The world’s rich have become increasingly cautious with their investments, and their appetite for risky assets such as hedge funds has diminished as returns have fallen, according to a report on Thursday.
The wealth of high net worth individuals — those with at least $1 million in financial holdings — is expected to rise at a compound annual rate of 6.5 percent between 2004 and 2009, reaching $42.2 trillion, a Merrill Lynch/Capgemini report said.
That rate is slightly below an estimate made a year ago of 7 percent as high oil prices and tighter monetary policy are expected to reduce growth, the report said.
Well-heeled investors are expected to spread their risks more widely in the years ahead, pumping less money into hedge funds after piling into the $1 trillion sector, and they may put more assets into private equity funds instead, it said. While the pace of inflows into hedge funds may slacken, however, people are not expected to flee the sector, said Richard Turnill, chief investment officer of discretionary business at Merrill Lynch, at a media briefing.
“We are seeing some pullback from hedge funds ... that is more about the rate of growth than funds being pulled out.”
Hedge funds, which can employ specialized techniques to make returns regardless of whether markets are rising or falling, hit a soft patch last year. Data providers in the industry estimate that returns averaged below 10 percent last year, less than the 15 percent gains investors could have made in the equity market.
Swelling ranks
The ranks of high net worth individuals rose by 7.3 percent to 8.3 million people last year from a year before, and they own a total of $30.8 trillion in assets, up 8.2 percent, with rises stemming from robust global GDP growth and low interest rates, the report said.
The fastest region for growth of wealthy individuals’ holdings is the Middle East, seen rising by 9.1 percent between 2004 and 2009, followed by North America, up by 8.4 percent; and Asia-Pacific, up by 6.9 percent; while Europe lags at a rise of 3.8 percent.
Last year strong oil prices made the Middle East the strongest gainer in private wealth assets, Merrill said.
For the first time since 2001, the number of rich individuals in North America and the size of their wealth grew faster than for those in Europe.
Last year, high net worth individuals’ exposure to equities globally fell to 34 percent from 35 percent a year before; fixed income exposure rose to 27 percent from 25 percent; cash rose to 12 percent from 10 percent; real estate fell to 13 percent from 17 percent; and alternative investments such as hedge funds rose to 14 percent from 13 percent.
