Sunday, June 25, 2006

World Wealth Report - some comments

The weekend rolled around and I finally had a chance to finish reading the Capgemini Merrill lynch World Wealth Report. The report provides some insight into how the world's wealthy manage their money and, possibly, some tips for the rest of us.

1.HNWIs are responsive to current and impending economic conditions. This is no surprise as most people respond to what they are experiencing and what they anticipate will happen in the future. One interesting observation was that HNWIs are anticipated to reduce their real estate allocations in the face of rising interest rates.

2. HNWIs increased their exposure to private equity funds at the expense of investing in hedge funds. In part this shift in allocations was driven by the superior returns of private equity funds and in part by hedge funds increasing their fees.

3.Ultra HNWIs often made investing decisions ahead of market trends. As a group, ultra HNWIs were more diversified, more sophisticated and more aggressive with their investments than the HNWI group as a whole. In particular, ultra HNWIs had a much greater exposre to alternative asset classes. Tax efficiency was a notable feature of the typical ultra HNWI's approach to investing.

4.HNWIs continued to diversify their holdings internationally and reduced their exposure to North America. The report suggests that the trend of reallocation of investments away from North America and Western Europe to Asia Pacific and emerging markets will continue.

5.61% of HNWIs are aged 56 or over. This compares with 15% of the world's population as a whole. This indicates that time is one of the key factors in achieving financial wealth is time.

I draw three conclusions from my review of the report:

(i) Getting to HNWI status takes time. (This is not a surprise.)
(ii) Alternative asset classes deserve more consideration.
(iii) Investments need to be constantly reviewed and reallocated in response to anticiapted future conditions - a higher degree of risk has to be assumed.

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