 22 28 26 -1 Zurich 7 6 +1 31 Cairo 35 8 35 28 -3 Tokyo 5 7 -2 32 Dubai 22 37 37 18 -1 Munich 8 8 0 33 Kuala Lumpur 21 30 32 34 +1 New York 9 9 0 34 Tel Aviv 40 26 17 37 -1 Los Angeles 10 10 0 35 Bogota 38 24 31 39 0 36 Rio de Janeiro 36 35 25 38 +1 37 New Delhi 39 28 38 33 -1 38 Mumbai 32 40 34 35 +1 39 Jakarta 33 34 40 36 -1 40 Johannesburg 37 36 39 40 0 THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

THE FUTURE HOW WE MEASURE THE WORLD espite some improvements China’s rising stars of Beijing and In our attempt to create the most rounded assessment of from our emerging market especially Shanghai. The biggest the locations that matter to the global tribe of footloose Dcities – particularly in the fallers seem set to be Geneva, Zurich, wealthy and influential HNWIs, we have tweaked and Asian behemoths – to some, the top Washington and San Francisco, while improved our survey methodology. As with previous years, of our ranking might look slightly Vancouver falls out of our future top we have considered much more than each city’s share too European and North American 20 entirely. of world financial flows and economic activity – we have in flavour. So what of the future, how The three biggest winners point been convinced of the need to assess political influence, will our list look a decade from now? to a rebalancing within the Brazil, intellectual activity and, critically, liveability. As before, In our Attitudes Survey (page 62), Russia, India and China (Bric) our assessment is divided into four themes, with each city we asked our panel to nominate grouping, with the main cities ranked from one (strongest) to 40 (weakest). Aggregate the leading cities, in terms of their to watch being Mumbai, Moscow rank determines the final position in the survey. importance to HNWIs – both now and Sao Paulo. They look set for a and in 2020. dramatic upswing in their status, ECONOMIC ACTIVITY The most reassuring element to with each expected to climb by First, we consider economic activity – including economic note for New Yorkers and Londoners between six and eight places over the output, income per head, financial and capital market is that the two top spots don’t look next decade. activity and market share, together with the number of set to change over the next 10 years, international business headquarters in each city. although the current chasm between POLITICAL POWER these two cities and the rest is set to DO YOU AGREE WITH OUR GLOBAL CITIES close rapidly (see table below). With RANKINGS NOW AND Broader non-economic influence is captured by our the exception of these two, all else IN THE FUTURE? second measure, which we loosely label political power. HAVE YOUR SAY AT looks set for a total makeover. KNIGHTFRANK.COM/ Here, we calculate the importance of each city to global Some of the established Asian GLOBALBRIEFING political thought and opinion, identifying where power is centres, such as Singapore, Hong held and influence exercised. Our ranking includes the Kong and Tokyo, appear at risk of number of HQs for national political organisations and relative weakening compared to international non-governmental organisations, together with the number of embassies and think-tanks in each city. KNOWLEDGE & THE WORLD’S INFLUENCE LEADING CITIES IN QUALITY OF LIFE City Rank Rank 10 YEARS’ TIME Finally, we assessed the quality of life offered by each city. 2010 2011 Change Rank New York 1 1 0 2020 City Score Percentage change The range of issues considered was extensive and included London 2 2 0 in score from 2010 measures of personal and political freedom, censorship, Tokyo 5 3 +2 1 New York 759 -8 Paris 4 4 0 2 London 611 -16 personal security, crime, political stability, health facilities, Hong Kong 3 5 -2 3 Shanghai 558 +91 public services and transport, culture and leisure, climate Chicago 8 6 +2 4 Beijing 506 +39 Los Angeles 6 7 -1 5 Hong Kong 479 +1 and the quality of the natural and man-made environment. Singapore 7 8 -1 6 Singapore 438 +4 Sydney 11 9 +2 7 Mumbai 225 +118 KNOWLEDGE & INFLUENCE Washington DC 9 10 -1 8 Tokyo 220 -14 9 Paris 129 -46 10 Moscow 117 +23 Next, we consider each city’s knowledge base – 11 Dubai 113 -7 assessing educational status and the number and ranking 12 Sao Paulo 103 +66 13 Zurich 93 -39 of educational facilities. We then consider how well each 14 Geneva 92 -55 city is able to transmit this knowledge – by assessing the 15 Washington DC 91 -29 16 Berlin 84 -15 number of national and international media organisations 17 Sydney 72 -26 and news bureaux, and the international market share of 18 Los Angeles 59 -34 19 Seoul 52 +73 locally based media. 20 San Francisco 42 -54

Our Attitudes Survey asked which will be the world’s SOURCES INCLUDE… leading cities in 10 years’ time. UN, IMF, Foreign Policy Magazine, EIU, Globalization and World Cities Study Group and Network, AT Kearney, Chicago Council on Global Affairs, The Institute for Urban Strategies at The Mori Memorial Foundation, Y/Zen Group. For more Attitudes Survey results, and to ﬁnd out which global locations should be on investors’ radars, see Databank on p60 MONITOR GEOPOLITICAL TRENDS AND LOCATIONS UNDER THE MICROSCOPE 20

CITIES IN FOCUS The Wealth Report asked people living and working in three of the cities going up in our rankings to describe why they are so successful

A dip in the River Limmat is just a short summer stroll from Zurich’s central business district

THE BEST THING TO BECOME A THE BIGGEST ABOUT LIVING IN TRULY GLOBAL OPPORTUNITY ZURICH IS … CITY, ZURICH FOR ZURICH IS … ZURICH NEEDS TO … QUALITY … the absurdly benign … to respect urbanism OF LIFE location, which I think … build upwards rather on a landscape scale. If its might surprise many than outwards to protect population were to rise people who think of it as green areas – Christian Brandle, significantly, it would lose a financial centre. It is an director, Museum of Design, Zurich many of its qualities outdoor city with mountains – Christian Brandle Metropolitan Population* 965,000 on the doorstep – Simon Calder, … rediscover its GDP Per Capita (US$ 2010) senior travel editor, The Independent connectivity. Since the … to continue benefiting 79,500 Economic Activity rank demise of Swissair, it has from the drift away from 26 … that in summertime, I lost its place as a global inefficient, strike-prone, and Political Power rank 39 walk 50m from my office in aviation hub – Simon Calder frustrating mega-cities like Quality of Life rank the central business district London and Paris – Haig Simonian 6 Knowledge & Influence rank to swim in the River Limmat … obsess less about being – Corine Mauch, mayor of Zurich 17 such a small one – Haig Simonian, … that people from all over *Source: citymayors.com (2010) Financial Times bureau chief the world live here and … the city has changed make a real contribution substantially in the past two … well, considering its to urban diversity – Corine Mauch decades due to intelligent growth, Zurich is already legislation and an influx on the path to becoming … to further develop its of global culture. At its a global city – Markus Schaefer strengths as a knowledge best, it achieves an almost society – Markus Schaefer Mediterranean lifestyle, transcending its pragmatic Calvinist roots – Markus Schaefer, co-founder of Hosoya Schaefer Architecture THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

BUENOS AIRES WEALTHY SOUTH BUENOS AIRES CAN MAXIMISE AMERICANS VIEW IS A WORLD ITS GLOBAL BUENOS AIRES LEADER IN … BUENOS AIRES INFLUENCE BY … AS … KNOWLEDGE … commodity markets, due & INFLUENCE … participating in more … the best place to network to Argentina’s agricultural international conferences. in the region – Rodolfo Milesi bounty, namely wheat, soy Argentina joining the G20 and other grains, as well was a positive step forward … a fun destination famous as meat exporting and oil – Michael Luongo, freelance journalist and author for its nightlife, European exploration – Michael Luongo Metropolitan Population* of the Frommer’s Buenos Aires guide 12,924,000 architecture, museums, GDP Per Capita (US$ 2010) theatre and ﬁlm production, … the university experience. 14,000 … pushing forward its Economic Activity rank which few other South Universities such as 34 investment opportunities for Political Power rank American cities can rival Universidad de Buenos Aires global brands and investors – Michael Luongo 11 in the real estate, hotel and (UBA) and Universidad Quality of Life rank Torcuato Di Tella (UTDT) 26 infrastructure sectors – Rodolfo … a good city to live in. Knowledge & Inﬂuence rank Milesi, Branding Latin America receive students from all 23 Buenos Aires’ cultural over Latin America – Belen Olaiz, … promoting its cultural background and knowledge base is spread offerings and cuisine – Ariel S. … lifestyle. I have never met Gonzalez Levaggi, executive director, Argentine internationally – Belen Olaiz, anyone who hasn’t enjoyed Centre of International Studies research analyst, Citigroup it here – Rodolfo Milesi

THE THE BIGGEST CHINA’S IMPROVEMENT LONG-TERM ECONOMIC IN SEOUL’S ECONOMIC RISK AND POLITICAL SEOUL ECONOMY OVER FOR SEOUL IS … INFLUENCE ON ECONOMIC RECENT YEARS IS SEOUL IS LIKELY ACTIVITY DUE TO … … the appreciation of TO … the Won – Lawrence White … its weak currency … grow significantly, allowing strong exports, … the policies of the notably through its close until it began appreciating US government – Jim Rogers,, relationship with North Metropolitan Population* investor and author 24,472,000 in 2010. Other factors Korea. China is Korea’s most GDP Per Capita (US$ 2010) include high demand important economic trading 24,200 … the first risk is inflation. Economic Activity rank for technology partner, followed by Japan 8 – Lawrence White, Asia editor, Euromoney Second is North Korea’s – Zed Kim Political Power rank magazine and then the USA 18 threat. Third is uncertainty Quality of Life rank in real estate – Zed Kim 16 … the strong IT and … increase, in as much as Knowledge & Influence rank manufacturing industrial China is becoming more 14 … the ageing population. influential to everyone, but growth, especially in mobile, The high rise both in semiconductor, auto and Seoul is not as reliant on healthcare costs and China as some other Asian shipbuilding sectors – Zed Kim, national pension payments managing director, Knight Frank South Korea countries – Lawrence White may damage the nation’s … the steady increase fiscal health – Dalho Cho … grow, especially when in consumption the North and South merge, – Dalho Cho, research fellow, Seoul Development Institute which I envisage will occur within five years – Jim Rogers (see page 23 for more from Mr Rogers) MONITOR GEOPOLITICAL TRENDS AND LOCATIONS UNDER THE MICROSCOPE 22

For more Attitudes Survey MAPUTO, MOZAMBIQUE TAIPEI, TAIWAN results, and to find out WOULD SUIT: Beach-loving, WOULD SUIT: Fans of skyscrapers which global locations risk-hungry investors. and high-speed trains. should be on investors’ Capital of one of Africa’s best- Claimed tallest building, Taipei 101, radars, see Databank performing economies. Average until Burj Dubai opened in 2010. on p60 GDP growth of 8% between 1996 Bullet trains cut travel times by 60% and 2008. Similar expected in or more. Long-standing tension 2011. Busy port. $1.2bn waterfront with China easing. 2010 trade redevelopment with five-star pact described as most significant Radisson Blu hotel. Close to the best agreement in 60 years of separation. beaches on the Indian Ocean. GDP forecast to grow 9.3% this year. 8 7 8 8 6 6 THE ENTREPRENEUR SUZHOU, CHINA WOULD SUIT: Wedding 1 entrepreneurs. SHANGHAI Close to Shanghai. Popular with 2 overseas companies. Possibly most HONG KONG affluent city in China. Per-capita 3 income three times interior cities. Big BEIJING silk producer and hub for wedding 4 dress design, manufacturing and NEW YORK merchandising. Renowned market 5 with 700 wedding-related outlets. MUMBAI Known as Venice of the East. 6 SINGAPORE 8 3 6 7 LONDON MACAU, CHINA ULAN BATOR, MONGOLIA 8 WOULD SUIT: Gamblers. WOULD SUIT: Mining SAO PAULO Dubbed Las Vegas of the Orient. investors who like the cold. 9 World’s largest casino hub. Only Temperatures can plummet to -50˚c. SAN FRANCISCO legal gambling city in China. Casino Louis Vuitton unexpectedly opened 10 revenue surged 33% in January. a two-storey shop in 2009*. Massive PALO ALTO Luxury footprint more than doubled mineral reserves. Huge overseas in 2010 as Cartier, Bvlgari and investment interest. Predicted Burberry opened stores for wealthy as next Asian Tiger economy or Chinese gamblers*. Exclusive “Mongolian Wolf”. IMF predicts hotels including The Venetian and double-digit annual growth for years THE MGM Grand. to come. HEDONIST New York – is 7 9 6 7 6 4 1 the Big Apple NEW YORK the best location ASTANA, KAZAKHSTAN 2 for wealthy WOULD SUIT: Budding HONG KONG hedonists? oil magnates. 3 Key central Asia location. Huge TOKYO energy resources. Capital city 4 since 1997. Reported $30bn spent PARIS since. One of the world’s fastest- 5 growing cities. Designated Special LONDON Economic Zone. Growing number 6 RIO DE JANEIRO, BRAZIL of impressive architectural projects. SHANGHAI WOULD SUIT: Glamour-seeking World’s highest tensile structure, 7 sports enthusiasts. Norman Foster’s Khan Shatyr RIO Host city for the 2014 World Cup entertainment centre, opened 2010. 8 and 2016 Olympics. Development BARCELONA projects are numerous. 7 6 4 9 Copacabana’s Museum of Image SYDNEY and Sound, designed by New York 10 architects Diller Scofidio + Renfro, DUBAI COOL AND opening 2011. Income growth of 6.2% and employment growth of 3.2% in 2009-10.

6 9 7 THE COOLER BAKU, AZERBAIJAN ROMANTIC WOULD SUIT: Investors seeking stake in abundant mineral resources. 1 Azerbaijan’s profitable trade PARIS THE KNIGHT FRANK HOT LIST relationship with China has seen its 2 capital prosper. Growing HNWI DOHA, QATAR NEW YORK THE WEALTHY’S CHOICE OF population. Luxury brands including WOULD SUIT: Football fans 3 Bvlgari, Cartier and Gucci opened looking for the next Gulf hot spot. LONDON LOCATIONS FOR BUSINESS, FUN stores in 2010*. Iconic Flame Towers World’s richest country per capita. 4 complex from the Fairmont hotel Massive energy reserves. 2022 ROME group opens this year. World Cup host. Official estimated 5 AND ROMANCE SPRUNG infrastructure spend around $55bn TOKYO 7 7 5 in next decade, but could reach 6 FEW SURPRISES. SO VICKI SHIEL $86.5bn. 2010 Arab Capital of SYDNEY ISTANBUL, TURKEY Culture. Home to film festivals, 7 SCOURED THE WORLD TO FIND WOULD SUIT: Culture lovers. museums and landmark architecture. SHANGHAI 2010 European Capital of Culture. 8 SOME NEW LOCATIONS Istancool annual festival of fashion, 7 3 5 HONG KONG film, art and literature. Le Meridien 9 Istanbul Etiler opening this year. Sources: The Economist, SAN FRANCISCO World’s best-performing city Bloomberg, World Bank, IMF, 10 Best for business? Shanghai. For hedonism? New York. For in terms of income (5.5%) and *Ledbury Research VANCOUVER employment growth (7.3%). Burberry www.ledburyresearch.com romance? Paris. The results of our Attitudes Survey were a little opened three new stores in the city All location ratings are arbitrary. predictable (see left). The top location in our Hot List, Maputo, in 2010*. If you beg to differ then have your say at www.knightfrank.com/ ticks all the boxes (see right). 6 6 8 globalbriefing THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

THE GLOBAL ADVENTURER OUR GLOBAL CITIES INDEX REVEALS THAT EASTERN CENTRES ARE FIGHTING WESTERN DOMINANCE. LEGENDARY US INVESTOR JIM ROGERS TELLS ANDREW SHIRLEY WHY HE MOVED HIS FAMILY FROM NEW YORK TO SINGAPORE

WEALTH Jim Rogers likes to go you understand the implications of 35% of its income and people work TALK against the flow. His those changes. from dawn to dusk – it has a lot of reputation as one of things going for it. the world’s leading AS China’s GDP is fast catching up to contrarian investors is well earned. the US’, but will the region’s major ‘Korea could AS How do you view other locations The Quantum Fund, which he investment hubs such as Singapore, in the region – do any have the same co-founded with George Soros in Hong Kong and Shanghai ever rival be very potential as China in your view? You 1970, was one of the first truly London and New York as the world’s interesting have been quite downbeat about international investment funds and leading cities? once North India, for example. Why is that? gained 4,200% in value during its JR Absolutely. We have seen a and South JR Vietnam looks promising. Korea first 10 years. Christened the ‘Indiana gigantic volume of assets move to could be very interesting once North Jones of Finance’ by Time magazine, these cities. The statistics are mind- merge, as they and South merge, as they inevitably his adventurous approach to life boggling. The largest creditor nations inevitably will’ will. India is not a real country – it’s extends beyond his investments: he are in Asia now. Hong Kong is already something that the English has twice driven around the world, the largest IPO centre in the world. pushed together. once on a motorbike and once by car. A firm believer in the economic AS Do you think human-rights AS How do you view property as future of China and certain other issues, lack of political freedom or an investment? developing Asian nations, Mr even democracy will hold these cities JR I am very optimistic about Rogers moved with his family to back from really leading the world? farmland. There are staggering Singapore in 2007. He is downbeat JR Certainly there are struggles amounts of untouched potential about the economic future of the US. for human rights and there will be farmland in Brazil, the Ukraine setbacks along the way, but China and parts of Eastern Europe. And in ANDREW SHIRLEY Many people and other parts of Asia are opening some parts of Africa … oh my God, talk about the rise of Asia, in up more and more, while the US you sit by the road, plant something particular China, but few actually is starting to close up. Societies and it will start growing. Farmland go there to take advantage of the evolve. In the 19th century, the US in Africa offers untold wealth. trend. Why did you feel that it was had little rule of law, there was lots necessary to move to Singapore? of deprivation and you could buy AS What has been your JIM ROGERS The main reason was and sell politicians, but the country best investment? so that my children would grow up survived and had a pretty good 20th JR My two little girls and teaching speaking Mandarin and learning century. But now I don’t think you them Mandarin. about China and its culture. If it can say that the US is a freer and was just a case of buying and selling fairer society than it was 10 years ago. AS And the worst? commodities or stocks, I could do It’s the sort of thing that could bring JR I’ve made plenty of mistakes, I that just as well from back home. the country down. sold oil short just before Saddam Moving here was an investment in invaded Kuwait, but the worst has to my daughters’ futures. AS What is it about China that be my first wife. The divorce cost me particularly impresses you as an a couple of years of my life. AS Did travelling around the investment opportunity? world twice create a fundamental JR In my view, China is going to be AS What’s your advice to those who change in the way you viewed your the most important country of the want to become HNWIs? investment strategy? 21st century. The 19th century was JR Buy low, sell high. Be curious and JR It makes you a better investor the century of the UK and the 20th be sceptical. And make sure that your if you know the world. Being in century was the century of the US. children and your grandchildren are countries that are changing helps China’s population saves and invests WWW.JIMROGERS.COM fluent in Mandarin. PERFORMANCE WEIGHING UP THE WORLD’S MOST EXCITING PRIME PROPERTY MARKETS 26

