WM Market Reports

Another Study Finds Asia On Course To Overtake North America As Richest Region

Tom Burroughes Group Editor 17 June 2015

Another Study Finds Asia On Course To Overtake North America As Richest Region

The middle of the year typically sees the arrival of reports on the global wealth management sector, and Boston Consulting Group - like RBC/Capgemini today – was this week among the first to hit the airwaves.

It reported that global private financial wealth rose by almost 12 per cent year to $164 trillion, with 73 per cent of that growth stemming from rising markets and the remainder coming from newly created assets.

In its 15th annual study of the global wealth industry, BCG examined how Asia-Pacific is due to overtake North America as the world’s richest region in 2016, as well exploring the principal drivers of future profitability. The report is called Global Wealth 2015: Winning The Growth Game.

“Potentially disruptive forces are everywhere,” Brent Beardsley, a BCG senior partner and a co-author of the report, said. “The tightening regulatory climate, a more complex investing environment, highly demanding clients, technological evolution, and other trends are straining traditional models. As the pace and magnitude of change intensifies, wealth managers need to think more strategically,” he continued.

Among the litany of statistics in the report, BCG said that for the first time, Asia-Pacific (excluding Japan) overtook Europe (both West and Eastern Europe) to become the world’s second-richest region, at $47 trillion of assets.

With a projected $57 trillion in 2016, Asia-Pacific (excluding Japan) is expected to surpass North America (a projected $56 trillion) as the world’s wealthiest region, and is further projected to hold one-third of global wealth in 2019. Over the next five years, total private wealth globally is projected to post a compound annual growth rate of 6 per cent to reach an estimated $222 trillion in 2019, it said.

Wealth distribution

The report’s findings also chime with other observations of how a rising class of millionaires and "ultra millionaires" continues to prosper. The total number of millionaire households globally (those with more than $1 million in private wealth) reached 17 million in 2014, up from 15 million in 2013. The increase was driven primarily by markets, both in developed and emerging sectors. Millionaire households held 41 per cent of global private wealth in 2014, up from 40 per cent a year earlier, and are projected to hold 46 per cent in 2019.

The US still had the highest number of millionaire households in 2014 (7 million), followed by China (4 million). Private wealth held by ultra-high net worth households (those with above $100 million) grew by 11 per cent in 2014.

Offshore demise is greatly exaggerated

The study also suggests that in spite of the intense scrutiny being placed on offshore domiciles such as Switzerland and the Cayman Islands, “there is still potential for profits and future growth for offshore players that stay ahead of the curve strategically.”

“Clients are still willing to pay a premium for benefits such as political and financial stability, regional diversification, high-quality service, discretion, and broad expertise across products and asset classes,” Anna Zakrzewski, a BCG partner and a co-author of the report, said. “Top offshore performers are transforming their businesses to make them viable for the future,” she added.

Switzerland remained the leading offshore booking center in 2014, with $2.4 trillion in wealth from abroad. Switzerland accounts for 25 per cent of total offshore assets globally.

Globally, private wealth booked in offshore centers grew by 7 per cent in 2014 (compared with 12 per cent for onshore wealth) to reach $10 trillion. The overall $0.6 trillion rise was driven mainly by asset flows originating in Asia-Pacific ($0.3 trillion, excluding Japan), Eastern Europe ($0.2 trillion), and Latin America ($0.1 trillion). The 2014 growth rate for offshore wealth was in line with the 7 per cent rise posted in 2013, but with increased amounts of offshore wealth flowing back onshore, particularly in the Old World. As a result, the global share of offshore wealth declined slightly from 6.1 per cent in 2013 to 5.8 per cent in 2014.

Looking ahead, offshore wealth is projected to grow at a compound annual growth rate of 5 per cent through 2019 to reach an estimated $12 trillion, compared with a projected CAGR for onshore wealth of 6 per cent.

In 2014, the Caribbean and Panama remained the preferred destinations for wealth originating in North America, with 54 per cent of offshore wealth placed there. The UK (15 per cent) and the Channel Islands and Dublin (15 percent) were also common destinations.

Proximity remained a key driver for offshore wealth originating in Western Europe, with most offshore assets booked in Switzerland (35 per cent on average), the Channel Islands and Dublin (21 per cent), Luxembourg (14 per cent), and the UK (5 per cent). A similar dynamic was observed in Eastern Europe, with offshore wealth booked in Switzerland (34 per cent), the UK (17 per cent), the Channel Islands and Dublin (16 per cent), and Luxembourg (11 per cent). The Caribbean and Panama were also common destinations (7 per cent combined).

As for offshore wealth originating in Asia-Pacific (excluding Japan), Singapore (31 per cent) and Hong Kong (15 per cent) remained the top destinations.

Investment in the business

The report says that it is critical for wealth managers to determine where they should be investing for the growth of their companies. Across all regions, BCG client work and research have revealed certain patterns. For example, onshore businesses in North America and Eastern Europe and offshore players in Switzerland plan the highest allocation of resources (71 per cent, 63 per cent, and 62 per cent of their respective investment budgets) to make the most of existing businesses as opposed to expanding into new areas.

All other regions are allocating slightly more than half of their resources to optimising existing business. The three highest priorities for enhancing existing businesses are improving sales force effectiveness (17 per cent of total investment resources), enhancing digital interfaces (14 per cent), and increasing collaboration with other business units (10 per cent).

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