Preface In our work together over the past market. We begin by highlighting its 15 years, Merrill Lynch and Gemini extraordinary growth in 1999 and Consulting have endeavoured to focus on some of the drivers behind develop a better understanding of this growth. We then examine a high-net-worth individuals (HNWIs) subsegment of this market—the and what it takes to serve them super-wealthy or ultra-high-net- successfully. This is the fourth in an worth individuals. We analyse this annual series that sets out our views subsegment’s profile, evolution, and on key trends and developments in needs, and assess what it will take to the HNWI market and their succeed in meeting the implications for private banks and requirements of the clients it other institutions that seek to serve comprises. these clients. We continue to revise the Last year’s report had two major methodologies and analyses that themes. On the tactical side, we underpin our insights. Last year we examined how HNWIs fared in 1998, made significant refinements to our a year of increased economic Lorenz curve methodology to reflect turbulence and stock market updated income distribution volatility. On the strategic side, we statistics and equities at market assessed how change and innovation value. We have made only small, in private banking in recent years is incremental changes to our creating a more complex and methodology this year. dynamic private banking environment. We trust you will find this year’s analysis and insights interesting and This year we are concentrating on useful. two key aspects of the HNWI Winthrop H. Smith, Jr. Mark Tilden Chairman Global Head of Financial Services Merrill Lynch International Gemini Consulting World Wealth Report 2000 1 Merrill Lynch/Gemini Consulting World Wealth Report 2000: Key Findings ■ Seven million high-net-worth individuals worldwide hold more than $1 million each in financial asset wealth, totalling approximately $25.5 trillion. ■ Both the number of HNWIs and the wealth they hold grew in 1999 by over 18%, comfortably exceeding the 12% growth registered last year. ■ Growth in 1999 was driven by strong global economic performance overall and global stock market growth of 37%. ■ The big winners in 1999 were the 1.7 million Asian HNWIs whose wealth rose by 22.7%, thanks to a significant rebound in economic performance and a sharp upsurge in stock market values. ■ We expect HNWI financial asset wealth to expand by 12% a year, reaching $44.9 trillion by 2004. ■ The steady rise in HNWI assets is creating a super-class of HNWIs we call ultra-high-net-worth individuals (U-HNWIs), who have individual financial assets exceeding $30 million. ■ We estimate U-HNWIs now number over 55,000 globally, and their ranks are growing rapidly as family businesses are sold, new technology firms float their stock, and executive stock and option packages rise in value. ■ U-HNWIs have very sophisticated needs in terms of product diversity, specialist advice, information requirements, technology, and personal service. 2 World Wealth Report 2000 Market size and Figure 1: HNWI Wealth by Region, 1997–2004(E) ($ Trillion) a growth 0.9 44.9 Africa 1.0 Eastern Bloc Middle East y the end of the last century, 1.9 5.5 Latin America an estimated seven million Bpeople worldwide each held 9.5 Asia liquid financial assets exceeding 25.5 0.5 $1 million. Over a million new 0.6 0.5 21.6 1.1 3.1 19.1 0.5 people joined this exclusive HNWI 0.5 11.8 Europe 1.0 2.7 0.5 5.4 club in 1999, and their financial 0.9 2.5 4.4 4.0 assets around the globe increased by 6.7 5.6 over 18% to $25.5 trillion (see 4.8 14.3 North America Figure 1). Two primary forces are 8.1 5.9 6.9 driving this growth. 1997 1998 1999 2004(E) Source: Gemini Lorenz curve analysis. First, global real GDP expansion a. Adjusted for foreign HNWI ownership of securities. gained momentum in 1999, creating Figure 2: Global Market Capitalisation by Region, Year-end 1998 and 1999 ($ Trillion) new businesses, markets, and individual wealth. Once all the Annual Growth figures are in, a final OECD 1998–1999 economic growth figure of 3% is Worldwide 37.2% expected for 1999, reversing 1998’s 39.6 1.1 ROW 57.1% slowdown. Alan Greenspan 9.6 Asia 69.9% described the US economy’s 28.9 estimated 3.8% growth in 1999 as 0.7 5.7 Europe 26.3% “exceptional”, while economic 10.6 growth in the euro area also 8.4 accelerated significantly in the 18.3 North America 29.5% second half of 1999. Economic 14.1 activity in the dynamic Asian economies, meanwhile, recovered 1998 1999 earlier