TERNATIO IN N E A L M I R R E

P S

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D ’

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T A

2011 L

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I E N X A PLACEK IN THE WORLD

KNIGHT FRANK’S PRIME INTERNATIONAL RESIDENTIAL INDEX (PIRI) IS THE WORLD’S MOST COMPREHENSIVE ANALYSIS OF LUXURY RESIDENTIAL PRICE TRENDS. ENCOMPASSING MORE THAN 80 LOCATIONS IN 40 COUNTRIES, IT REFLECTS A GROWING NEED TO THINK INTERNATIONALLY, SAYS LIAM BAILEY THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

performance suggests and our summary micromanagement to cool overheating charts overleaf confirm, last year was not housing markets, which had tentatively a one-way bet for those investing in these started in Hong Kong and China, was about markets. Later, we consider the longer-term to go global. It did. outlook for the tax-driven markets, and delve The major Asian markets led the way with into two themes that drive luxury market higher stamp duty, tighter rules on mortgage performance – education and second homes. accessibility, limits on the size of investment While prices rose last year in 37% of the portfolios and strong incentives to increase markets we track, there is no disguising the new-build housing volumes. In Vietnam, fact that the global residential market, even ‘Decree 71’ in August last year effectively the luxury segment, is feeling some significant stymied off-plan sales to investors, and in aftershocks from the global financial crisis. Australia, new rules have bolstered existing In cities as diverse as Dublin, Chicago, Los limitations on foreign investment. Angeles, Hanoi and Abu Dhabi, oversupply EU governments would find it very and falling prices underline the readjustment difficult, if not impossible, to push through LIAM BAILEY for once-booming markets. In Edinburgh, stringent legislation affecting property KNIGHT FRANK’S HEAD OF the restructuring of the financial sector and ownership rights. Instead, they have RESIDENTIAL RESEARCH tightening access to credit are acting to limit concentrated on mortgage market reform sales volumes in the prime market. and, in the case of Finland and Spain, the reduction or elimination of tax benefits lmost a quarter of Citi Private Bank’s PAGE 28 for owner-occupation. European clients believe that they THE KNIGHT FRANK In other countries, the lingering Acould be forced to relocate their PIRI INDEX after-effects of the 2008 crash mean that principal residence as a result of national governments are actively considering ways of economic and taxation policies. Our Attitudes PAGE 29 boosting the market. Ireland, the US and the Survey also reveals that up to 37% are actively THE BIG THEMES UK are prominent examples of markets where considering buying a second or third home AFFECTING governments are struggling to balance the in 2011. That is why, when it comes to luxury PRIME PROPERTY need for restraint from previously bad lending residential property, it is crucial that everyone PERFORMANCE practices with the need to encourage the involved thinks globally. banks to lend more money. At first glance, the strongest markets in PAGE 32 In much of the Middle East, and most 2010 were Shanghai, Singapore and Mumbai, LUXURY MARKET obviously in Dubai, governments are working all with strong double-digit growth. The PRICING IN DETAIL hard to underpin their residential markets concern in these markets, and others in Asia – with new investment in infrastructure and especially Hong Kong – is the impact of PAGE 32 employment opportunities. the huge new volume of investment funds WHERE THE WEALTHY in the market after ongoing global ARE BUYING OUTLOOK FOR 2011 quantitative easing. Real concerns have To my mind, while Asia continues to dominate developed among the region’s governments in terms of activity and price performance, over asset price bubbles. Their response is the real success stories in 2010 confirm the considered below. For more advantages of a global brand and a diversity Demand from investors has been Attitudes Survey of demand requirements. London, New York results, and to find out pushed even higher in Asia as a result which global locations and Paris have seen strong demand, and of underpriced local currencies, should be on investors’ reasonably robust price growth. especially when considered against radars, see Databank Demand for second homes has been on p60 the US dollar. Currency has become a A market more dependent augmented by employment, education and significant issue in determining prime on global trends creates increased lifestyle-driven purchases. This has led to market performance. While the euro did risks for investors. It isn’t just financial double-digit growth in these markets, despite weaken during 2010, the pound remained so drivers – currency movements, interest ongoing national market uncertainty. weak for so long it undermined the market rates and wealth shifts – that dictate market To assess the future luxury-home hotspots, recovery in several parts of Europe where performance. Political and security concerns we have assembled a world map of global the British second-home buyer has stayed are also assuming a more critical relevance market demand. Our map, on page 32, shows away – noticeably in Spain, Portugal and Italy. for purchasers. These have occurred most the centres of demand for the world’s wealthy. Conversely, London’s recovery has been aided recently in the Middle East, but also in Asia It has been said in previous editions of to a large extent by the affordability that – Bangkok suffered in 2010 from political TheWealth Report, but I believe it is worth sterling’s weakness offers international buyers. instability. This had a dramatic impact on the saying it again: tried-and-tested markets with Low-tax jurisdictions, which might have level of foreign investment. security of infrastructure and political and expected to capitalise on the back of perceived legal stability will outperform in the long- and actual wealth attacks in the major GOVERNMENT CONTROL term. No market is immune from a crisis, but economies, saw an increase in interest from In last year’s Wealth Report we predicted these tend to have a depth of demand that buyers. But, as Jersey and Guernsey’s divergent that the trend towards government creates a true liquid investment. PERFORMANCE WEIGHING UP THE WORLD’S MOST EXCITING PRIME PROPERTY MARKETS 28 TERNATIO IN N E A L M I R R E

P S PRICE CHANGE 2010

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A 1 Shanghai China +21

A 2 Mumbai India +20

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E 4 Helsinki Finland +18 N X K 5 Bangalore India +17 6 Paris France +15 7 Hong Kong China +15 8 New York US +13 SHANGHAI 1 9 Manila Philippines +12 10 Guernsey Channel Islands +11 11 Munich* Germany +11 12 London UK +10 13 Gaborone Botswana +10 14 Beijing China +10 15 Bali* Indonesia +10 16 Marrakesh Morocco +10 17 Auckland New Zealand +10 18 Geneva* Switzerland +9 19 Panama City Panama +8 20 Berlin* Germany +7 21 Ho Chi Minh City Vietnam +7 22 Kuala Lumpur Malaysia +7 23 Home Counties UK +5 24 Jakarta Indonesia +3 25 Bangkok Thailand +3 26 Brussels Belgium +2 27 Hanoi Vietnam +2 28 San Francisco* US +2 29 Christchurch New Zealand +1 30 Moscow Russia +1 31 Rome Italy +1 32 Lausanne* Switzerland 0 33 Black Sea coast Bulgaria 0 34 Phnom Penh Cambodia 0 35 Dubrovnik Croatia 0 36 Cyprus Cyprus 0 37 Dominican Republic Dominican Republic 0 MUMBAI 2 SINGAPORE 3 38 Cap Ferrat France 0 39 St Tropez France 0 40 Cannes France 0 41 Chamonix France 0 42 Val d’Isere France 0 43 Megeve France 0 44 Courchevel France 0 45 Meribel France 0 46 Provence France 0 47 Grimaud France 0 48 Gascony France 0 49 Lake Como Italy 0 50 Amalﬁ Coast* Italy 0 51 Monaco Monaco 0 52 St Kitts and Nevis St Kitts and Nevis 0 53 Phuket* Thailand 0 54 Alderney Channel Islands 0 55 Lusaka Zambia 0 56 Zurich* Switzerland 0 57 St Petersburg Russia -1 58 Abu Dhabi UAE -2 59 Chicago US -2 60 Los Angeles* US -4 61 Marbella Spain -4 PRIME MARKET PRICE CHANGE 62 Edinburgh UK -4 63 Barbados Barbados -5 64 British Virgin Islands British Virgin Islands -5 WORLD REGIONS MARKET TYPES 65 Dordogne France -5 66 Valbonne France -5 67 Cortina Italy -5 68 Tuscany Italy -5 NORTH 69 Venice Italy -5 AMERICA EUROPE 70 Florence Italy -5 71 Sardinia Italy -5 +2.9 -0.7 MIDDLE 72 Mustique Mustique -5 +2.1 CARIBBEAN -1.2 EAST ASIA 73 Central Algarve Portugal -5 +4.2 74 Madrid* Spain -5 -0.8 -3.0 CITY SKI SUN TAX 75 Sydney Australia -5 -3.8 AFRICA -6.0 +7.9 76 Kiev Ukraine -5 +2.4 -1.0 -1.3 -0.4 77 Umbria Italy -6 SOUTH +3.0 +3.6 0.0 -1.7 -2.2 78 Cayman Islands Cayman Islands -8 AMERICA +6.7 79 Western Algarve Portugal -10 80 South-west Mallorca Spain -10 +3.0 81 Ibiza Spain -10 +8.0 82 Dubai UAE -10 83 Jersey Channel Islands -10 June to December 2010 % Year to December 2010 % 84 Frankfurt* Germany -19 85 Dublin Ireland -25

*Munich, Berlin, Frankfurt – % changes based on Q2 2010 data. All Piri data Knight Frank except: Alderney, Mitchells and Partner Ltd. Aspen, BJ Adams and Company. Black Sea Coast, Black Sea Bali – % change based on vacant land and completed villas only, not apartments. Investment Trust. Chicago, Baird and Warner. Cyprus, Cybarco. Dubrovnik, Sanevis LLC. Guernsey, Swoffers. Helsinki, Orava Funds Geneva, San Francisco, Zurich, Lausanne, Los Angeles – % changes (Oikotie Orava Index). Jersey, Le Gallais Estates. Marbella, Diana Morales Properties. Marrakesh & Manila, Kingdom Hotels Investment. based on Q3 2010 data. New York, Prudential Douglas Elliman in conjunction with Miller Samuel. Orlando, Tavistock Group. Tokyo, Colliers Halifax. Ulan Bator, Amalﬁ Coast – limited data available due to largely private sales. Asia Paciﬁc Investment Partners. Vancouver, Sotheby’s International Realty Canada. Zurich and Geneva, Wuest & Partner. Madrid – % change based on asking prices given the lack of public information regarding closing prices. Phuket – new developments only. THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

location in Asia has developed such a global EXPERT VIEW spread of demand. SECOND HOMES Top-end villas in Bali now command $10m and above – an indication of how the Demand for second homes by broader Asian second-home market will wealthy buyers has been a central develop. Some markets, especially in China, driver of residential price growth will remain domestic in appeal; other luxury in European, Caribbean, and second-home hubs will be globally attractive North American sun- and snow-belts and will compete head-to-head with the more over the past two decades. Knight established US and European destinations. Frank estimates that more than 80% of all global second-home ASIAN BUYERS WILL properties are found in these locations. LOOK ABROAD However, with rapid growth in Rohit Talwar, global futurist and the wealth and property investment in founder and CEO of Fast Future Research Asia, are we set to see the world’s As Asia’s economic miracle develops, there most populous continent take are some trends that we can be confident will over as the luxury second-home develop along the lines already established hotspot? in the West. For example, the desire for Asia’s new middle class to buy a house, own a car, eat out and take foreign holidays is a given. EXPECT A GLOBAL Vietnam, has seen buyers from Europe It is when affluence turns into serious REBALANCING and the US looking to buy before the market wealth that significant differences in Matthew Georgeson, matures. Cambodia is a new market but approaches between one part of the world head of sales at Elite Havens, Bali is again seeing very strong interest from and another become apparent. It is still rare, There is no doubt that the Asian second- adventurous Asian and European buyers. for example, for wealthy Asians to buy second home market is smaller and, in some ways, In China, Hainan Island has become homes in their domestic markets. almost embryonic when compared to rapidly established as a key second-home Why the difference? Asians have a thirst the highly established European and US market – although it tends to be dominated by for travel and for foreign investment, which market hotspots. Chinese buyers with few other nationalities in encourages wealthy purchasers to look to Outside of Bali and Phuket, there are the market. The example of the Japanese ski Europe, North America or the Middle East. few significant markets in Asia that resort of Niseko, points to the future of Asian The certainty regarding property titles and the compare to the likes of Florida, the Cote second-home markets, where the addition of high regard for property rights in countries d’Azur, Tuscany, Barbados or London excellent infrastructure, lifestyle amenities such as Canada, the UK, Australia and New as second-home destinations for the and high build-quality is attracting buyers Zealand are also a significant draw. world’s wealthy. from Australia, New Zealand and China, as That said, it appears that investment, That said, the situation is changing very well as generating very high prices. rather than lifestyle, is driving most property quickly. There is rapid growth in the number However, to experience the most purchases by wealthy Asian buyers in of new locations of interest to the wealthy interesting trends in the second-home market Singapore, Kuala Lumpur, Goa, Malaysia second-home buyer. in Asia we really need to look to Bali. No other and Thailand. PERFORMANCE WEIGHING UP THE WORLD’S MOST EXCITING PRIME PROPERTY MARKETS 30 TERNATIO IN N E A L M I R R E

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with UK and US international schools to act as In terms of where the children go, the EXPERT VIEW neighbourhood schools, driving demand and established view used to be safe, traditional EDUCATION property values. The development of high- England for girls and the competitive and quality international schools in China and driven US for boys. Now the divide is more In 2010, almost 63% of all new-build across the emerging markets is a trend that based on age – England for schooling and the flats in central London were sold to has a long way to run. US for university. international buyers. After investment, International schools are able to offer In terms of property takeover, this demand the single biggest driver of demand places only to non-residents of the country for schooling has a huge impact. If you send for these buyers was the desire from in which they are located. So the presence of your 11-year-old to school in, say, London or parents to provide accommodation for a growing number of international schools Boston, and potentially on to university, you’re expat students during their studies. in China does not stem the flow of wealthy making a decade-long investment there. The Top-tier universities are helping to Chinese pupils to Europe or the US. purchase of a house nearby for holidays and shape residential market demand, The quality of education in China and the the requisite bimonthly mother’s visit is a and with elite schools acting to pull rest of Asia is improving at a rapid pace and, natural step. As a long-term investment, it also in requirements for luxury housing on several measures, compares very favourably makes sense for the purchaser. in cities across the US, the UK, New with the best on offer in the West. But my At university level, a property for children Zealand and Australia, education has feeling is that despite this rapid growth in to live in is an obvious step to take and a become one of the most significant supply in Asia, there will not be a weakening very popular investment option. Anecdotal forces driving property performance. in demand for the home schools in the UK or evidence indicates that the condition of US. Growth in global wealth should ensure property markets can be an influencing factor demand for the best institutions globally. when universities are being assessed. EDUCATION IS BECOMING So where will the next locations be that A GLOBAL SERVICE INTERNATIONAL this potent education and property mix will Matthew Farthing, SCHOOLING IS PART hit? While the UK and the US are already way headmaster of Harrow Beijing OF A BIGGER TREND ahead, Canada, Australia, New Zealand, Since we opened Harrow Beijing in 2005, Rupert Hoogewerf, Hong Kong and Singapore, and even France we have noted how important it is to have publisher of the Hurun Report and Switzerland, are rising in popularity. a school located close to the villa areas that are The Chinese entrepreneurial classes are With China investing heavily in popular with more affluent and international increasingly looking to secure an overseas domestic education facilities and with more communities. The impact of schools on the education for their children (see our international education expertise coming into desirability and house rental or purchase interview with billionaire Mr Xu on page the country, one could say this educational costs of this admittedly already rather popular 41). It used to be that a postgraduate degree exodus will be reversed in time. There is one neighbourhood has been significant. There would be an acceptable level of international great reason why I think this will not happen. has been a growing demand from parents to exposure. Now, children of dollar millionaires Education is only part of the appeal of secure property near to the school. will be sent overseas from the age of 16 to UK the international route. The Chinese have The fact that schools can have a positive sixth forms or US high schools. This will be an almost universal desire to become global impact on demand for property is being taken followed by an undergraduate degree. Those citizens, which requires a foreign passport very seriously in several locations across worth more than $10m now have a growing and dual nationality. Sending your children to Asia and the Middle East. In these examples, tendency to send their children away to school school in another country and adding inward developers are trying to secure partnerships at 11. investment help hugely in securing this status. THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

At the individual level, of course, they offer old-fashioned view of their role as centres of EXPERT VIEW lower taxation to residents and investors. But, financial secrecy and tax avoidance. TAXATION more importantly, for lots of people who have LTJs are succeeding and prospering because a very international lifestyle, with business they have specialised in the provision of niche, Rising wealth taxes in the UK and and property interests across the globe, they complex and high-value-added financial and Europe have led to reports of fleeing offer a degree of certainty and permit a professional services. financiers opting for a lower tax bill in rational way of conducting one’s tax affairs. Our remit at the OECD is to push LTJs to Switzerland, Monaco or the Channel In addition, while not generally recognised, recognise the concerns of the members of our Islands. The media thinks this wealth the majority of investors and retirees across Global Forum and to encourage the adoption flight will lead to a depression in the world have part of their investments held of new internationally agreed tax standards. property values in London, Frankfurt in an LTJ. This is a powerful process; behind the forum and Paris. Certainly, a surge in prices Ironically, the pressure from the bigger stands the G20, which is committed to in the low-tax destinations points economies for greater transparency has ensuring that LTJs comply with tax standards. to the close link between taxation pushed LTJs further into the mainstream of LTJs have the potential to continue to of the wealthy and prime property economic activity and they have become more offer a valuable range of services to performance. With governments relevant to more people. We have seen individuals and businesses, and their piling pressure on ‘tax havens’, are a growing globalisation of activity in LTJs, with relevance to the global economy is arguably property markets in these and other new clients from emerging markets finding higher now than for some time. However, low-tax locations safe long term? that the services offered fit their requirements significant changes to taxation are occurring very well. This is particularly so in the context at a global level which, over the long term, of the increasing volatility of formerly stable could impact on the attractions of the LTJ, LOW TAX JURISDICTIONS and sound economies. For example, there has especially for residency. ARE SET TO BOOM been a noticeable growth in South American Despite a recent tightening in response to Charles Douglas, Charles Douglas interest in New Zealand as a favoured centre the global recession and unparalleled levels Solicitors, London and an increase in interest from India in of public debt, the direction of travel for There is such a high level of – admittedly the Isle of Man, the Channel Islands and most Western economies has been towards understandable – media animosity to the Mauritius. The outlook for LTJs as destinations a reduction in direct taxes and an increase concept of a low-tax jurisdiction (LTJ), that for, and administrative centres of, wealth is in indirect taxation. As an example, 30 years we often ignore the question of whether more than safe. ago, average taxation on corporate profits they have anything positive to offer the in developed economies was 50% – now it is global economy. TAX HAVENS MUST PLAY 26%. For taxes on personal income, the typical To my mind, the answer to that question BY THE RULES higher rate 30 years ago was 70% – now it is is undoubtedly yes. At a macro level, LTJs Jeffrey Owens, director of the Centre for rarely higher than 40%. facilitate very easy methods for cross-border Tax Policy and Administration, OECD Our view is that this broad shift in business. They provide a degree of privacy, If LTJs existed purely to siphon tax revenues taxation, away from personal income and rather than secrecy, that is welcomed by away from the larger economies, then they corporate profit and towards consumption many businesses, and which is hugely would have no future. is to be welcomed, and will contribute to beneficial to businesses undertaking The reality is that, over the past two an ongoing reduction of the pressure on complex and protracted negotiations decades, leading LTJs have shifted their individuals and businesses to seek or restructuring. activities far beyond what is now a rather a traditional tax haven option. PERFORMANCE WEIGHING UP THE WORLD’S MOST EXCITING PRIME PROPERTY MARKETS 32

WHAT $1M BUYS WHERE THE WEALTHY WANT TO BUY AND MOVE TO (SQ M) The network of international prime property sales is becoming increasingly complex.

