High Net Worth Market Grew in 2001 Despite Rough Economy

The events of September 11 and a continuing global economic slowdown did not deter the worldwide high net worth individual marketplace, which grew by three percent in 2001, according to a report released by Merrill Lynch and Cap Gemini Ernst & Young.

The newly released 2002 World Wealth Report created by Merrill Lynch and Cap Gemini Ernst & Young reveals that there was a 3 percent increase in the number of high-net-worth individuals (HNWI) around the globe at the end of 2001, totaling 7.1 million people with a combined worth of $26.2 trillion.

HNWI are qualified by having financial assets of $1 million or more including real estate.

While there was a small rise in the number of HNWI worldwide, it was almost nothing compared to the 6 percent rise of HNWI's in 2000 and a lot less than the 18 percent rise in 1999. The G-7 nations posted a stagnant HNWI growth rate of 1.9 percent.

The news was better in developing countries, however, where the number of HNWI grew by 4.7 percent. Latin America was even luckier this past year with an 8 percent increase in HNWI's wealth that totals $3.5 trillion. Even with the financial woes in Argentina, there was a 12 percent rise in the number of HNWI's and a 0.7 percent increase in the Latin American GDP.

The fact that the number of HNWI grew at all may come as a surprise to some people, considering the events of September 11 and the continuing economic recession in the United States and abroad. "They (HNWI's) had a high proportion of their assets which were invested in dollar denominated asset classes as well as a far higher percentage of their assets invested in fixed income alternative investment products. They therefore didn't get hammered as much by the equity swings downward," said James S. Greene, director of Global Financial Services at Cap Gemini Ernst & Young.

In the U.S. alone, there were 2.1 million HNWI individuals at the end of last year, just slightly higher than the findings in the last report, whose combined wealth grew 1.7 percent to $7.6 trillion. Meanwhile, the wealth of ultra-high-net-worth individuals (UHNWI) in the U.S., individuals who have financial assets over $30 million, also saw a 3 percent increase, to a total net worth of $8.37 trillion. North America's HNWI account for 29 percent of the global HNWI's wealth, second only to Europe in market share size.

Both Europe, who holds the largest (32 percent) market share, and the Middle East, who holds the smallest (3.8 percent) market share, experienced no growth in high-net-worth wealth in 2001. A possible cause of this stagnation was the 20 percent decrease of stock market capitalization. While the GDP did increase by 1.7 percent, most of the important stock indices in Europe fell significantly to result in the 20 percent decrease.

Despite a poor showing in 2001, the report predicts an eight percent average growth rate for HNWI over the next five years, with their combined total wealth reaching $38.5 trillion by the end of 2006.

"Going back as far as 20 years there is empirical data that in good times and bad times the HNWI whose principal investment scheme is balance and diversification and protection of capital they enjoy the 6 to 8 to 10 percent growth," said Greene. "We're not surprised that its 3 percent, but we're projecting 8 percent because historically the growth has been between 6 and 10 percent."