and more rapidly than Source: FIBV, www.fibv.com/stats/tm4.xls, 9/2/00. anticipated. The Latin American recovery was less evident, and GDP wealth. While growth in the US stock market growth—North growth took longer to reappear. As stock market was impressive—29.5% American HNWI wealth rose by expected, the former Soviet Union in 1999—Asian stock markets shot 17.4%. About 2.5 million North economies remained fragile. up even faster, averaging nearly 70%, Americans now account for over quickly boosting the wealth of Asian 30% of global HNWI wealth (see Second, global stock market growth HNWIs who tend to invest a Figure 3). Our analysis also of 37% in 1999 contributed heavily relatively large proportion of their indicates that burgeoning US wealth to increasing HNWI wealth (see wealth in their local markets. is enlarging the HNWI market base, Figure 2). We estimate that this even though US wealth is more exceptional stock market REGIONAL OUTLOOK evenly distributed than wealth in performance accounts for more than Due principally to these same two other parts of the globe, such as half the year’s 18% rise in HNWI major forces—GDP expansion and Latin America. The US continues to World Wealth Report 2000 3 lead the world in the creation of Figure 3: Millions of HNWIs by Region, 1997–1999 younger, active HNWIs who are likely to have created their wealth in 7.0 0.04 Africa 0.2 Eastern Bloc the technology sector as the digital Middle East 0.2 Latin America 5.9 0.2 economy takes hold. And 0.04 5.2 0.2 1.7 Asia entrepreneurial IPOs and the 0.04 0.2 0.2 0.2 0.2 increasing frequency of significant 0.2 1.3 corporate option packages are 1.2 2.2 Europe intensifying this wealth-creation 1.8 trend even more. 1.6 2.5 North America 2.1 The wealth of Europe’s 2.2 million 1.8 HNWIs grew by over 19% in 1999, slightly faster than that of their US 1997 1998 1999 counterparts. Europeans now Source: Gemini Lorenz curve analysis. account for over 26% of global Note: Totals do not add up due to rounding. HNWI wealth. Average stock market growth of 26% in Western Europe provided a strong platform for Figure 4: Market Capitalisation and GDPGrowth of Largest Asian Economies wealth creation, and in some Annual Change in Stock Market Capitalisation, End December 1999 a countries whose stock markets grew (% Growth) at a furious pace, such as Germany 167% (30%) and France (50%), this effect was particularly pronounced. Prospects for growth in European 103% HNWI wealth will also be favourably 77% influenced as entrepreneurial IPOs 71% become more commonplace in Europe and more family businesses are sold, especially in Germany, Europe’s largest economy. Korea Singapore Hong Kong Japan By comparison, despite a strong increase in major local stock markets Real GDPGrowth, 1998–2000(E) (%) b such as Argentina (+85%) and Brazil 9.4 10 (+42.7%), Latin America’s 200,000 6.8 Korea 5.5 Singapore 6.7 HNWIs’ wealth grew by a relatively 5 Hong Kongc 4 meagre 14.8% due to a 0.6 0.7 0.3 Japan disappointing shortfall in underlying 0 –2.5 0 economic growth. –5.1 -5 –5.8 The 1.7 million HNWIs in Asia, up -10 from 1.3 million in 1998, were the 1998 1999 2000(E) a. FIBV, www.fibv.com/stats/tm4.xls, 9/02/00. biggest winners. Their wealth grew b. Economist Intelligence Unit, “Country Forecast”, 4/2/00. by a healthy 22.7% in 1999. Real c. OECD, “Economic Outlook”, No. 66 (December 1999), p. 130. 4 World Wealth Report 2000 GDP growth rebounded dramatically increasingly more complex than level an identifiable shift in needs in 1999, and local stock markets those of the “ordinary” HNWI, and and behaviour emerges that calls for thrived (see Figure 4). If this growth all financial institutions looking for a different market approach. These continues, the number of Asian high-margin annuity business have a needs are covered in detail in the HNWIs will soon rival those of North stake in attracting this super-rich section after next. America and Europe. This has segment of the world population. significant implications for financial The second part of this year’s World The worldwide population of institutions serving the Asian market, Wealth Report is devoted to U-HNWIs stood at approximately particularly in Japan where less understanding this segment, its 55,000 in 1999, up by 18% on 1998 stringent rules on IPOs, better needs, and the implications for (see Figure 5). They held financial performance on collective those who want to serve the very assets of $7.9 trillion in 1999, investment products, and relatively wealthy people it comprises.