Kuala Our Attitudes Survey asked wealth advisers where their clients were considering buying Lumpur200 a second home or relocating to permanently. Our map reﬂects the activity.

Dubrovnik156

NORTH AMERICA % LATIN AMERICA % EUROPE % RUSSIA & CIS % Venice 80 SECOND- France 17 United States 48 United Kingdom 28 France 42 HOME Mexico 12 Spain 18 France 24 United Kingdom 25 Barbados98 PURCHASES United Kingdom 9 France 13 United States 18 Italy 25 United States 8 United Kingdom 8 Switzerland 12 Monaco 8 Mumbai58 Italy 7 Canada 3 Spain 9 26 Canada 7 Argentina 3 Monaco 4 Courchevel Where the wealthy Costa Rica 6 Switzerland 2 United Arab Emirates 2 New York44 from different parts Hong Kong 4 Bahamas 2 Italy 1 of the world buy New Zealand 4 Panama 2 Thailand 1 London18 second homes Bahamas 4 Guernsey 1 Bermuda 4 Barbados 1 Australia 3 onaco M 15 Ireland 2 China 2 Nicaragua 2 Panama 1 St Kitts and Nevis 1 LUXURY MARKET PRICING Brazil 1 Belgium 1 Spain 1 RANK LOCATION COUNTRY US$/SQ M Monaco 1 1 Monaco Monaco 65,600 Argentina 1 2 London UK 56,300 Virgin Islands 1 3 Cap Ferrat France 54,600 St Lucia 1 4 St Tropez France 40,800 Malta 1 5 Paris France 40,500 Jamaica 1 6 Courchevel France 38,800 Chile 1 7 Cannes France 31,900 8 Tokyo Japan 28,300 9 Hong Kong China 27,300 10 Singapore Singapore 27,100 11 Cyprus Cyprus 25,100 12 Sardinia Italy 24,000 13 Guernsey Channel Islands 23,900 14 Geneva Switzerland 23,700 15 Aspen US 22,900 16 Moscow Russia 22,800 17 New York US 22,600 18 Cortina Italy 21,600

19 Mustique Mustique 21,500 20 Meribel France 20,000 21 St Petersburg Russia 18,600 22 Rome Italy 18,200 23 Shanghai China 17,700 24 Megeve France 17,500 25 Mumbai India 17,100 26 Salcombe UK 16,400 27 Beijing China 16,000 28 Helsinki Finland 15,500 29 Jersey Channel Islands 14,400 30 Lake Como Italy 13,700 31 Florence Italy 13,700 NORTH AMERICA % 32 Venice Italy 12,500 CHANGING Canada 10 33 South-west Mallorca Spain 12,500 COUNTRY OF Switzerland 9 34 Sydney Australia 11,500 RESIDENCE United Kingdom 8 35 Chamonix France 11,400 France 7 36 Madrid Spain 10,500 Mexico 6 37 Barbados Barbados 10,200 New Zealand 6 38 Tuscany Italy 9,600 Where the wealthy Cayman Islands 6 39 Valbonne France 9,100 from different parts Bermuda 5 40 Cayman Islands Cayman Islands 9,000 of the world want Bahamas 5 41 British Virgin Islands British Virgin Islands 8,400 to relocate their China 5 42 Edinburgh UK 8,200 principal residence Australia 5 43 Prague Czech Republic 8,000 Italy 5 44 Dubrovnik Croatia 6,400 Barbados 3 EUROPE % 45 Provence France 5,900 United States 3 Switzerland 39 46 Central Algarve Portugal 5,700 Hong Kong 3 United Kingdom 12 47 Ibiza Spain 5,700 Ireland 2 Monaco 9 48 Kuala Lumpur Malaysia 5,000 Chile 2 United States 8 49 Dordogne France 4,900 Germany 2 Singapore 4 50 Western Algarve Portugal 4,900 Jersey 1 Hong Kong 4 51 Ho Chi Minh City Vietnam 4,800 Costa Rica 1 LATIN AMERICA % France 3 52 Bangalore India 4,300 Macao 1 United States 47 Bahamas 3 53 Christchurch New Zealand 4,200 Isle Of Man 1 Spain 15 Belgium 3 54 Hanoi Vietnam 4,100 Antigua & Barbuda 1 Canada 12 Guernsey 3 RUSSIA & CIS % 55 Gascony France 4,000 Monaco 1 United Kingdom 8 Jersey 3 Monaco 25 56 Umbria Italy 3,800 Spain 1 France 5 India 3 France 25 57 Jakarta Indonesia 2,800 Austria 1 Portugal 5 Canada 2 Switzerland 17 58 Ulan Bator Mongolia 2,300 Argentina 1 Switzerland 3 United Arab Emirates 2 Italy 17 59 Phnom Penh Cambodia 2,100 Finland 1 Panama 3 Spain 1 United Kingdom 8 60 Gaborone Botswana 1,300 Anguilla 1 Colombia 2 Bulgaria 1 Spain 8 THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

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MIDDLE EAST % AFRICA % INDIA % EAST ASIA % United Kingdom 43 United Kingdom 50 United Kingdom 47 United States 19 France 18 United States 33 Singapore 23 Singapore 16 United States 15 France 8 United States 20 China 14 Lebanon 10 South Africa 8 United Arab Emirates 11 Canada 13 Switzerland 8 United Kingdom 12 Morocco 3 Australia 11 Spain 2 Hong Kong 7 Japan 4 Taiwan 3 France 1 Switzerland 1 Malaysia 1

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EAST ASIA % Singapore 22 Canada 17 MIDDLE EAST % Australia 17 For more United Kingdom 40 China 14 Attitudes Survey Lebanon 18 INDIA % United States 11 results, and to ﬁnd out United States 13 AFRICA % Singapore 37 Hong Kong 9 which global locations United Arab Emirates 8 United Kingdom 25 United Kingdom 27 United Kingdom 3 should be on investors’ Switzerland 7 United Arab Emirates 25 United Arab Emirates 19 Switzerland 2 Belize 5 United States 17 United States 10 France 1 radars, see Databank France 3 Singapore 17 Indonesia 4 Japan 1 on p60 Bosnia & Herzegovina 3 South Africa 8 Hong Kong 2 New Zealand 1 Botswana 2 India 8 China 2 Thailand 1 PERFORMANCE WEIGHING UP THE WORLD’S MOST EXCITING PRIME PROPERTY MARKETS 34 THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

35 HOW ANDREW SHIRLEY KNIGHT FRANK’S HEAD OF RURAL PROPERTY RESEARCH THE OLD WORLD Anybody who bought land in England at the beginning of the century has seen their investment almost treble in value, driven by a shortage of supply and keen LAND demand from farmers, investors and lifestyle buyers. During 2010 alone, values rose by 13%, according to the Knight Frank Farmland Index. But high capital values mean annual operating yields of under 2% are standard. Many long-term investors LIES view this as an acceptable trade- AGRICULTURAL LAND IS ONCE AGAIN off given the security of the asset, ATTRACTING GLOBAL INVESTORS. availability of quality management and potential capital appreciation, BUT THE SECTOR IS FAR FROM but the lack of land on sale makes it RISK FREE, SAYS ANDREW SHIRLEY hard to amass a portfolio of any size. Funds and investors with tens, if not hundreds of millions of dollars Investors are he arguments for investing in farmland seem compelling. to spend, need to look to areas of the thinking big when it comes Food and soft commodity prices have hit record highs (see world where vast swathes of land to farmland graph, below). The OECD estimates that food production are for sale or lease. Often, however, purchases T will need to increase by 70% before 2050 to satisfy global these are the areas with the greatest population growth and changing consumption trends. risk attached. Russia and Ukraine, The increasing use of crops for biofuel production – around for example, possess some of the 40% of the US maize crop, some 14m hectares, will be used world’s most fertile soils, hundreds to produce ethanol this year – as well as soil degradation and of thousands of hectares of which are urbanisation, is putting pressure on land for food production. currently under-utilised, but both Acquiring areas of farmland to address food-security concerns countries are considered to have high is also key for countries with rapidly growing populations, such levels of political and operational as China, India, South Korea and cash-rich, land-poor Gulf states. risk. Acquiring the freehold of land is complex in Russia and impossible in Food and soft commodity prices Ukraine where there is a moratorium

250 on land ownership. But the UK feed wheat, £/t opportunity to acquire land cheaply FAO Food Price Index combined with the operating returns 200 available, will outweigh the risks for some investors. 150 “We are starting to see some renewed interest from institutions, 100 pension funds and family ofﬁces that are looking at a buy-and-hold strategy 50 with annual returns of 15-18% before any capital appreciation,” says Adam 0 Oliver of property consultant 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Brown & Co’s Poland ofﬁce. PERFORMANCE WEIGHING UP THE WORLD’S MOST EXCITING PRIME PROPERTY MARKETS 36

He admits that farming in to $10,000/ha. Charles Whittaker of Brazil’s central bank, have so Ukraine is “about as tough as it Brown & Co says new investors and far concentrated on the regions gets”, but argues that the ability existing operators are looking further around Sao Paulo and the farming to acquire five- to 10-year lease rights north to provinces such as Chaco frontier states of Mato Grosso and for just $150/ha means the land and Formosa where land under Bahia. Some are now moving into is inherently significantly production is priced from $1,200 to less developed areas such as Piaui undervalued. “In Russia and Ukraine, $2,500/ha. Uncleared land is available and Maranhao where land values there is a serious mispricing of for upwards of $200-$300/ha. are cheaper and infrastructure is risk in the market at the moment,” Argentina does levy large improving, according to Mr Donald. he says. “In Brazil, where recent export taxes on most agricultural Africa polarises investors. For events surrounding foreign land commodities and has a reputation many the political risk is simply too ownership legislation have also for political instability, but most great with every nation viewed as demonstrated country risk, values investment models factor in the taxes a potential Zimbabwe. To others, are $4,000 to $8,000/ha for similar and returns of 10% can be achieved parts of the continent represent an quality land.” on the right land, according to Mr agricultural Xanadu. There is speculation that Whittaker. “Given that we can double Zambia, for example, has huge Ukraine’s moratorium on land crop on at least half the holding in potential. Harmony Chiboola of ownership will be lifted, but most locations, all operating costs Knight Frank Zambia says increasing factoring this into investment plans can be sub £100/ha. Ownership investment by individuals and funds could be unwise. “I am sceptical,” is clear and foreign ownership of in established farming areas has led says Mr Oliver. freehold land is welcomed.” to a shortage of commercial farms to Russia has phenomenal potential, Foreign investment into Brazilian buy and a hike in values. but is for investors who understand farmland, of which an estimated 40% of the US Critics of foreign land ownership the country and its risks. “In many 100m hectares remains to be opened maize crop, in Africa, especially deals where ways, selecting where to invest is up, has largely stalled. This follows equivalent to most of the crops are shipped back the easy part,” confirms Richard a recent government move that 14m hectares, will to the investing nation, call it a new Warburton of Investment AB could see land purchases by overseas be used for ethanol form of colonialism of little benefit Kinnevik, a listed Swedish buyers capped to around 5,000 production this year to hungry populations. The political investment house that has farming hectares. “Until the middle of last upheaval in Tunisia was partly driven investments in Russia through its year, there had been a lot of interest,” by the rising cost of food. shareholding in Black Earth Farming, says Stuart Donald, managing Indeed, Stephen Johnston of as well as Ukraine and Poland. “The partner of AgriFrontiers, which Canadian fund manager Agcapita real challenge facing investors is advises on agribusiness investments prefers to keep his investors’ capital getting the operations to work in Brazil. closer to home. “We could have properly and this is where our focus But the restrictions will have a gone anywhere,” he says. “But I don’t is right now.” limited effect on land values, says Mr think you can make a long-term Central-Eastern Europe provides Donald. This is because most sales in case for investing in developing a good combination of risk and the country are to Brazilian farming countries. Poor people vote and return. Poland and Romania are companies or investors. Prices also politicians listen. At some point, of particular interest due to their tend to be more influenced by the somebody will get elected who will high-quality land and good logistics, market for soft commodities such nationalise farmland.” says Mr Warburton. “Both are within as soya beans. Given the benefits of the EU and benefit not just from the overseas investment, he expects the NEW WORLD underlying sector fundamentals, but restrictions will probably be reviewed Canada is unique because it offers also a convergence play. Farmland to differentiate private investors farmland at emerging-economy values are still well below those of who will develop the land from prices without the risks, says Mr Western Europe.” speculators and sovereign funds. Johnston. Farmland in Saskatchewan, Renato Cavalini, managing one of the country’s three prairie DEVELOPING WORLD partner of Brookfield Brazil, part provinces, is available for under South America also offers farming of Ontario-based Brookfield Asset $1,300/ha. This makes grain grown on a massive scale and remains a Management, which has just closed there some of the cheapest in the preferred target for many investors its $330m Brazilian Agriland Fund, world to produce. because of its productive climate and agrees. He believes the government However, land values are so low soils, but values in more popular is responding to unfounded public because tight ownership restrictions areas have started to climb. The fears that sovereign wealth funds make it complicated for those from spectre of farmland nationalisation, could operate huge areas of farmland overseas to invest in the province. as seen in Venezuela, also worries “under their own rules”, repeating In the US, land values rose by some investors. what they are doing in Africa. as much as 16% last year on the Argentinean farmland in the Overseas investors, who spent back of increased commodity central provinces around Buenos $2.4bn on farmland between prices and rents. But some of the Aires is now fully priced at $5,000 2002 and 2008, according to biggest agricultural states, such as THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

Iowa, restrict farmland ownership by says Sarah Davidson, a research the rural market as the majority of investors and corporations. This does analyst at property firm Bayleys. farm sales fall well outside the new not mean investors have to sacrifice The growing demand from criteria set by the government. double-digit returns, according to overseas for land – one of China’s Despite this, the fact that a Jeffrey Conrad, president of Hancock richest men is currently trying to politically and economically stable Agricultural Investment Group, buy a portfolio of 16 dairy farms – first-world country such as New which is the largest institutional has prompted the NZ government Zealand is concerned, highlights how owner of US farmland and also has to recently introduce new measures controversial overseas investment interests in Canada and Australia. that will allow it to veto foreign in farmland can be. The investment Careful selection of assets across acquisitions it thinks are not in the rationale is indeed compelling, a diversified range of crop types national interest. But, Ms Davidson but the very factors that make it so – Hancock is a leading producer says, it is unlikely that these changes will ensure that the controversy is of nuts and cranberries – has will have a significant impact upon unlikely to abate any time soon. enabled the group to deliver 15-year annualised total returns of 11.5% for row crops and 14% for permanent KNIGHT FRANK INTERNATIONAL FARMLAND INDEX crops, says Mr Conrad. Clients, such LOCATION PRICE NOTES AVERAGE PRICE/HA PRICE CHANGE 2010 LAND VALUE RISKS** as pension funds, do not buy into ENGLAND Average all land types pooled funds, but have portfolios $22,000 +13% tailor-made for them to match their investment objectives, he adds. ROMANIA Price dependent on size of holding $1,560- Australian farmland is attractive $3,250 0% to investors because it combines the POLAND Price dependent on size of holding benefits of first-world governance and $4,550- 0% stability with the scale and prices $8,125 of developing nations. Ownership UKRAINE Five- to 10-year lease rights $150- is also not restricted. “I think land $350 0% here is fundamentally undervalued,” says Australia-based Philip Jarvis who RUSSIA Price dependent on size of holding $300- and progress of freehold application -10% advises foreign investors, including $1,000 sovereign wealth funds worried ZAMBIA Long leasehold $1,000- about food security. $1,500** – As a major exporter of agricultural commodities, profitability can, BRAZIL Dryland double-cropping in Mato Grosso $7,000 +20%* however, be affected by market and exchange rate volatility. The recent BRAZIL Top sugar cane land in Sao Paulo strength of the Australian dollar $12,000 +24%* combined with comparatively high interest rates has, for example, BRAZIL Dryland double-cropping in west Bahia $6,000 +6%* contributed to a flattening in land value growth, which was running at BRAZIL Native bush with high cattle plus 10% per annum prior to 2010. potential in Para $300 +11%* Mr Jarvis, however, expects ARGENTINA Northern provinces overseas interest to pick up again. $1,200- +10% “There is a growing desire to spread $2,500 risk,” he says. “There is an inverse ARGENTINA Central provinces $5,000- weather correlation between $10,000 +10% Australia and South America. When CANADA Saskatchewan province we have the rain of La Nina, they $1,300 +7%* have the drought of El Nino. They’re a good hedge against each other.” AUSTRALIA Dryland arable with reliable rainfall $1,600- The value of New Zealand $1,700 +2% farmland is even more closely related to global markets, particularly the NEW Dairy farms ZEALAND $23,000 -3% dairy farm sector, with 90% of the country’s milk output going for UNITED Quality dryland in cornbelt states export. Weak international prices hit STATES $16,000 +8% demand for dairy farms in 2009 and 2010, but this trend could be reversed Prices are indicative and will vary widely depending on soil type, local climate and infrastructure. Price changes in local currency could vary POLITICAL widely from stated. *Price change mid 2009-mid 2010. **Risks exclude normal climate and commodity price fluctuations. Sources: Knight ECONOMIC if the recent strengthening of global Frank Research, Knight Frank Zambia, Quotable Value, Brown & Co, AgriFrontiers, Philip Jarvis Associates, USDA, Statistics Canada, commodity markets is maintained, Farm Credit Canada, Hancock CLIMATE PERFORMANCE WEIGHING UP THE WORLD’S MOST EXCITING PRIME PROPERTY MARKETS 38 THE WEALTH REPORT 2011 KNIGHT FRANK | CITIPRIVATEBANK.COM

39 LIQUID GOLD THE DESIRE TO OWN A VINEYARD CONTINUES TO GROW. SO WHAT ARE THE PROSPECTS FOR WEALTHY WINEMAKERS?

hen businessman Bruno those who want to produce on a Conci and wife, Roz, bought larger scale. These range from film Wa 12th-century vineyard stars to Chinese industrialists. Of estate near Siena in Italy 23 years VICKI SHIEL course, a grey area between the two ago, they had no idea that they KNIGHT FRANK also exists. As the viticulture bug would one day sell their boutique RESIDENTIAL RESEARCH bites, more owners like the Concis Chianti Classico wine to high-end turn a hobby into something serious. establishments around the world, For every handful of triumphs, But most experts agree that including The Savoy hotel in London. many aspiring winemakers end up lifestyle vineyard purchases should Once owned by the Vatican, the with broken dreams and a financial be seen as just that – lifestyle property was in need of substantial hangover. “It does require a certain purchases. Any success above and refurbishment. The couple saw the sort of person,” says Mr Thomson. beyond making a palatable wine purchase as an exciting project and “I’ve known buyers to sell up when for you, your friends and perhaps a aimed to create a beautiful place to they realise the effort required.” small distribution network should be live and to produce enough wine for One of the simplest ways to viewed as a bonus. themselves, family and friends. experience the vineyard life without Vineyard values vary enormously, But with each successful stage the heartache is to buy a property but the new Knight Frank Vineyard of the estate’s restoration came a on one of the growing number of Index (overleaf) shows what your growing desire to improve the quality fully serviced luxury residential money can buy. The majority of the of the wine. After years of hard vineyard schemes around the world. value of many lifestyle vineyard Villa Malva, near Orvieto work and millions of euros, their The resident’s level of involvement properties in Europe will be in Italy, is for 100-hectare estate now boasts olive varies from one development to the largely tied up in the main house, sale through Knight Frank groves, vineyards and apartments next: with one scheme, you might meaning prices will move in line popular with wine tourists. simply receive an annual allocation of with residential markets rather For those thinking of buying a bottles; in another, you might design than the value of the vines. But the vineyard, such success can only add your own label and work with the overall prices can also be affected by to the appeal. “Demand has gathered production team. commercial vineyard land values, pace in the past five years,” says Most wealthy vineyard owners can says Mr Thomson, and these move Knight Frank’s Bill Thomson, who be split into two groups. The majority in line with bulk wine prices. sells vineyards in Italy. “We receive are lifestyle buyers looking for a Although areas producing the about 20 enquiries a year – the holiday house with a few hectares best quality wines experience less number is growing.” of vines – in France, about 70% of volatility, bulk wine price moves are The Conci’s success is not vineyard sales are to people from likely to affect the property value uncommon, but experiences vary. outside the industry. Then there are of boutique wineries. PERFORMANCE WEIGHING UP THE WORLD’S MOST EXCITING PRIME PROPERTY MARKETS 40

Those looking for a blank canvas “Adventurous, aspiring winemakers Mr Thomson says the outlook for can buy huge parcels of cheap have started to take advantage only these producers is promising: “There land in New World wine regions, recently,” he says. is a lot of mediocre wine produced in such as Chile and Argentina, where Though there are many large quantities. The successes will be building costs are low and there are potential pitfalls, the upsides the boutique operators.” few planning restrictions. For more to owning a vineyard are many. For those tempted, Mr Conci, 71, Chile arguably offers the world’s Attitudes Survey Aside from spending balmy has decided to sell his estate*, but his results, and to ﬁnd out most diverse terroirs, with huge which global locations evenings with friends, sampling advice will be close at hand. He plans scope to develop an estate meeting should be on investors’ straight-from-the-barrel Syrah, to spend his retirement in a former the owner’s exact requirements, radars, see Databank many boutique winemakers also monastery in the area and use his on p60 says Matt Ridgway, director of like to organise wine tastings and discerning palate to monitor the consultancy Chile Investments. pitch to restaurants. wines he helped establish. *The Concis’ estate is for sale through Knight Frank

THE KNIGHT FRANK VINEYARD INDEX What £5m ($8m) will buy you around the world

LOCATION TYPICAL PROPERTY TYPICAL LAND AREA PROPERTY PRICE REPUTATION/PEDIGREE VINEYARD VALUES WOULD SUIT ... (OF WHICH VINES) CHANGE 2010 ($/HA)

BORDEAUX AND THE Classic chateau-style, 17th- or 4-32ha DORDOGNE, FRANCE 18th-century, six bedrooms (2-30ha) -14% $642,000

NAPA VALLEY & Ranch-style, ﬁve bedrooms, 14ha SONOMA, US swimming pool (12ha) -25% $296,000

MONTALCINO, ITALY Small farmhouse, recently restored, 10ha four bedrooms (5ha) -18% $259,000

CHIANTI, 18th-century farmhouse, six 30ha ITALY bedrooms, staff house (5ha) -16% $128,000

VAR, Classic 18th- or 19th-century bastide 10-15ha FRANCE with seven bedrooms, outbuildings (2-3ha) -15% $104,000

WESTERN CAPE, Developed property with good 20-30ha SOUTH AFRICA buildings, possibly Cape Dutch-style (10-15ha) 0% $82,000

HAWKE’S BAY, Large modern residence and estate, 20-40ha NEW ZEALAND guest accommodation (15-30ha) -23% $74,000

AUSTRALIA Large modern residence and estate, 110ha guest accommodation (30ha) -11% $59,000

COLCHAGUA VALLEY, A self-built luxury home and winery 1,000ha CHILE with micro-valley (160ha) +8% $49,000

MALLORCA, Four to ﬁve bedrooms, new-build, 3ha SPAIN character ﬁnca-style country house (3ha) 0% $44,000

WEST ALGARVE, Large quinta, swimming pool, staff 10ha PORTUGAL accommodation (8ha) -13% $37,000

WASHINGTON, Six-bedroom ranch with conference 40-50ha OREGON, TEXAS, US centre, commercial kitchen (20-30ha) -20% $37,000

SOUTH-EAST Period house, secondary 50ha ENGLAND accommodation (25ha) -3% $32,000

COSTA BRAVA, SPAIN Stone-built, 17th-century, refurbished 60-70ha ﬁve-bedroom house (10-20ha) -10% $27,000

MENDOZA, Large, modern style, ﬁve bedrooms, 60ha ARGENTINA swimming pool, spa (30ha) +13% $27,000

All measurements are quoted in metric 1ha = 2.47 acres. 1sq m = 10.76 sq ft. Sources: Knight Frank, Hugo WORLD RENOWNED ESTABLISHED HOBBY PRODUCER Skillington Immobilier, Anne Porter Properties, Classic French Homes, Mallorca Gold, Sadler’s Property, Bergman Euro-National, Remax Wine Country Real Estate, Gaetjens Langley, Chile Investments, Vineyard EXCELLENT EMERGING BOUTIQUE PRODUCER Agent International, Lucas Fox and Los Angeles SRL. With thanks to: Byron Lutz and Jurds Real Estate. COMMERCIAL PRODUCER THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

THE EASTERN ANGLOPHILE OUR PIRI SECTION SHOWS THAT EDUCATION CAN BE KEY IN LURING THE WEALTHY. BILLIONAIRE MR XU TELLS RUPERT HOOGEWERF WHY HIS SON WILL BE SCHOOLED IN ENGLAND

WEALTH “I believe there and naturally. I have made a 10-year it is not a profitable investment in TALK are opportunities educational plan for my son in which its own right. A good property will everywhere,” says Mr he will spend the first five years in maintain and very likely increase its Xu. “The real challenge boarding school, followed by another value over time. This is a traditional for all of us is how to grab them in five years of university life. ‘There are financial measure to fight against a timely manner.” This 40-year-old, opportunities inflation. The key is to find the Chinese billionaire entrepreneur RH Is it true that you are also right property. What kind of house? and philanthropist, knows a little thinking of studying in the UK everywhere. Which location? How to source it? bit about taking opportunities. Born one day? The real It’s a very complicated and time- in Dalian in Liaoning province, Mr XU That is my ambition. There is challenge consuming process for most people. Xu started out in the construction a Chinese saying: “You are never for all of us I always consult a reliable third-party sector 20 years ago, and now boasts a too old to learn.” Wise people adviser. With efficient assistance business empire that has grown into always read widely and never stop is how to from an expert, I don’t think that one of China’s largest conglomerates. learning. In recent years, many grab them’ I will have trouble finding what I am It produces chemicals, building of London’s best houses have been looking for in London. materials and electrical appliances, sold to Chinese people who have sent as well as providing healthcare, their children to be educated RH You own one of China’s most insurance and financial services. in England. successful football teams. Will Since 2000 he has also been the spending more time in England owner of one of the most successful RH Is that also on your agenda? tempt you to follow the path of clubs in the Chinese professional XU According to my plan, my family other overseas HNWIs who have football league. will be spending plenty of time in bought Premiership teams, such England for at least the next 10 years. as Roman Abramovich? RUPERT HOOGEWERF You are It would make sense to purchase a XU My name is closely linked sending your 13-year-old son to a house there as a long-term residence with football and I have made an famous boarding school in England for them. If a family plans to stay in enormous investment into my team in September this year. Why is that? England for quite a few years, buying here in terms of capital and time – MR XU Just like many other Chinese a house will be a good, practical idea. the side has won China’s national parents, I am a deep believer in the The family will have a decent place to championship six times. In light importance of education to the stay where they can receive friends of this success, and my passion for younger generation. I have always and guests. Premier League football, it has been wanted my children to receive rumoured that I have been interested a British education. The quality RH In this year’s Wealth Report in purchasing a first-class British is recognised and respected around Attitudes Survey, East Asians placed football club for a number of years. the world. I’m so glad to be sending more importance on the standard of Whether or not this rumour is true, my son to a school where many local education when choosing their my son’s education is my priority at famous celebrities and prominent second home than HNWIs from any the moment. leaders send their children. Students other region. However, investment who graduate from this school find was still rated the number-one driver. Rupert Hoogewerf is the founder of Hurun Report Inc, a leading luxury publishing house based in Shanghai, China. themselves well positioned for their Is that an important consideration For more Among its publications is the Hurun Rich List, released future development. for you? Attitudes Survey every October and considered to be the de-facto Who’s results, and to find out Who of Chinese business. Now listing 1,363 Renminbi XU Sending my son to study in which global locations billionaires (equivalent to £100m), it is the largest rich list RH Is a university education overseas England is a strong driving power should be on investors’ in the world. In 2009, the Shanghai government presented Rupert with the Magnolia Award, the highest honour also important? behind my potential purchase of radars, see Databank on p60 bestowed by the city on foreigners who have “contributed XU Success comes from having a property in England. However, I am significantly to Shanghai’s economic performance, international relations, business environment, plan and following it persistently not going to make such a decision if management standards and community development”.

PORTFOLIO

OUR GLOBAL 44 52 54 59 PERSPECTIVE Building wealth Fantasy ﬁnance Picture perfect Good money ON INVESTMENT Top experts Our experiment Randall Willette on Stephen Dawson recommend their examines whether why art investment on why venture AND SPENDING best bets for the wealthy or their can be wise and philanthropy is OPPORTUNITIES property investment advisers are best at Josh Spero on how the future for on the planet making investments consumption is cooling charitable fundraising

THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

45 VIEW FROM THE TOP

PROPERTY REMAINS THE MOST FAVOURED TYPE OF INVESTMENT FOR THE WEALTHY. WE EXPLORE TEN EXCITING GLOBAL OPPORTUNITIES

he only thing that Prime assets with the best UHNWIs would rather tenants in the most desirable Tput their money into locations are still top of most besides property is their own investors’ shopping lists, business, according to the but investors who are looking results of our Attitudes Survey. for slightly more interesting Property accounts for 35% of returns are beginning to their investment portfolios. emerge. “These investors are Direct investment into prepared to take a bit more of residential and commercial a risk,” says Mr Styles, “as long real estate is the most favoured as the fundamentals stack up.” option, while ofﬁce and retail One very interesting space is the most popular opportunity we highlight commercial property choice. in our round-up overleaf We show the results on our is investing in Zambian graphic on page 48. development land. It might John Styles, head of fund seem unorthodox, but good management at Knight Frank returns are available. Investors, says conﬁdence is The Wealth Report asked 10 returning. But he has noticed property investment experts a change in the way HNWIs from Knight Frank and are investing in property: Citi Private Bank to select a “They want more control property sector or location for of their exit strategy. Small HNWIs’ portfolios. Each rated groups of investors can have a their choice out of 10 based on much closer relationship with risk, potential yields and the fund managers.” potential for capital growth.

Our experts’ 10 picks (overleaf) 3 4 are spread across 6 all corners of 9 7 the globe 5 8 1 2 10 PORTFOLIO OUR GLOBAL PERSPECTIVE ON INVESTMENT AND SPENDING OPPORTUNITIES 46

KEY COMMERCIAL REAL DEVELOPMENT LAND SECONDARY UK ESTATE IN EMERGING AROUND LUSAKA, RESIDENTIAL 7 ASIA ZAMBIA INVESTMENTS LOCATOR 1 2 3

RISK FACTOR 8 RISK FACTOR 7 RISK FACTOR 5 MAP LOCATION YIELD FACTOR 8 YIELD FACTOR 8 YIELD FACTOR 7 CAPITAL APPRECIATION 8 CAPITAL APPRECIATION 7 CAPITAL APPRECIATION 7 I keep two pictures on my desk. One A recent analysis by The Economist The best opportunities often arise

COMMERCIAL is a postcard of Hong Kong in 1972. found that over the past 10 years, in the least popular markets. An The other is a photograph taken from six of the world’s 10 fastest-growing extreme example of this is when, the same location in 2007. Today’s economies, including Zambia, were in the second half of 2008, we were city is almost unrecognisable from in sub-Saharan Africa. The country unable to ﬁnd interest in a deeply

DEVELOPMENT the 1970s version, thanks to a sea of has just recorded its 12th discounted prime block in Belgravia. high-rise buildings, roads and port consecutive year of economic growth The conﬁdence of investors had been facilities. It was all achieved in less with average annual GDP increases of shaken to such an extent that there than 35 years. For me, the pictures 6.9% predicted up to 2015. was uncertainty as to whether the

RESIDENTIAL are an important daily reminder of This has had an impact on prime London market would ever the explosive growth available in the capital Lusaka. Large tracts recover. Two-and-a-half years on and Asia’s emerging markets. of farmland have been sold and the block has appreciated by 50%. It Most investors are well aware of subdivided for residential and has yielded the one brave investor we

LOGISTICS the growth of the Chinese and Indian commercial development. Similar found more than a 100% return. economies, but overlook equally opportunities will continue as the Looking now, we would highlight impressive economies in the region, city expands and development land two particular markets. First, go for such as Indonesia and Vietnam. values overtake agricultural values. secondary stock in good locations

DEMOGRAPHIC We like emerging Asia for one Zambia has a serious housing in central London. Headline figures simple reason – real-estate returns shortage – it needs to build at demonstrate the strength of the RATINGS are driven by economic growth least 150,000 housing units a year. recovery in the London market, and very favourable demographics, Construction is a major contributor but they also mask that secondary RISK FACTOR 1 low risk rather than leverage and yield to the country’s economic expansion. properties, even in good residential 10 high risk compression. Greater trade and Growth in the sector is expected to areas, are trading at a deep discount YIELD FACTOR* industrialisation drives demand for have reached 10% in 2010, driven by to the best stock. They offer some 1 poor yield 10 high yield logistics facilities; growing incomes strong demand for residential and of the best rental returns and swell the middle class, which creates commercial developments, energy, improvement can often add value. CAPITAL APPRECIATION opportunities in retail and leisure; mining and transport infrastructure. Second is development stock 1 low potential an expanding services sector opens A new area of Lusaka developing in good regional cities, such as 10 high potential up opportunities for offices; while fast is south along the Kafue Road. Manchester, Birmingham and Bristol. V variable X not applicable a young, growing population needs Recent sales of former farmland with There remains a large amount of modern residential accommodation. road frontage for commercial use unsold development stock in these *Yield refers to annual return on investment Emerging markets typically have have achieved prices of more than locations, which the market is excluding capital high levels of corporate real estate $150,000/ha. Residential land sales largely avoiding. This is because of appreciation ownership and limited securitisation are in the region of $50,000/ha. Land perceptions of oversupply and the Please note that the alternatives. These factors will feed is often sold with limited services stigma attached to large blocks of ratings are based on personal opinion the flow of deals as corporates free up and the opportunity exists to develop flats built in regional cities at the and are meant to be indicative only. balance sheets to pursue new growth serviced estates. Plans to construct peak of the market. However, we see They should not be initiatives and developers will look ring roads around Lusaka may help very good opportunities to buy this used for any form of benchmarking to monetise stabilised projects. establish new areas of development. stock selectively, so long as it is of a Investing into emerging markets Investors need to take good local sufficient quality, and in the right has traditionally been considered advice as the limited choice and location. We are seeing some deals high-risk, but debt problems in competition for prime buildings has at levels lower than it would have Europe have put this perception led to property owners seeking prices cost to construct the properties in into context. Many economies have that do not justify the potential the first place. Investors in each of dramatically evolved from their own yields. Despite this, the fundamentals these markets need to take a five- to financial crisis in 1997 to become of a growing demand for modern seven-year view. Nevertheless, both of well-managed, conservatively run accommodation in all property these property classes should provide and politically stable. sectors should be investigated. a healthy yield.

MARC GIUFFRIDA, ASIA PACIFIC CAPITAL TIM WARE, MANAGING DIRECTOR, KNIGHT JAMES MANNIX, HEAD OF UK RESIDENTIAL TRANSACTIONS MD, KNIGHT FRANK FRANK ZAMBIA INVESTMENT, KNIGHT FRANK THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

COMMERCIAL DISTRIBUTION AND LUXURY NEW HOMES PROPERTY IN INDUSTRIALS IN IN PRIME EUROPEAN POLAND THE UAE CITIES 4 5 6

RISK FACTOR 5 RISK FACTOR 6 RISK FACTOR 1 YIELD FACTOR 7 YIELD FACTOR 8 YIELD FACTOR 2 CAPITAL APPRECIATION 6 CAPITAL APPRECIATION 5 CAPITAL APPRECIATION 5

Poland is the largest Poland’s economy proved to be Dubai’s real estate market suffered The smart money going into the and most mature Europe’s star performer throughout more than many during the European residential market is market in Central the recent downturn. Alone among global recession as a glut of unsold likely to keep a clear focus on and Eastern Europe. EU economies, Poland avoided developments, both residential and property that offers both the very Its recent economic entering recession, recording GDP commercial, dragged heavily on best quality, and for which there is a performance has growth of 1.7% in 2009, followed by prices already under pressure from marked scarcity. A beautiful private helped strengthen an estimated 3.5% in 2010. Growth a sharp slowdown in investor activity. home in a sought-after location its position as a key of around 3.9% is forecast for 2011. In some sectors values have will always attract interest. The gateway location Having experienced a lull fallen by as much as 60%, but away appeal is to owner-occupiers and for investment into in investment activity during from high-profile offices, glittering the commitment is long term. The the area 2009, when commercial property shopping malls and alluring enjoyment of ownership is equal to transactions totalled just $0.95bn, waterside residential schemes, the performance of the investment. there was an upswing in activity in the understated “shed” sector can Similarly, in the new home 2010, with the investment volume provide robust income returns. projects sector in Europe, some reaching nearly $2.45bn, driven Values have fallen along with other projects are starting to stand out primarily by increased cross- property assets, meaning that by virtue of offering limited – and border investment, especially from now could be the time to take thereby exclusive – stock, and also Germany. Poland’s recent growth advantage of a sector that looks as a result of European developers has helped strengthen its position as undervalued, yet is supported by starting to match the quality of a key gateway location for investment strong market fundamentals. design, interior finish and services into the Central and Eastern The UAE port of Jebel Ali, close that have driven demand in such European (CEE) area. It is the largest, to the boundary of Dubai and Abu global cities as London and New York. most mature property market Dhabi, is the world’s seventh busiest One such project is the Belle in the region. container seaport. This 134sq km Epoque-style No 23 Boulevard de The Warsaw office market has facility features the world’s largest Belgique in Monaco. With just avoided the overdevelopment that it manmade harbour and a million 21 private residences, the project experienced during previous market sq m container yard. The port will certainly offers a limited opportunity. cycles, keeping the vacancy rate well connect to a new international With entrance lobbies finished by below those of other CEE capitals, airport that will eventually feature renowned designer Jacques Garcia, it at 9% at the end of 2010. Warsaw’s five runways, permitting a four-hour can also offer the very highest quality rental growth prospects are among transit from ship to aircraft. of design and specification. the best in Europe – forecasts say that The surrounding free zone Monaco, of course, is already prime office rents will increase by permits occupiers to trade easily with hugely attractive for HNWIs. 3.2% in 2011 and 4.7% in 2012. light regulations. More than 6,000 Boulevard de Belgique stands out Improved investor sentiment companies have taken advantage even within this market, however, pushed prime office yields in Warsaw of this. as a whole new residential building down by around 50 basis points over Unlike some locations across of an exceptional standard. The the course of 2010, taking them the region, barriers to entry are prime apartments here with views to 6.8%. However, these yields still removed as the free zone status over Monaco and its harbour seem offer an attractive premium when permits overseas parties to acquire to represent an opportunity for the compared with markets such as and trade long-leasehold real estate individual who wants to have the central London and central Paris. title. These factors provide investors best quality in the best location. Of Poland’s retail and logistics with access to reasonable lot sizes course, this comes at a price, but property markets also offer and comparatively cheap capital long-term security and stability is opportunities. Strong consumer values. Combine this with attractive the key here. The project is being spending has helped the retail sector running returns secured to mature launched in late spring – early birds in the past year, while the logistics multinational tenants and the may register for information market is well developed. rationale for investing is compelling. at www.no23monaco.com

MATTHEW COLBOURNE, SENIOR ANALYST, JAMES LEWIS, DIRECTOR OF INVESTMENT, JAMES PRICE, HEAD OF INTERNATIONAL KNIGHT FRANK COMMERCIAL RESEARCH KNIGHT FRANK MIDDLE EAST RESIDENTIAL DEVELOPMENT, KNIGHT FRANK PORTFOLIO OUR GLOBAL PERSPECTIVE ON INVESTMENT AND SPENDING OPPORTUNITIES 48

EDUCATION PREMIER LEAGUE REAL ESTATE RELATIVE IMPORTANCE IN ASIA OF VARIOUS INVESTMENT SECTORS TO UHNWIs Own business 7 Property Equities Corporate bonds 5 RISK FACTOR Gov’t bonds YIELD FACTOR 0 Private equity 8 CAPITAL APPRECIATION Commodities Local governments of major cities Hedge fund in many developing Asian countries Gold are focusing on new ways to suit Derivatives the growing population’s social RELATIVE IMPORTANCE needs. Investments that follow these OF VARIOUS PROPERTY government plans, while addressing SECTORS TO UHNWIs end-user demands, may have the Residential potential to capitalise on market Commerce dynamics while mitigating the risk Property funds of an overheated sector. Reits Quality education is a key focus Agricultural of today’s developing economies. RELATIVE IMPORTANCE OF These countries are experiencing COMMERCIAL PROPERTY a structural change in demand for SECTORS TO UHNWIs labour – from primarily labour-based Office industries to tertiary value-added or Retail service-oriented businesses. Families Industrial with school-age children are willing Logistics to pay a significant premium to live Hotels close to good schools, given the long Healthcare school hours and the worsening Other traffic in new cities. Priority entrance and proximity to quality schools in a community are a big draw to homebuyers. Developers have yet to learn to combine neighbourhoods with quality schools. There are opportunities in the market for UHNW investors to invest with developers in China and India, as they are beginning to build such communities. Some investments may offer the choice to reinvest a portion of the gains from residential development to the education business within the communities, expanding the investment purpose. Investments in education real- estate demand the same selection discipline and risk appetite by investors as with any other residential real-estate investments in developing countries. For long- For more term visions of such projects, Attitudes Survey results, and to find out investors should choose to work with which global locations developers who are not only locally should be on investors’ rooted, but also understand the radars, see Databank on p60 education needs of the community.

CAROLINE SIA, REAL ESTATE INVESTMENT SPECIALIST, CITI PRIVATE BANK THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

RESIDENTIAL DISTRESSED US COMMERCIAL DEVELOPMENT IN REAL ESTATE AND PROPERTY IN SAO EASTERN MUMBAI PROPERTY DEBT PAULO, BRAZIL 8 9 10

RISK FACTOR 6 RISK FACTOR v RISK FACTOR 6 YIELD FACTOR 4 YIELD FACTOR x YIELD FACTOR 8 8 x CAPITAL APPRECIATION CAPITAL APPRECIATION CAPITAL APPRECIATION 5 (Office-space scores) India’s population of HNWIs As of September 2010, there was an Foreign direct investment flows rose by more than 51% in 2009. And estimated $13.8tn in outstanding into Brazil are expected to remain a disproportionately large portion mortgage debt recorded by the US strong as investors want to take of those Indians who have recently Federal Reserve. Various industry advantage of offshore oil reserve graduated into the top tier of wealth data sources estimate that around exploration, the development of live in Mumbai. $1.5-$2tn of that $13.8tn will need mining, agribusiness projects, and The Indian residential market recapitalisation in coming years. This infrastructure projects associated has traditionally been a hotspot distress is burdening commercial with the 2014 Fifa World Cup and for investors. Higher home bank balance sheets, as shown 2016 Olympic Games. This is reflected ownership, driven by infrastructure by the rising number of banks in one of Brazil’s most dynamic real development, easy availability of on the Federal Deposit Insurance estate markets – the city of Sao Paulo. credit, low interest rates and a Corporation watchlist. The demand for A+ and A-grade growing per-capita income, are all In addition to the sheer volume office space has been exceeding set to drive up asset values over the of distressed assets on their balance supply as newcomers are establishing medium to long term. sheets, commercial banks are facing activity in the country or expanding The coming decade will see increased regulatory pressures. their operations. Sao Paulo is most infrastructure spend and Specifically, the Basel Committee experiencing a vacancy rate of development in Mumbai to the on Banking Supervision is updating 2.8% and as of October 2010, about east of the city and on enhancing their guidelines via Basel III. This 105,000 sq m have been absorbed in connectivity with the west. updated set of regulations will create the A+ and A-grade office market. Infrastructure projects, such as a stricter definition of Tier 1 capital, Private equity and real estate funds enhancements to the Eastern Express increase the required Tier 1 capital have been very active, as they expect highway, the Versova-Andheri- ratio, and require commercial banks further increases in lease rates and Ghatkopar Metro rail project and to hold a capital buffer of 2.5% of price per sq m. Cap rates of about 11% the proposed new airport at Panvel common equity. These increased have proved attractive to foreigners. are expected to benefit the eastern capital requirements are also The warehouse market is also corridor more than the west. This expected to contribute to the velocity expanding as federal and state is likely to accelerate change in of asset disposals. As earnings governments prioritise new residential and commercial markets improve, commercial banks will infrastructure. Sao Paulo’s ring in eastern Mumbai. be better able to absorb loan losses road – which connects all the city’s But only Indian citizens or and, as a result, loan dispositions are highways – is transforming the people of Indian origin may buy expected to accelerate. industrial landscape. into individual residential units in The next two years could provide A foreigner willing to invest the country. Foreign nationals and opportunities for investors seeking in Brazil should consider using foreign institutional investors are to exploit the challenges many Real Estate Investment Funds permitted to invest in India only financial institutions face. These as an investment vehicle. Their where schemes are in excess of asset dispositions should create advantages include tenant and 50,000 sq m or development projects attractive investment opportunities geography diversification and of over four hectares. There is a in underperforming and non- liquidity, specialised management minimum investment value performing loans. Non-performing of the properties in the funds and of $5m and a three-year lock-in. loans can often be purchased at an tax exemption on the capital gain. It may, therefore, be best for attractive discount to par value. Nevertheless, for a foreigner based in foreigners to subscribe to funds Several non-performing a non-low-tax jurisdiction, income, registered in their country with an residential mortgage pools were which is usually distributed on a investment objective of investing acquired at discounts of 50-55% of monthly basis, is taxed at 15%. Today, in Indian real estate – rather than par value. These investments could there are more than 40 listed funds attempt to navigate the difficult generate internal rates of return in with total assets under management regulatory environment in India. the mid- to high-teens. of $4bn.

ANAND NARAYANAN, NATIONAL DIRECTOR OF DANIEL O’DONNELL, GLOBAL HEAD OF JAN KARSTEN, HEAD OF LATIN AMERICA RESIDENTIAL AGENCY, KNIGHT FRANK INDIA PRIVATE EQUITY, CITI PRIVATE BANK MANAGED INVESTMENTS, CITI PRIVATE BANK PORTFOLIO OUR GLOBAL PERSPECTIVE ON INVESTMENT AND SPENDING OPPORTUNITIES 50

Mr Ghatak. Go for oil futures, for example, rather than the equity of energy companies, he says: “It takes away the unforeseen risks and management issues that can affect this sector – what happened to BP in the Gulf of Mexico being an extreme example. There can be a huge difference in the performance of POWER the underlying commodity and the equity of the companies involved.” Gains in the commodity sector are also being driven by demand from emerging economies – copper was up 25% in value last year – and also from financial investors looking to trade the momentum, and as a PLAY hedge against debasement. Investors, however, need to manage their exposure carefully as this asset class is characterised by price volatility. “Several choices are available,” says Mr Ghatak. “The selection process should be based on understanding the client’s knowledge, experience and risk tolerance.” Food production was listed by 72% of survey respondents as a sector that would become more important. “I think it should be higher than that,” says Mr Ghatak. “The ENERGY IS THE KEY INVESTMENT SECTOR FOR THE Economist’s Agricultural Index was up 27% last year, and global FUTURE, SAYS ANDREW SHIRLEY population growth and changing wealth patterns in emerging markets support the investment case.” A lack of knowledge about how nergy and natural resources pace. These countries are home to FUEL UP to invest in food production could are the leading themes that significant pent-up demand for better ADVISERS’ KEY FUTURE explain its relative lack of popularity, INVESTMENT AREAS Eshould be shaping the future transport, manufactured goods he believes. “There aren’t the same investment portfolios of HNWI and infrastructure. These result in number of investments that allow investors, according to wealth increased energy use in the medium % you to access the sector,” says Mr advisers. About 90% of respondents term. “Increased consumerism and Ghatak. “I can understand a client’s to the Wealth Report Attitudes Survey, improved social mobility also lead to propensity not to jump on a tractor say the two sectors will become greater demand for resources down (see page 34), but they do understand “more” or “far more important” to the line,” says Mr Ghatak. 92SAY ENERGY large corporations. One could create their clients over the next 10 years Even in developed nations where a diversified investible basket of (see graphic). The results come GDP growth is much slower, the high-quality global corporations as no surprise to Malay Ghatak, demand for energy remains inelastic, % that derive 30-50% of their profits head of investment for Citi Private even during times of economic from emerging markets, and have a Bank’s Europe, Middle East and austerity, says Mr Ghatak. Moreover, track record of being able to expand Africa division. “We will see huge a lot of potential investment into profit margins as a way of accessing incremental increases in the demand the sector was put on hold after the 89SAY NATURAL RESOURCES this theme. Some of our investors do for energy from emerging nations,” credit crisis. “Capacity increases move in and out of soft commodities says Mr Ghatak. Last year, global take a while and projects face long For more or exchange traded funds, but you GDP growth was about 3.7% but, he gestations,” says Mr Ghatak. “As Attitudes Survey can be exposed to very large swings.” results, and to find out points out, “half of that was from a result, supply hasn’t stepped up.” which global locations Green and low-carbon economies growing at 6-10%.” Investors looking to take should be on investors’ technology was also ranked highly Indeed, countries with large advantage of the global demand radars, see Databank by respondents, but creating a on p60 populations, such as India and for energy should try to get as close successful investment strategy in the China, are growing at a scorching to the asset as possible, advises sector is not easy, says Mr Ghatak. THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

“Much of it is underpinned by CLEAN TECH government-specific initiatives,” he David Goatman, says, “which makes it hard to invest head of sustainability CONFLICT with any long-term certainty.” consultancy, David Murrin, Opportunities in the sector do Knight Frank chief investment exist, however, for those who want officer, Emergent to make property-based investments, 2010 was an important year for Asset Management says David Goatman, Knight Frank’s carbon-reduction legislation in CARE head of sustainability (see right). the UK. April saw the advent Julian Evans, head of Conflict, epidemics and Mr Ghatak says healthcare, which of both the carbon reduction healthcare, Knight Frank climate change are some of almost 80% of our respondents said commitment (CRC) energy the key geopolitical trends that would become more important for efficiency scheme and the clean- The UK’s healthcare sector was will define the world in the 21st investors, is an area that requires energy cashback scheme. Initially affected far less by the global century, says David Murrin, chief detailed market knowledge. viewed as another compliance downturn than other commercial investment officer of Emergent “Globally, the market is undoubtedly burden, the CRC scheme may property sectors, and is expected Asset Management, in his increasing,” he says. “It is reported turn out to have far-reaching to continue to attract robust recently published book Breaking that 60% of adults in India have implications for property values. investment demand during 2011. the Code of History. He believes diabetes, for example. However, one Associating a carbon cost with According to Investment defence contractors in Western has to be careful, as the performance the ownership and occupation Property Databank (IPD), and emerging economies, of the sector’s of commercial property care homes recorded modest especially shipbuilders, will sub-streams Healthcare trends represents a first step towards total returns of 2.1% per annum benefit from increased military can vary are not always easy property values reflecting the between 2007 and 2009 – spending – particularly in Asia considerably. to spot and new carbon efficiency of a building. relatively impressive when where a naval race is already The trends drugs take a long Specific green property funds viewed against all property total under way. aren’t always time to develop. But are increasingly being set up to returns of -8% a year over the History also highlights easy to spot, we can predict that target a market where tenants same period. that empires in decline – and and new drugs we are getting older will pay more for the most Healthcare’s long leases Mr Murrin believes the US take a long time sustainable commercial space, and relative independence falls into this category – suffer to develop.” as they will save money through from discretionary spending from more disease epidemics. One trend you energy and tax savings. are key strengths. Care homes This opens up investment don’t need to be an A more immediate typically provide investors with opportunities in pharmaceutical expert to predict is investment opportunity was lease lengths of 25 to 35 years, companies, but not necessarily that we are all getting opened up by the introduction which compares with a falling Western corporations. They older. Julian Evans, head of feed-in tariffs (FITs) via the average of almost 10 years for all are becoming more vulnerable of healthcare at Knight clean-energy cashback scheme. property, including retail, offices to attacks on their intellectual Frank, says this makes care Through guaranteeing an and industrial. Care-home rents property, says Mr Murrin, who homes a good long-term investment: income stream for small-scale are also typically linked to annual suggests generic drug producers one that can even be inflation-linked renewable energy projects, the RPI uplifts. could be a better option. in the UK (see right). Although, as government has provided Investment interest will Mr Ghatak points out, investors will the opportunity for investors to remain restricted to high-quality need access to a reliable vehicle to benefit from security of income care homes in relatively affluent access this sector. for up to 25 years. The areas, where occupancy rates are Technology is another arena that guaranteed FITs have, in turn, strong and dependence on local offers widely varying opportunities. opened up investment routes authority funding less significant. “It is amazing what’s happening that include direct investment, Those leased to established in that space,” he says. “But given technology-specific funds, operators with solid trading high volatility in equity prices and venture capital trusts and performance are of particular dispersion in performance, it may enterprise investment schemes. interest. Prime care-home yields be unwise for most investors to buy are expected to remain stable into this sector on the basis of stock at around 6% in 2011, although selection or high concentration,” secondary and tertiary assets may adds Mr Ghatak. He recommends a see continued yield softening diversified approach by sticking to after declining occupancy rates a technology-based index such as the and fee pressures. Nasdaq, which was up 15% in 2010. Yet, despite all the various types of investments available, Mr Ghatak says: “One of the questions I get asked the most is: how is the luxury residential market in London doing?” PORTFOLIO OUR GLOBAL PERSPECTIVE ON INVESTMENT AND SPENDING OPPORTUNITIES 52

ANALYSIS Philip Watson, head of Citi Private Bank’s Investment Lab EMEA, analyses the results of THE GOLDEN our survey LIAM BAILEY Are wealthy individual investors right to rate their own judgement so highly? PHILIP WATSON To the extent EGG RACE that you have got to trust your own views. I do suspect that the claim that individuals trust their own THE WEALTHY BELIEVE THEY MAKE BETTER judgement over that of professional advisers is clouded by the fact that INVESTMENT CHOICES THAN ADVISERS. investors commonly downplay the inﬂuence of other views when they SO WE CHALLENGED THEM TO BEAT are devising their own strategy. There has to be a concern that investors THE EXPERTS. LIAM BAILEY REPORTS who rely on their own views alone – to the exclusion of all others – will have portfolios that are skewed towards asset classes, sectors and regions with which they are most familiar. No individual can have access to the research and strategic WE ASKED ADVISERS AND resources available to the larger WEALTHY INDIVIDUALS professional wealth advisers. HOW THEY WOULD ALLOCATE THEIR INVESTMENT PORTFOLIOS IN 2011 LB Did the credit crunch undermine clients’ trust in advisers? ADVISERS INDIVIDUALS PW Without doubt. This has been well documented. However, the extent to which this occurred varies signiﬁcantly, and depends on the unique experience of each client – many of whom feel that their advisers were able to shield their portfolios from the worst of the crisis. In my experience, clients are now beginning to place more trust and reliance on their advisers now than they were before the crash.

LB Really, why would they do that? PW The definition of managing portfolio risk has always been open he results of our 2010 Attitudes Survey of wealthy investors confirmed to interpretation. The credit crisis that, when it comes to allocating their wealth portfolio, UHNWIs value simultaneously exposed investors to Ttheir own experience first, then the advice of their friends and family the broadest possible range of risks and, finally, professional advisers. – high volatility, rising correlations, This year, The Wealth Report has decided to put this finding to the test. If absence of liquidity, foreign exchange wealth investors trust their own judgements over those of their advisers, are risk, and so on. Attitudes to risk have they right to do so and what are the consequences of this confidence? changed to reflect these experiences. During January 2011, we interviewed 70 professional advisers and 40 UHNW private investors from across the globe, and asked them two key questions: what assets would they be investing in during 2011 and how would their allocation be divided between different world regions? The results of the selection, including some surprises, are exclusively revealed in our egg graphic above. Meanwhile, our graphics and analysis opposite explore some of the findings from our challenge. THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

Conservatism rose CASH CLASH out a well-articulated view of local financial assets may not UNUSUAL SPENDING sharply. Investors want OPPORTUNITIES and stands by it. necessarily mirror each other. to be better informed Instead, they are looking for – transparency is the LB Are there any surprises value opportunities in the buzzword. Advisers with % in the first results of our developed world. the ability to identify risk Fantasy Finance survey? The top-left graphic is also and provide actionable, PW The first thing interesting, suggesting that timely and informed I would say is that both individual investors are looking to OF ADVISERS SAY THEIR advice are valued by 32CLIENTS WANT MORE the advisers and the secure more exotic and unusual investors. As well as investors have selected investments. My hunch is that there ongoing client profiling, fairly diverse portfolios. is a marked difference between Citi Private Bank runs % However, I would also wanting to hear about opportunities Portfolio Diagnostics note that neither and then actually putting money through its Investment portfolio is defensive – to work in these investments – Lab for clients. These this is interesting given which helps explain the differential are designed to unveil 72OF UHNWIs SAY THEY the recent bout between the adviser and the WANT MORE and manage risk of conservatism. investors on this one. The definition exposures across the INVESTORS HAVE There are certain survey of exotic may be different from BECOME MORE portfolio, from the RISK-AVERSE IN findings that point to the one to the other – highlighting the overall asset allocation RECENT YEARS benefit of the advisers’ importance of educating clients on to singular investments. experience. The higher their choice of investments. interest in agricultural LB Does new technology commodities from HOW WOULD YOU 87% ALLOCATE YOUR offer chances for advisers AGREE investors, a high-profile PORTFOLIO? GO TO to engage with clients? sector in the media over KNIGHTFRANK.COM/ GLOBALBRIEFING TO PW Yes, but it opens recent months, could be ENTER OUR ONLINE opportunities and one such example. Prices FANTASY FINANCE COMPETITION risks. Citi Private Bank ADVISERS’ VIEWS have risen fast across was the first private ON CLIENTS the sector and advisers, bank to launch an iPad conscious of liquidity and app, an example of an expensive roll yield, how technology has 75% may have shown caution WE ASKED ADVISERS AND INDIVIDUALS HOW THEY WOULD opened new methods AGREE in their allocations – ALLOCATE THEIR INVESTMENT PORTFOLIOS IN 2011 of communication with futures prices are higher ADVISERS – investing client portfolios our clients. With the fast than spot prices. 17% 14% 20% 7% 9% 21% 13% evolution in technology, The higher UHNWIs’ VIEW the risk of falling behind ON THEMSELVES representation of is ever-present. The gold in the adviser EUROPE importance of intergenerational portfolio is interesting. There NORTH wealth planning means engaging has already been high investor AMERICA MIDDLE with clients in ways that they know community take-up within the EAST ASIA and are most comfortable with. gold markets. Markets are also The web, and blogging in beginning to price in a higher AFRICA particular, has to some extent real interest rate environment, SOUTH AMERICA AUSTRALASIA democratised the provision of traditionally a time when gold wealth advice. There are lots of would be expected to underperform. contrarian bloggers who have The fact that advisers are looking substantial followings, for example. to be more heavily invested in North 10% 16% 18% 12% 8% 24% 12% This does not pose problems for America and Europe, compared INDIVIDUALS – investing personal portfolios established wealth managers; to the more emerging market investors are interested in comparing make-up of the investors’ portfolio, the house view of an organisation suggests that it is the advisers who against the wider marketplace. are recognising that the strength of Investors respect an adviser who sets an economy and the performance PORTFOLIO OUR GLOBAL PERSPECTIVE ON INVESTMENT AND SPENDING OPPORTUNITIES 54

RANDALL WILLETTE FINE ART WEALTH MANAGEMENT MANAGING DIRECTOR

he recent trend for investment diversification has extended to art, as investors shift their Tconcern from weathering the financial crisis to anticipating the inflationary effects of struggling Western governments’ rising debt. Art, like gold and commodities, is considered to be a ‘real asset’ and has a proven record as an effective hedge against inflation. The launch of a number of art investment funds and clubs – which offer investors the chance to invest indirectly into the art market – has also resulted in art attaining its own status as an alternative asset class. According to research by Capgemini and Merrill Lynch last year, HNWIs are returning to investments of passion. With financial markets still in flux, many HNWIs surveyed indicated that they considered art a good financial investment, and sought out those items perceived to have tangible long-term value. The report highlighted that art investors in places such as India, China and the Middle East have a higher predilection to hold tangible assets – such as art – as a possible inflation hedge. Although there has been surprisingly little research into art’s appropriate allocation in an investment portfolio, we do know that the demand for investments of passion overall is likely to increase in 2011 as wealth levels ART IN rebound. The trend is confirmed by the fact that auction houses, luxury good manufacturers and high-end service providers are all reporting signs of renewed demand. Art is increasingly becoming a small part of HEAVEN the portfolios of HNWIs who are searching for alternative assets. Two distinct strategies in this regard are emerging. INVESTING IN ART NEED NOT BE The first is designed to emulate the world’s top collectors who tend to focus on specific sectors FRIVOLOUS. INDEED, IT MAY BE A of the broader art market. Under this approach, investors pursue their goal of medium- to long- SMARTER MOVE THAN PLACING ALL term capital appreciation by managing portfolios that cover the most established art sectors – such YOUR WEALTH IN STOCKS AND BONDS, as Old Masters, Impressionist, modern and SAYS RANDALL WILLETTE contemporary. These sectors are identified for having significant size and maturity of collector base; independent market behaviour, including Untitled by Roy Lichtenstein © The Estate of Roy Lichtenstein/DACS 2011 price performance and volatility; and a long transaction history allowing greater predictability. THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

The second strategy is pursued by those leading art dealers and auction houses that seek superior short-term returns. Transactions of this nature are considered propositions with increased risks and rewards and often involve the creation of trading opportunities that allow investors to buy and sell works quickly, so they can achieve an The Art Auction, 1975 (w/c), immediate return. Roberts, William Patrick An investment approach to managing (1895-1980) / Wolseley Fine Arts, London, UK / The an art portfolio should combine traditional Bridgeman Art Library portfolio management with art world best practice, by drawing on a combination of research, expertise and market intelligence. The process of determining where assets should be allocated should include a thorough assessment of art market conditions, global economic conditions, the availability of attractive investment opportunities, and suitability of investments to the risk/return profile of the investor. Similar to industry analysis in traditional fund management, the investment process should include a review to determine how trends in each sector are likely to influence the future Investors can DIRECT INVESTMENT VERSUS ART performance and risk-management benefits of spread the risk in a INVESTMENT FUNDS OR CLUBS the portfolio. way that is difficult As interest in art as an alternative investment by HNWIs has grown For the first time, a wealth of data is providing to achieve with in recent years, so has the emergence of investment funds and clubs investors with a better understanding of the risk/ direct investment in focused on this unique asset class. When considering whether to return potential of art investment. Established individual works invest directly in art, there are important factors to consider: techniques used in the management of all types of asset can now be employed in art investment 1 Using the expertise and market intelligence of a fund manager, – allowing investors to incorporate art into their risks associated with art can be spread across a larger and more alternative investment strategy. diversified portfolio. In theory, investors can spread the risk in a way The last few years have seen the development of that is difficult to achieve with direct investment in individual works. art price indices that have aided the comparison 2 An art fund structure can reduce transaction and other costs by of art to other assets such as equities, bonds and investing in art on a “pooled” basis. In selling art at auction, these gold. The MeiMoses All Art Index and Art Market costs may be considerable, often approaching as much as 25-30%, Research are among the most widely quoted. after the buyer’s premium and the commission paid by the seller. However, both are reliant on data from the 3 Works of art acquired by an art fund are typically selected by sales at the main auction houses – due to an leading experts in their field. Locating the right works of art to buy absence of data from the dealer market and and disposing of them at the right time requires expert advice that private sales. may not always be available to individual investors. Expertise and Investment in art, as with other investments, being close to the market is a significant competitive advantage. involves a substantial risk loss. Economic 4 An art fund may have unique access to works of art that are fresh movements and market trends that could affect and rarely seen on the market, adding to their investment value. future buying behaviour should be constantly 5 There can be tax advantages to being in a fund. An art fund may analysed and reviewed. For example, precipitous be structured for a tax-efficient means of investing. art market declines are often the result of bursting bubbles within geographic regions or market Of course, this is achievable only if the investment vehicle is well sectors, such as the one we have just experienced managed and the decisions to buy and sell are made by experienced, in the contemporary art market. independent and objective advisers. Vitally, the potential long-term Equally, investors must make themselves benefits of art to a portfolio must be balanced with other client- familiar with the risks associated with the specific requirements, such as liquidity needs and time frames. Riskier purchase of individual works. These include assets such as art require longer holding periods for positive returns. questions of authenticity, title, condition and provenance. Expert advice from both the WWW.FINEARTWEALTHMGT.COM commercial and academic art world is often required and experts’ credentials should include membership of officially approved associations; vetting committees for major international art Randall Willette is the founder and managing director of Fine Art fairs; and their acting as consultants to major Wealth Management – he museums and collectors. established the company in 2003 PORTFOLIO OUR GLOBAL PERSPECTIVE ON INVESTMENT AND SPENDING OPPORTUNITIES 56

TOP SELLING CHINA ARTWORKS IN The overall autumn season for the 2010 big four auction houses (Christie’s, Sotheby’s, China Guardian and Poly) raised a record total of $2.2bn (for all art categories), with the two domestic auction houses seeing the strongest growth supported by regional buyers. In terms of the Chinese contemporary art market, Christie’s Hong Kong raised $24m in November 2010, which was at the top end of the pre-sale estimate of $17m. The total was 54% higher than spring 2010. The result supported the strong positive trend set out by Sotheby’s Hong Kong the month before. The strongest growth, however, has been among Chinese auction houses.

RISK > Investor- rather than collector-driven market > Speculative, short-term buying increases volatility in prices and increases the risk of a new bubble

The Men in Her Life by Andy Warhol © The Andy Warhol Foundation for the Visual Arts / Artists Rights Society (ARS), New York / DACS, London 2011. MARKET TRENDS ANDERS PETTERSON OF INDUSTRY ANALYST ARTTACTIC OFFERS SOME EXPERT INSIGHT ON KEY ART MARKETS

US & EUROPE INDIA Despite a mid-year wobble in 2010, The total auction value for the US and European contemporary modern Indian art at Sotheby’s, art market ended the autumn season Christie’s and Saffronart came in Chapter of a New Century – Birth of the People’s Republic of China II by Zhang Xiaogang with conﬁdent sales in New York 20% below the pre-sale estimate. totalling $554m, which quelled Overambitious valuations and lack some worries about a possible of quality works failed to generate LATIN AMERICA double-dip scenario. buyer interest. But the total was The Latin American art market is Sotheby’s London and Christie’s 125% higher than 2009. back to 2007 levels, after a gradual

New York contemporary evening RISK recovery since the market correction sales raised a total of $923m in 2010, > Autumn estimates were too aggressive and buyers in autumn 2008. However, recent reacted negatively; the market is price-sensitive up 193% from 2009. Pop Art and > Speculation November sales in New York were Abstract Expressionism accounted disappointing. Both Christie’s and for 68% of the total value. The MIDDLE EAST Sotheby’s failed to reach their low market for Andy Warhol continues The Christie’s Dubai sale totalled pre-sale estimates. Results were to generate strong demand, and his $11.6m against a pre-sale estimate helped by high-quality lots. We market accounted for 32% of the of $6.7m to $9.2m. This was 8% expect the Brazilian modern and total overall evening sales value in lower than April 2010, but 112% contemporary art market to pick up November 2010. Evening sales tend to higher than October 2009. The 2011 in 2011, as a primary driver of the feature auctioneers’ premium items. outlook is positive. Latin American art market. ArtTactic was set up by Anders RISK Petterson in 2001, as a response to > Success and sustainability of the market needs an RISK an increasing interest for responsive RISK ongoing supply of top-quality art > The Middle-Eastern art market is only ﬁve years old – and dynamic art market research and > Political and economic risks have unsettled the art > Uncertainties remain about the strength of the US and so, although the art infrastructure in the region is in the commentary. www.arttactic.com. All market in Latin America, but the economic outlook European economic recovery process of being built, the collector base remains shallow graphics ©ArtTactic Analytics. appears optimistic for 2011 VXYH\

THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

57 APRES LE DELUGE, MODERATION

EDITOR OF SPEAR’S, JOSH SPERO, TAKES A WRY LOOK BACK AT HOW THE GLOBAL RECESSION HAS TEMPERED THE LIVES OF THE SUPER RICH – IN SOME CASES

he cloudless horizons of 2006 were deceitful. Philanthropy Capital (NPC), nearly two-thirds want Looking back from 2011, we must almost more advice, especially about monitoring charities’ Tview those days with detached bemusement long-term performance and educating the next or horrified fascination. What came so easily then generation. About 85% of philanthropic families – both spending and earning – is harder now: the now involve their children, says NPC. concept of value-for-money is back, and with it a This idea of monitoring performance has been whole series of disciplines. From making money adopted from venture philanthropy, as pioneered to giving it away, the purse strings of 2011 are held by groups such as Impetus (whose founder is significantly tighter than those of 2006. interviewed on page 59), where charities are treated as socially positive businesses that must PHILANTHROPY follow sound business practices. Plum Lomax, As conspicuous consumption approached its senior consultant at NPC, agrees that this is the key height in 2006, those spending big had created change in approach. “People are moving away from the perfect offset: conspicuous charity. From being mere chequebook writers to being more charity auctions where tables were £100,000 each active,” she says. “Funding charities that work to donations to galleries whose perpetual requital rather than just big-name charities.” was having your name carved over the lintel, giving Now the largest acts of largesse are not done in privately fell out of fashion. Today, high-visibility pride, but in humility, or so Bill Gates and Warren charity auctions are viewed as pre-credit-crunch Buffett would have us believe. Their Giving Pledge, relics, their ostentatiousness exposed. which applies moral pressure to billionaires to But this was the showiest, not the smartest, give a majority of their fortune to charity, has way of giving. Family foundations have been highlighted how, in 2011, philanthropy is an the bedrock of philanthropy for a century now, obligation for the wealthy and a valid subject in providing long-term funding for good causes in a the public discourse. Incidentally, Mr Buffett said discreet manner. In 2006, however, most private that he will give away 99% of his fortune – which banks had yet to work this into their business will leave him with a mere $470m. model, distinctly failing in their holistic claims, which is why today they are moving WEALTH MANAGEMENT towards establishing philanthropic The commodity not even the biggest advisory services. Family offices need to private bank can buy is trust. All outsource expertise too: according to New will admit that business in 2011 is

JOSH SPERO SPEAR’S WEALTH MANAGEMENT SURVEY EDITOR PORTFOLIO OUR GLOBAL PERSPECTIVE ON INVESTMENT AND SPENDING OPPORTUNITIES 58

substantially different from that of 2006. Then, for $104m. Buyers have placed their trust in artists the key was acronymic innovation: if you could with established reputations – liquidity is key. come up with the new CDO or CDS, reducing risk The crash changed motives for buying art, says to zero, deferring debt to infinity, both clients and Suzanne Gyorgy, head of Citi Private Bank’s art colleagues would love you. It was easy for everyone RICH SWITCH advisory service: “When the market was rising so to look smart and make money. UHNWIs’ EXPECTATION quickly in 2005-07, there were more speculators OF THEIR SPENDING ON The crash ended that. In 2008 and 2009, PHILANTHROPY with an eye on buying art as an investment. Many millionaire wealth fell by over 30% in Hong Kong, were hurt when the market adjusted; Russia and the UK, according to James Lawson of however, collectors who were knowledgeable Ledbury Research. But the crash rebased the game, % weren’t as affected in the downturn.” giving every bank – well, those that had survived – a chance to remake its image and reputation, WINE becoming much more receptive to clients’ needs, Wine, ironically, has always been rather an illiquid lifestyles, assets and opinions. Several are still 27INCREASE SIGNIFICANTLY asset. Nevertheless, it too has been reaching record well-known product-pushers, and some private prices: whereas $100,000 for a 1787 Chateau UHNWIs’ CHANGE IN banks are now being taken inside sister ATTITUDE TO SETTING d’Yquem was pricey in 2006, Sotheby’s sold three investment banks for aggression and convenience, UP OR JOINING A bottles of 1869 Lafite-Rothschild in October 2010 FAMILY OFFICE but equally some are moving to more open for $230,000 each. What is perhaps most notable architecture platforms. A lot less Slightly less about this is not the price, but the location: the interested This move has been helped along by the interested sale was in Hong Kong. The recent rise of Asian 1% 4% proliferation of multi-family offices. However, every wealth has made the East thirsty, seemingly new one-man-and-his-dog operation, as one senior 15% unquenchably so. This rally appears to be self- banker put it to me, is calling itself a multi-family perpetuating, as reports suggest that Asian buyers office – stretching, perverting and sometimes % of these wines are not keeping them to re-sell later 40% No change ruining the term. UHNWIs still tend to desire the but are drinking them for pleasure, making any 40% privacy that comes with a single-family office. Slightly more remaining bottles even more valuable. Things are looking up for 2011, says Mr Lawson: interested A key change since 2006 has been the growth “By the end of this year, the number of millionaires of fine wine funds. Andrew della Casa, director of in the world will have grown 4% to 15.8m.” Seeing as the Wine Investment Fund, says that the future there were 2.7m in 2006, it seems wealth managers For more is sparkling: “Supply at the point of production Attitudes Survey of all denominations will be busier than ever. results, and to find out remains fixed and diminishes over time as wine is which global locations drunk,” he says. “Meanwhile, demand increases. should be on investors’ ART radars, see Databank These characteristics tend to push up prices.” Surprisingly, contemporary art is now rather on p60 old-hat. In 2006, cabinets of multicoloured copper PRIVATE JETS pills and arrays of neon tubes were still hot off Before the crunch, you could upgrade your plane the block; art-lovers could not buy enough work quicker than you could refuel it, but UHNWIs by the Young British Artists. Impressionist and WHAT’S NEW are now trying to get better value out of their modern works rode the rising tide – 2006 was the IN THE frequently underused asset. According to Mary year of a Klimt going for $135m – but there was an WEALTHY’S Schwartz, global head of aircraft finance at Citi unprecedented surge for the shock of the new. SHOPPING Private Bank, “Ultra-high-net-worths are not buying The mania for contemporary peaked the TROLLEY new planes as quickly as they were – they used to day after Lehmans fell in September 2008, with trade up every three to five years, and they’re not Damien Hirst’s Beautiful Inside My Head Forever Facelift fellas any more.” The fractional ownership firms, which sale fetching £111m, and since then only the It’s not just the ladies having seized on an abundance of credit to order jets, flew highest end of that market has been sustained. cosmetic surgery – male CEOs high in 2006, but now charter firms have started Impressionist and modern, however, have put up are now going under the knife to climb in favour, especially those with their own a sterling fight: a Picasso for $106m, a Giacometti Boutique businesses terminals at private airfields. Firms with the personal touch are thriving after concierge services overextended themselves Extreme exclusivity Limited edition 1,000-run handbags give way to one-offs with craft and charm

Spear’s is a bimonthly magazine for high-net-worth individuals and those in the ﬁnancial service industries. It has been called “the Bible of the banking fraternity” by GQ and “a European rival to Forbes” by the Evening Standard, and goes to 30,000 of Europe’s decision- makers and wealth-creators. spearswms.com THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

THE SOCIAL CAPITALIST MANY OF THE SUPER RICH WANT THEIR CHARITABLE DONATIONS TO WORK HARDER. STEPHEN DAWSON TELLS VICKI SHIEL ABOUT HIS BUSINESSLIKE APPROACH TO PHILANTHROPY

WEALTH Can the skills of making like a very good match. It appealed VS What impact has the global TALK money for yourself be because, although I often donated recession had on VP? used to help others? to charities, it was always reactive SD Charities are under greater Stephen Dawson thinks and there was no feedback on pressure due to government cutbacks so. One of the pioneers of venture how effectively the money was ‘We’ve a big and a decline in donor funding. capitalism in the UK, Mr Dawson being spent. obligation to But HNWIs can make their reduced worked with private equity firm donation go further through VP. ECI Partners for 25 years. In 2002, VS Why should HNWI donors demonstrate Tougher climes stimulate innovation. he applied the principles of venture consider giving via VP schemes over our work’s capital to philanthropy and co- other, more traditional methods? social impact’ VS Social impact bonds are gaining founded the charity Impetus Trust. SD Because of its effectiveness. momentum. What are they? Impetus, which has received People like to donate to causes they SD Investors buy the bonds, usually backing from venture capitalists have a personal affiliation with, but from a government department, to including Guy Hands, Sir Ronald most people also want to know that fund social schemes on a repayment- Cohen and Jon Moulton, was the their donation will be effective. With by-results basis. They have potential, first UK charity to actively adopt VP, you give through an organisation because if the bond delivers to an venture philanthropy (VP) as a means that is geared up to assessing the agreed target, the government of fundraising. VP provides not just effectiveness of those donations. repays the investor with interest. The financial assistance, but also the Some donors to good causes also investors will then be encouraged to quality of management support and give their time and expertise on invest more the next time. specialist expertise that donors use a pro bono basis. to create their own wealth. The aim VS What is Jacana’s goal? is for a social rather than financial VS Isn’t it difficult to measure SD Jacana aims to expand the return, although new VP models the return on investment and prove provision of growth capital funding claim to offer the potential for both. its effectiveness? and expertise to small- and medium- In 2008, Mr Dawson co-founded SD We’ve a big obligation to sized enterprises in sub-Saharan the Jacana Venture Partnership, demonstrate our work’s social Africa. We invest in growing which aims to tackle poverty in Africa impact. We first agree the metrics businesses there, from fast-moving by building a venture capital industry with the charity. The results consumer goods to hydroelectricity on the continent. He was named are proven. Charities and social and pharmaceutical companies in Personality of the Year at the Private enterprises supported by Impetus Kenya, Ghana, Tanzania and Uganda. Equity Awards in April 2007 and was have increased their income by 30% We help them establish management awarded an OBE for services to the a year – more than eight times the and financial systems as well as voluntary sector in 2010. sector average – and they have access to international markets. The increased the number of people they hope is this will create a generation VICKI SHIEL What led you to co- help by 40% a year on average. of entrepreneurs. In turn, the area found Impetus in 2002? will become attractive to investors. STEPHEN DAWSON Most of my VS There are various models of VP. Africa could be the new China. career had been spent working with How does the Impetus model differ? small, dynamic, growing businesses SD The spectrum runs from pure VS What’s been your biggest feat – I wanted to do the equivalent philanthropy, as adopted by Impetus, as a venture philanthropist? in the charity sector. I found out to social investment, as with Jacana. SD Impetus pioneered VP in the about something taking place in One can begin with a philanthropy UK. That people would contribute the US called venture philanthropy, approach and evolve to become a and that it would work were just established by people with similar social investment provider, with a hypotheses, and the result was a WWW.IMPETUS.ORG.UK backgrounds to mine, so it looked possible long-term financial return. WWW.JACANA.ORG resounding ‘yes’. DATABANK THE NUMBERS BEHIND THE STORIES 60

PRIME RESIDENTIAL MARKETS DATA ANALYSIS AND PRIME OFFICE RENTS

PRIME RESIDENTIAL MARKETS KNIGHT FRANK’S INTERNATIONAL NETWORK OF London Hong Moscow New Sing’ Kong York RESEARCH TEAMS COLLECTS AN UNRIVALLED 2006 Q1 100.0 100.0 100.0 100.0 100.0 2006 Q2 106.4 101.1 110.9 119.3 104.6 RANGE OF DATA ANALYSING THE PERFORMANCE 2006 Q3 112.6 102.2 127.3 111.5 110.2 2006 Q4 121.3 104.2 147.1 110.9 115.5 OF A WIDE VARIETY OF PRIME RESIDENTIAL AND 2007 Q1 131.8 109.1 147.8 113.0 122.0 2007 Q2 143.1 115.2 145.5 112.9 131.6 COMMERCIAL MARKETS 2007 Q3 153.7 142.8 148.9 130.1 142.5 2007 Q4 155.9 138.8 159.6 144.0 153.3 The statistics on this page offer a snapshot of how a selection of these markets has 2008 Q1 158.7 150.0 175.4 165.5 159.1 performed over the past ﬁve years – one of the most turbulent economic periods of 2008 Q2 151.5 155.1 191.4 147.8 158.9 2008 Q3 143.0 142.8 203.0 134.4 154.6 recent history. As a benchmark we have also included data on the performance of other 2008 Q4 129.5 103.5 185.2 138.0 144.6 2009 Q1 120.8 108.1 172.5 128.9 121.2 investments, such as equity and commodity markets. For ease of comparison, all the data 2009 Q2 125.4 122.1 171.4 119.7 114.8 has been indexed to the beginning of 2006. For more details of how the data was compiled 2009 Q3 130.3 137.7 177.4 107.2 132.3 2009 Q4 137.5 145.4 173.6 120.9 142.0 and how to contact Knight Frank’s research teams, please see below. 2010 Q1 144.5 154.0 189.6 121.8 148.3 2010 Q2 149.8 156.8 184.0 119.4 156.2 2010 Q3 148.8 164.8 178.7 122.9 158.7 2010 Q4 151.7 166.5 175.8 136.1 162.3

Six-month % change 1 6 -4 14 4 Annual % change 10 15 1 13 14 Five-year % change 52 66 76 36 62 Lehman Brothers bank collapses

PRIME INTERNATIONAL RESIDENTIAL MARKETS

Our Prime International Residential Index tracks the performance of over 80 luxury markets across the globe, seven of which are featured here. It represents the largest and most comprehensive survey of prime market TERNATIO IN N E A performance, covering L M I R every world region R E P S

I S

D and markets in 40 ’

K PIRI E N

countries. It is a N

T A

critical resource for F

2011 L

D property and wealth G

I E N X

professionals allowing K the analysis of this vital asset class.

KATE EVERETT-ALLEN, SENIOR GLOBAL RESIDENTIAL RESEARCH ANALYST KATE.EVERETT-ALLEN@ KNIGHTFRANK.COM

The Singapore time series is based on the top 15%-20% of the market THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

PRIME OFFICE RENTS STOCK MARKETS COMMODITIES Shanghai Beijing London Paris Sing’ Shanghai Hong Moscow New FTSE Dow Shanghai Oil Gold Wheat Kong York 100 Jones (SSE 50) Ind Ave 100.0 100.0 100 100 100 100 100 100 100 100.0 100.0 100.0 100.0 100.0 100.0 96.3 104.8 103.16 104.29 104.73 96.91 105.37 103.36 106.78 97.8 100.4 127.9 110.7 105.4 141.3 96.5 106.4 110.53 105.71 115.12 100.19 109.56 107.72 117.04 99.9 105.1 126.9 93.4 103.0 138.8 95.3 106.5 115.79 105.71 125.50 103.48 113.76 112.08 121.00 104.3 112.2 202.5 95.2 109.2 90.7 93.5 110.3 121.05 108.57 140.39 103.93 130.73 117.11 120.80 105.8 111.2 265.5 105.1 113.7 98.4 97.2 112.2 129.47 114.29 155.27 104.38 147.71 122.15 134.14 110.8 120.7 358.4 115.4 111.8 147.2 102.5 130.1 133.68 120.00 176.76 111.47 153.37 139.60 145.23 108.4 125.1 492.1 129.1 127.7 105.8 103.0 142.8 133.68 120.00 198.24 118.56 159.02 157.05 140.05 108.6 119.4 496.5 152.7 143.3 240.2 105.3 145.6 126.32 120.00 212.91 127.58 179.90 167.11 144.19 95.4 110.4 331.8 168.9 160.5 269.1 107.0 145.7 121.05 120.00 227.58 136.60 200.78 177.18 144.57 92.7 102.2 257.6 223.5 158.0 214.9 103.5 144.1 121.05 120.00 219.78 133.71 192.78 148.99 147.33 85.3 97.7 215.2 168.1 155.0 227.7 99.4 138.2 112.63 120.00 211.99 130.82 184.78 120.81 121.33 71.9 79.0 164.8 69.7 143.6 93.7 93.4 137.4 97.89 120.00 193.92 119.07 157.46 100.67 102.78 65.4 68.5 217.8 85.2 158.8 151.6 97.9 143.1 92.63 112.86 173.29 115.05 130.15 80.54 101.40 71.1 76.0 285.7 115.1 161.9 149.7 147.9 159.1 89.47 105.71 156.99 112.89 137.17 81.88 102.19 85.2 87.4 264.7 114.9 170.4 245.3 162.4 167.6 92.63 101.43 150.95 108.56 144.20 83.22 94.87 87.1 93.9 307.5 120.1 189.8 134.0 178.6 178.7 97.89 101.43 155.99 112.27 150.34 91.95 94.87 95.6 97.7 283.1 132.0 188.4 147.2 186.3 180.6 105.26 101.43 160.47 112.58 156.49 100.67 97.42 84.6 88.0 220.5 127.7 215.5 136.0 191.9 182.3 110.53 107.14 179.13 114.74 174.49 101.34 97.85 93.9 97.1 233.5 127.8 222.9 146.4 196.1 184.5 115.79 107.14 191.67 116.69 192.50 102.01 100.62 98.9 104.2 241.3 154.1 241.5 216.8

5 2 10 6 19 4 23 5 3 17 18 9 21 12 59 21 10 25 6 27 7 34 23 6 14 11 -22 28 27 62 96 84 16 7 92 17 93 2 1 -1 4 141 54 141 117

PRIME INTERNATIONAL OFFICE MARKETS

Knight Frank’s prime office rent indices track the movement of headline rents for Grade A space in a selection of international cities, showing how global office markets have reacted differently to the recent economic downturn and recovery. The London, Hong Kong and Singapore markets have followed a volatile path, with rents dropping sharply in 2008-09 but subsequently rebounding strongly. In contrast, Paris has seen a shallower fall and rise, while New York recorded only a modest recovery of rental values in 2010. Knight Frank’s international commercial researchers monitor office, retail and logistics property markets globally and provide data and consultancy services to a wide range of clients.

MATTHEW COLBOURNE, SENIOR COMMERCIAL RESEARCH ANALYST MATTHEW.COLBOURNE@ KNIGHTFRANK.COM DATABANK THE NUMBERS BEHIND THE STORIES 62

THE TOP 20 ATTITUDES SURVEY CITIES FOR … THE ENTREPRENEUR THE HEDONIST THE ROMANTIC 1 Shanghai 1 New York 1 Paris The Wealth Report Attitudes Survey 2011 was completed online at the beginning 2 Hong Kong 2 Hong Kong 2 New York 3 Beijing 3 Tokyo 3 London of 2011 by 160 Citi Private Bank wealth advisers representing almost 5,000 UHNWIs 4 New York 4 Paris 4 Rome 5 Mumbai 5 London 5 Tokyo from 36 countries and worth on average more than $100m. Responses were based 6 Singapore 6 Shanghai 6 Sydney either on the adviser’s own opinion or their understanding of their clients’ attitudes. 7 London 7 Rio 7 Shanghai 8 Sao Paulo 8 Barcelona 8 Hong Kong For the purposes of the survey, the East Asia region includes responses 9 San Francisco 9 Sydney 9 San Francisco from advisers who said they had clients in China, Taiwan, Korea and South 10 Palo Alto 10 Dubai 10 Vancouver 11 Dubai 11 Bangkok 11 Rio East Asia. Latin America includes Mexico. There were a limited number of responses 12 Rio 12 Beijing 12 Venice from Russia and the CIS and Africa. The data relating to these regions should be 13 Moscow 13 Singapore 13 Las Vegas 14 Sydney 14 Rome 14 Buenos Aires treated with care. 15 Delhi 15 Las Vegas 15 Barcelona 16 Istanbul 16 Monaco 16 Istanbul The majority of the results are included over the following pages. For further 17 Jakarta 17 Vancouver 17 Beijing details, please contact [email protected] 18 Lagos 18 San Francisco 18 Dubai 19 Dallas 19 Prague 19 Milan 20 Bangalore 20 Miami 20 Miami

Respondents were asked to choose their top three cities in order of priority in each category. Cities were assigned three points for a top ranking, two for second, and one for third.

GLOBAL

CITIES PAGES 16-22

THE WORLD’S TOP 40 CITIES FOR UHNWIs Now 10 years’ time Score* Change (2010-20) Rank Score % 1 New York 1 New York 759 0 -8 2 London 2 London 611 0 -16 3 Hong Kong 3 Shanghai 558 +3 +91 4 Singapore 4 Beijing 506 +1 +39 5 Beijing 5 Hong Kong 479 -2 +1 6 Shanghai 6 Singapore 438 -2 +4 7 Tokyo 7 Mumbai 225 +6 +118 8 Paris 8 Tokyo 220 -1 -14 9 Geneva 9 Paris 129 -1 -46 10 Zurich 10 Moscow 117 +6 +23 11 Washington DC 11 Dubai 113 +1 -7 12 Dubai 12 Sao Paulo 103 +8 +66 13 Mumbai 13 Zurich 93 -3 -39 14 Berlin 14 Geneva 92 -5 -55 15 Sydney 15 Washington DC 91 -4 -29 16 Moscow 16 Berlin 84 -2 -15 17 San Francisco 17 Sydney 72 -2 -26 18 Los Angeles 18 Los Angeles 59 0 -34 19 Vancouver 19 Seoul 52 +8 +73 20 Sao Paulo 20 San Francisco 42 -3 -54 21 Toronto 21 Rio 33 +39 +725 22 Taipei 22 Dallas 28 +1 -22 23 Dallas 23 Vancouver 28 -4 -56 24 Chicago 24 Chicago 24 0 -29 25 Monaco 25 Melbourne 23 +1 -26 26 Melbourne 26 Brasilia 19 +16 +111 27 Seoul 27 Brussels 19 +1 -30 28 Brussels 28 Jakarta 19 +20 +171 29 Miami 29 Monaco 19 -4 -44 30 Riyadh 30 Taipei 18 -8 -53 31 Auckland 31 Toronto 18 -10 -63 32 Houston 32 Auckland 17 -1 +6 33 Shenzhen 33 Delhi 17 +13 +143 34 Abu Dhabi 34 Abu Dhabi 16 0 +7 35 Guangzhou 35 Bangalore 15 +4 +25 36 Seattle 36 Istanbul 13 +23 +225 37 Milan 37 Seattle 13 -1 -13 38 Austin 38 Doha 12 +28 +500 39 Bangalore 39 Houston 12 -7 -25 40 Beirut 40 Beirut 11 0 -8

*Respondents were asked to choose their top 10 cities in order of priority. Cities were assigned 10 points for a top ranking, nine for second, and so on. THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

POLITICAL AND PAGES 14-15 ECONOMIC ISSUES

HOW DO YOU RATE GOVERNMENT ECONOMIC POLICIES IN YOUR REGION? SOLID STATE Africa Europe India Middle North Russia Latin East Global GOVERNMENT POLICIES East America and CIS America Asia OFFER A VIABLE AND They offer a viable and long-term solution LONG-TERM SOLUTION to the economic issues facing the country TO THE ECONOMIC ISSUES at the moment 33 57 50 38 28 50 10 38 39 FACING THE COUNTRY They may improve the economic situation in the short term, but do not provide a long-term solution 67 17 19 23 48 50 50 35 33 They will improve an already good economic performance 31 23 4 40 27 18 % They are unlikely to have any % meaningful impact 9 8 16 10 16 11 They will hamper the country’s ongoing economic recovery 13 15 16 7 They will make a bad situation worse 13 4 3 ADVISERS IN EUROPE AGREE ADVISERS IN LATAM AGREE 57 10 WHAT EFFECT WILL GOVERNMENT ECONOMIC POLICIES HAVE ON YOUR CLIENTS’ WEALTH? GOLD RUSH Africa Europe India Middle North Russia Latin East Global East America and CIS America Asia GOVT POLICIES WILL MAKE They will make it easier for my IT EASIER FOR MY CLIENTS clients to create wealth 33 4 75 50 21 50 45 40 35 TO CREATE WEALTH The global economy is more important to their wealth than national economic policy 33 40 19 14 24 50 18 37 29 They will make it harder for my % clients to create wealth 32 6 21 55 36 21 29 They could force my clients to relocate 33 24 2 6 % They will actively reduce my clients’ wealth 14 1

Numbers refer to the % of wealth advisers in each region who agreed with the statement ADVISERS IN INDIA AGREE ADVISERS IN NORTH 75 21 AMERICA AGREE

HOW HAVE UHNWIs’ ATTITUDES TOWARDS ECONOMIC AND GEOPOLITICAL RISKS CHANGED OVER THE PAST FIVE YEARS? A lot less Less No More A lot more PAGES 12-13 GLOBAL SUMMARY concerned concerned change concerned concerned Local or regional political instability 3 20 28 39 10 Global political instability 1 10 27 51 12 The state of the local or regional economy 1 15 19 49 16 The state of the global economy 1 8 11 55 25 Terrorism 2 15 44 31 8 Climate change and environmental issues 1 13 50 33 3 A lot less Less No More A lot more LOCAL OR REGIONAL POLITICAL INSTABILITY GLOBAL ECONOMY concerned concerned change concerned concerned Africa 33 33 33 Africa 33 67 Europe 4 32 52 12 Europe 4 4 64 28 India 13 31 19 38 India 13 6 44 38 Middle East 14 21 57 7 Middle East 7 7 71 14 North America 7 17 31 34 10 North America 3 7 69 21 Russia and CIS 50 50 Russia and CIS 100 Latin America 45 9 27 18 Latin America 18 27 36 18 East Asia 19 35 35 12 East Asia 12 16 42 30 Global 3 20 28 39 10 Global 1 8 11 55 25

GLOBAL POLITICAL INSTABILITY TERRORISM Africa 33 33 33 Africa 33 33 33 Europe 28 56 16 Europe 16 40 44 India 6 31 6 44 13 India 31 50 19 Middle East 7 36 57 Middle East 7 71 14 7 North America 7 21 62 10 North America 17 45 24 14 Russia and CIS 50 50 Russia and CIS 50 50 Latin America 9 27 45 18 Latin America 9 36 45 9 East Asia 7 35 44 14 East Asia 5 16 42 30 7 Global 1 10 27 51 12 Global 2 15 44 31 8

THE STATE OF THE LOCAL OR REGIONAL ECONOMY CLIMATE CHANGE AND OTHER ENVIRONMENTAL ISSUES Africa 33 67 Africa 33 33 33 Europe 4 8 60 28 Europe 8 44 48 India 44 19 31 6 India 6 6 31 56 Middle East 7 71 21 Middle East 21 79 North America 3 7 17 45 28 North America 3 14 62 17 3 Russia and CIS 100 Russia and CIS 50 50 Latin America 9 18 45 27 Latin America 82 18 East Asia 12 23 56 9 East Asia 19 35 40 7 Global 1 15 19 49 16 Global 1 13 50 33 3

Numbers refer to the % of wealth advisers in each region who agreed with the statement DATABANK THE NUMBERS BEHIND THE STORIES 64

UHNWIs AND THEIR PAGES 50-51 INVESTMENTS

WHAT IS THE IMPORTANCE OF THE VARIOUS CLASSES OF INVESTMENT TO UHNWIs? HOW WILL THE IMPORTANCE OF DIFFERENT (10 = highest degree of importance) ECONOMIC SECTORS TO UHNWI INVESTMENT STRATEGIES CHANGE OVER THE NEXT DECADE? (% of respondents)

Africa Europe India Middle North Russia Latin East Not Limited More Far more East America and CIS America Asia Global important importance important important Own Business 5.0 8.1 9.0 7.3 7.5 10.0 8.3 9.1 8.3 Energy 1 7 44 48 Property 5.5 7.4 7.6 7.0 6.5 7.0 7.1 8.1 7.3 Natural resources 1 10 50 39 Equities 4.0 5.4 6.4 4.9 6.5 7.5 6.0 6.4 6.1 Healthcare 1 21 51 27 Corporate bonds 4.5 5.3 4.9 5.2 4.5 7.5 5.6 4.9 5.0 Green/low-carbon technology 2 21 58 19 Government bonds 1.5 5.2 4.6 4.7 5.1 6.0 5.1 4.1 4.7 Hi-tech industries 1 23 58 18 Private equity/venture capital 1.5 4.5 3.7 5.8 4.8 6.0 3.2 3.8 4.3 Food production 5 23 54 18 Commodities 2.5 3.8 3.7 4.5 4.1 6.5 3.1 4.2 4.0 Education 5 39 39 17 Hedge funds 2.5 4.1 2.4 5.0 4.5 3.0 3.8 3.8 3.9 Utilities 5 43 42 10 Gold 3.0 3.8 5.4 3.6 3.4 8.5 2.2 3.6 3.8 Communication 3 30 58 10 Derivatives 2.0 3.2 3.4 4.0 3.1 5.0 2.0 3.8 3.3 Leisure 8 50 35 7

WHAT HAS BEEN THE CHANGE IN ENTHUSIASM OF UHNWIs TO INVEST IN ASSET CLASSES OVER THE HOW WILL GLOBAL REGIONS CHANGE IN IMPORTANCE FOR UHNWI PAST FIVE YEARS? INVESTMENT STRATEGIES IN THE NEXT DECADE? (% of respondents) (5 = much more willing to invest) Africa Europe India Middle North Russia Latin East Much less Less No More Far more East America and CIS America Asia Global important important change important important Property 4.0 3.2 3.9 3.8 3.4 2.5 3.0 4.0 3.9 India 0 2 12 46 40 Equities 3.0 2.7 3.4 2.7 3.0 3.5 3.0 3.7 3.6 China and East Asia 0 0 4 64 31 Government bonds 2.0 2.9 2.6 3.3 2.4 3.0 3.4 2.4 3.2 Africa 5 13 30 42 10 Corporate bonds 4.0 3.1 2.6 3.3 2.6 3.5 3.5 2.8 3.1 South America 2 8 24 60 6 Commodities 3.0 2.9 2.8 2.6 2.9 4.5 3.0 3.2 3.0 North America 1 17 56 21 5 Derivatives 2.0 2.1 1.9 2.2 2.3 3.0 1.6 2.7 2.9 Australasia 2 6 43 43 5 Private equity/venture capital 1.5 2.1 2.7 2.2 2.5 2.5 1.8 2.3 2.7 Russia and CIS 2 17 30 48 3 Hedge funds 1.5 2.2 1.9 2.2 2.8 3.0 2.2 2.5 2.4 Europe 7 38 43 10 2 Own business 5.0 3.6 4.5 4.1 3.6 4.0 4.0 4.0 2.3 Central America 4 22 50 23 2 Gold 2.5 3.3 4.0 3.0 2.6 4.5 2.9 3.1 2.3

WHAT % OF UHNWI INVESTMENT PORTFOLIOS IS ALLOCATED TO PROPERTY?

PAGES 44-49

HOW INTERESTED ARE UHNWIs IN PROPERTY INVESTMENTS? (5 = highest level of interest) Africa Europe India Middle North Russia Latin East Global East America and CIS America Asia Direct ownership of residential property 4.5 4.2 4.6 4.8 4.0 4.0 3.3 4.6 4.3 Direct ownership of commercial property 3.0 3.4 4.0 4.1 3.4 3.0 3.4 3.7 3.6 Property funds 1.0 2.2 2.6 2.8 2.4 1.5 1.9 2.5 2.4 Reits 1.5 2.2 2.5 2.1 2.6 1.0 1.6 2.7 2.4 Agricultural land 2.5 1.6 2.7 2.3 2.0 3.0 2.1 2.1 2.1

HOW INTERESTED ARE UHNWIs IN COMMERCIAL PROPERTY INVESTMENTS? (5 = highest level of interest) Africa Europe India Middle North Russia Latin East Global East America and CIS America Asia Office 3.0 3.6 4.2 3.7 3.4 4.0 3.5 3.4 3.6 Retail 2.5 3.0 3.3 3.6 2.7 4.0 3.2 3.3 3.1 Industrial 1.0 2.4 2.6 2.5 2.6 4.0 2.6 2.3 2.5 Logistics 1.0 2.5 2.5 2.8 2.7 1.5 2.8 2.3 2.5 Hotels 2.5 2.1 2.6 3.0 2.3 2.5 2.4 2.5 2.4 Healthcare/retirement 1.0 2.1 2.6 2.8 2.5 2.0 1.9 2.4 2.4 THE WEALTH REPORT 2011 KNIGHTFRANK.COM | CITIPRIVATEBANK.COM

UHNWI SPENDING PATTERNS AND PAGES 54-59 ATTITUDES TO WEALTH MANAGEMENT

HOW HAVE UHNWI SPENDING PATTERNS CHANGED OVER THE PAST FIVE YEARS? HOW WILL UHNWI SPENDING PATTERNS CHANGE OVER THE NEXT FIVE YEARS? (% of respondents) (% of respondents)

PHILANTHROPY AND CHARITABLE GIVING PHILANTHROPY AND CHARITABLE GIVING Clients Decreased Decreased Stayed Increased Increased Decrease Decrease Remain Increase Increase not significantly slightly the slightly significantly significantly slightly the slightly significantly interested same same Africa 50 50 India 14 29 57 Russia and CIS 50 50 Africa 50 50 India 29 43 29 Russia and CIS 50 50 Latin America 30 30 20 20 Latin America 20 30 50 Middle East 10 10 50 20 10 East Asia 29 35 29 East Asia 3 42 45 10 North America 7 29 46 18 North America 7 32 29 25 7 Middle East 40 40 10 Europe 6 6 35 29 24 Europe 6 12 47 29 6 Global 3 3 17 33 32 12 Global 1 4 29 37 27

ART AND OTHER COLLECTABLES ART AND OTHER COLLECTABLES

Africa 50 50 Africa 50 50 India 7 36 7 50 India 7 29 14 50 East Asia 3 39 35 23 Latin America 10 60 30 Europe 6 12 35 29 18 East Asia 33 33 30 Middle East 10 20 40 20 10 Europe 6 29 47 18 Latin America 10 10 40 30 10 North America 4 46 43 7 North America 36 39 21 4 Middle East 10 50 30 Russia and CIS 100 Russia and CIS 50 50 Global 3 2 13 38 26 18 Global 4 35 38 22

FINE WINE FINE WINE

East Asia 6 39 26 29 India 21 21 36 India 21 36 21 21 Latin America 40 30 20 Latin America 20 40 20 20 East Asia 3 33 33 20 Europe 12 12 53 12 12 Europe 59 24 6 North America 4 46 32 14 4 North America 4 71 21 4 Africa 100 Africa 50 50 Middle East 30 10 20 30 10 Middle East 10 10 40 10 Russia and CIS 50 50 Russia and CIS 100 Global 11 2 15 39 18 15 Global 2 3 46 26 13

PRIVATE JETS AND YACHTS PRIVATE JETS AND YACHTS

India 7 14 29 50 India 7 29 64 Russia and CIS 50 50 Africa 50 50 Middle East 30 10 20 40 Latin America 10 10 60 20 Europe 12 24 29 18 18 North America 7 43 32 18 North America 21 36 29 11 4 East Asia 7 27 27 17 East Asia 19 6 3 39 29 3 Middle East 10 20 60 10 Africa 50 50 Europe 18 59 12 6 Latin America 20 20 20 40 Russia and CIS 50 50 Global 8 9 18 26 24 15 Global 2 7 31 32 21

UHNWI ATTITUDES TOWARDS RESIDENTIAL PURCHASES

Africa Russia Middle Europe East India Latin North and CIS East Asia America America Global PAGES 26-33 What % of UHNIWIs already own a second home outside their country of residence? 100 95 82 71 61 59 57 26 57 What % of UHNWIs not owning a second home outside their country of residence plan to buy one? 100 51 51 40 39 37 18 37 What % of UHNWIs are considering buying another second home outside their country of residence? 70 50 37 37 37 27 16 9 28 What % of UHNWIs are actively considering changing their main country of residence? 5 17 3 3 3 10 17 11 9 SCHOOL RUN PRIMARY REASON DRIVING WHAT IS THE PRIMARY REASON DRIVING UHNWI SECOND-HOME PURCHASES? UHNWI SECOND-HOME (% of respondents) Africa Europe India Middle North Russia Latin East PURCHASES East America and CIS America Asia Global Lifestyle reasons such as a holiday home 50 59 21 60 54 60 6 37 Property was purchased as an investment 50 41 43 30 11 20 53 34 Purchase related to client’s business 14 29 9 11 Purchase was due to education of children 7 10 4 29 11 Insurance against political or economic instability at home 14 4 100 20 3 7

WHAT IS THE PRIMARY REASON THAT UHNWIs CHANGE THEIR COUNTRY OF RESIDENCE? (% of respondents) Africa Europe India Middle North Russia Latin East East America and CIS America Asia Global Tax 59 7 20 39 10 21 27 Lifestyle 35 14 40 32 50 21 25 Business 36 7 18 11 EDUCATION Political worries 50 14 20 4 50 10 15 11 Personal safety worries 80 3 8 Education 18 5 Economic worries 6 10 7 3 CONTACTS CITI PRIVATE BANK AND KNIGHT FRANK WORLDWIDE 66

CITI PRIVATE BANK As one of the world’s global private banks, Citi Private Bank is set apart by our teamwork, commitment to service and ability to open a world of opportunity for our clients’ wealth. With a comprehensive understanding of our clients’ aspirations in mind, our private bankers can provide global thinking, informed by deep local insight. We deliver the complete financial management strategies that today’s wealth requires, as we partner with our clients to help build enduring wealth legacies. Citi Private Bank, serving some of the world’s most successful and influential individuals and families, is represented by more than 1,000 private bankers, investment professionals and product specialists, across a network of 60 offices in more than 20 countries.

ASIA PACIFIC EUROPE & LATIN NORTH AMERICA & MIDDLE EAST AMERICA CARIBBEAN

Australia Bahrain Brazil United States Melbourne Bahrain Rio de Janeiro New York, NY 61-3-8643-9988 973-17-588-371 55-21-2178-8905 High Net Worth Sydney Sao Paulo 212-559-9470 61-2-8225-4284 Channel Islands 55-11-4009-3432 International St Helier, Jersey 212-559-9067 Hong Kong 44-1534-608-010 US Latin American Latin America Hong Kong offices 212-559-9155 852-2868-8688 Greece Houston, TX Law Firm Group Athens 713-966-5102 212-559-9470 India 30-210-675-6850 Miami, FL Securities Trading Bangalore 305-347-1800 800-269-8952 91-80-4144-6389 Israel New York, NY Mumbai Tel Aviv 212-559-9155 Atlanta, GA 91-22-4001-5282 972-3-684-2522 877-248-4418 New Delhi Mexico Beverly Hills, CA 91-124-418-6698 Kuwait Mexico City 310-205-3000 Kuwait 52-55-22-26-8310 Boca Raton, FL Indonesia 965-2594-033 Monterrey 561-368-6802 Jakarta 52-81-1226-9401 Boston, MA 62-21-5290-8065 Monaco 800-279-7158 Monte Carlo Chicago, IL Singapore 377-9797-5010 312-384-1450 Singapore Dallas, TX 65-6227-9188 Spain 214-880-7200 Madrid Denver, CO South Korea 34-91-538-4400 303-296-5800 Seoul Valencia Greenwich, CT 82-2-2124-3600 34-96-353-51-47 800-279-7158 Houston, TX Taiwan Switzerland 713-966-5150 Taipei Geneva Los Angeles, CA 886-2-7718-8608 41-58-750-5550 213-239-1927 Zurich Miami, FL Thailand 41-58-750-5000 800-869-8464 Bangkok Orange County, CA 66-2-232-3031 United Arab Emirates 714-428-6580 Abu Dhabi Palm Beach, FL 971-2-494-3200 800-494-1499 Dubai Palo Alto, CA 971-4-604-4644 650-329-7060 Philadelphia, PA United Kingdom 267-597-3003 London Phoenix, AZ 44-20-7508-8000 602-687-8920 San Francisco, CA 415-627-6330 Seattle, WA 888-409-6232 Short Hills, NJ 973-921-2400 Washington, DC 202-776-1500

Canada Montreal 514-393-7526 Toronto 416-947-5300 Vancouver 604-739-6222

Bahamas Nassau 242-302-8706 KNIGHT FRANK GLOBAL RESIDENTIAL EUROPE, CIS AND COMMERCIAL & RUSSIA Knight Frank’s global residential and commercial network includes 209 ofﬁces in 43 countries RESIDENTIAL across six continents. The key contact for each Paddy Dring global region is included on the map below. Head of International Sales [email protected] T +44 (0)20 7861 1061

COMMERCIAL Chris Bell Head of Europe [email protected] T +44 (0)20 7861 1145

UNITED KINGDOM NORTH ASIA AMERICA & RESIDENTIAL PACIFIC CARIBBEAN Patrick Ramsay RESIDENTIAL Head of Residential Division Clive Betts Paddy Dring [email protected] MIDDLE EAST Head of Asia Paciﬁc Head of T +44 (0)20 7861 1071 [email protected] International Sales T +(65)6228 7392 [email protected] COMMERCIAL Jeremy Waters T +44 (0)20 7861 1061 Alistair Elliott Head of Middle East Head of Commercial Division [email protected] COMMERCIAL [email protected] AFRICA T +44 (0) 20 7861 1228 John Snow T +44 (0)20 7861 1141 Head of US Global Partnership Peter Welborn [email protected] Head of Africa T +44 (0)20 7861 1190 [email protected] T +44 (0)20 7861 1200

KNIGHT FRANK KNIGHT FRANK RESEARCH GLOBAL PROPERTY Our global network of research WEALTH teams provides strategic Global Property Wealth is a advice, forecasting and unique service that provides consultancy services to HNWI clients with a single point a wide range of residential of contact to access the full range and commercial clients. of Knight Frank’s residential and commercial property services. RESIDENTIAL Liam Bailey Philip Selway [email protected] [email protected] T +44 (0)20 7861 5133 T +44 (0)20 7861 1112

COMMERCIAL James Roberts [email protected] T +44 (0)20 7861 1239