Where in the world?

Written by: Richard Willsher Posted: 18/05/2018

BL56_hotspots illoWealth is being created around the globe, and some regions are regularly singled out as booming – but behind the headlines, where is the new money really coming from?

Take a snapshot of news and business headlines and you’d be forgiven for thinking that the world is being overtaken by thousands of billionaire Russian oligarchs and a Middle Eastern sheikh or three. Yet while there certainly is wealth in those regions, a few headlines don’t give anywhere near the full story when it comes to global wealth.

While the picture may have changed in the past 10 years, what has remained the same is that North America continues to generate more wealth, and produces more ultra-high-net-worth individuals (UHNWIs), than anywhere else on the planet.

According to Knight Frank’s Wealth Report 2018, the region as a whole – dominated by the US – is now home to 44,000 people who hold more than $50 million in net worth. And of course, many are a great deal wealthier than that. 

Asia, by comparison, comes home in second with 35,880 UHNWIs at the end of 2017, according to Knight Frank, with Europe a close third with 35,180. While this in itself presents an interesting picture, the real story seems to be in the countries where wealth is growing most quickly. 

Indeed, wealth is being created all over the world and the reason for this often boils down to the same sorts of drivers. Richard Tribe, Equiom’s Head of Business Development for Europe and Head of Private Office, describes the picture from his perspective of almost three decades in the global wealth market.

Emerging markets

He says emerging markets have often been beset by negative factors such as civil conflict, poor infrastructure, lack of local or foreign investment, and corruption. Once these start to be cured, however, private wealth starts to germinate.

“It’s about those things that you would associate with building an emerging economy,” he explains. “Where you’ve had the opportunity for foreign companies to come in and invest heavily in areas like infrastructure, they’ve had local people to help facilitate this. 

“Then you see the rise of entrepreneurs, in everything from property, road building and telecoms. Local small businesses prosper in cooperation with foreign firms.” 

Tribe points to countries throughout South East Asia and also increasingly in Africa, where primary industries and manufacturing are starting to develop and thrive and produce wealth for countries and their citizens.

This view is partly reflected in Knight Frank’s Wealth Report 2018. Over the five years from 2012 to 2017, the number of people in Asia with $50 million-plus increased from 26,250 to 35,880 – a 36 per cent increase. Indeed, Knight Frank predicts that by 2022, Asia will have almost have caught up with North America, with a forecast 55,740 UHNWIs.

To put this into context, the figure for Africa is expected to grow from 1,190 in 2017 to 1,560 in 2022 – a smaller number, but a sizeable increase in percentage terms.

Drilling down further into previous Knight Frank’s findings, we see that some individual countries have experienced astonishing increases in their UHNWI populations. In its Wealth Report 2017, Vietnam outdistanced all others, with a 320 per cent increase over the previous 10 years.

And with the brakes having been eased in the world’s two most populous countries, it comes as little surprise that India’s ultra-wealthy population increased by 290 per cent in 10 years and China’s by 281 per cent. 

By way of comparison, the UK, which is home to more of Europe’s UHNWIs than any other country, saw an increase of a mere 28 per cent in the same period.

Flight to quality

This changing UHNWI demographic creates significant opportunities for the Channel Islands. Factors such as potential or actual political instability, crime, corruption, natural disaster or reputational damage soon have an impact on wealth. No wonder, then, that global UHNWIs seek safe places for their money.

David Lambotte, a Director within the Jersey trust services team at fiduciary and administration services provider Estera, believes that Jersey is one such place. “The appeal of the Jersey trust company to wealthy individuals is a flight to quality,” he says.

“The jurisprudence and the quality of the practitioners are the most compelling reasons for these individuals to use Jersey. Also, the islands are very well known to the legal intermediaries who advise them on structuring. They often have experience of Jersey and Guernsey from a corporate planning perspective and some of that has transferred into private wealth planning.”

Equiom’s Richard Tribe agrees. “Since the financial crisis, there’s been a huge flight to quality. It wasn’t just to financial houses and companies, it was by jurisdiction as well,” he explains. 

“We saw people moving their wealth from places like Panama and Cyprus to places like the Channel Islands and the Isle of Man. Clients say: ‘We don’t want to have the headache, the negative connotations, that dealing in these places can have. We’d rather be in a very well-respected and well-regulated jurisdiction’.”

Tribe says that, typically, the global wealthy seek the same key benefits wherever they and their wealth originate – they’re looking for protection of their wealth for future generations, succession planning and making sure that the wealth they worked for decades to build is there for the family. Confidentiality is the other important factor.

Looking ahead

Both Richard Tribe and David Lambotte are upbeat about the future of the Channel Islands as a key centre for international wealth management services. “People living in countries where they have a concern over the political or regulatory environment are choosing to move to countries that they think are more favourable,” Lambotte explains.

“They are concerned for the safety of themselves or their families. One would point to certain countries in the Middle East and Latin America, for example. 

“In terms of the future, I still see great growth in Latin America. When you look at the footprint of the countries that make up that sub-continent, in comparison to, say, North America, there’s still a large amount of wealth growth. It hasn’t matured by any means. 

“Likewise with Asia Pacific. We expect to see that trend continue,” Lambotte continues. “The long-term outliers are in Africa. There’s a relatively small HNWI population, but as stability and economic prosperity emerge in the African countries, there will be an ever-increasing desire for service into those markets.” 

He also points to Russia as a relatively young market as yet. Indeed, contrary to the image frequently being pushed by the media, there are only 2,870 UHNWIs worth more than $50 million in Russia and the CIS, according to Kinght Frank.

Historically, the Channel Islands have drawn a great deal of their private wealth work from UK and Europe. This is changing, as they become jurisdictions of direct choice for the global wealthy. Less well-regulated centres are slowly losing their appeal, and businesses in the islands are benefiting from the global flight to quality from whichever part of the world new wealth is being generated. 

One to watch – Kenya

Among the mountain of data gathered in Knight Frank’s Wealth Report 2017, Kenya stands out like a snow-capped peak above the African savannah.
   The equatorial East African country increased its population of UHNWIs by 93 per cent in the decade from 2006 to 2016. Moreover, this phenomenal growth rate is set to continue. Knight Frank projects that in the years to 2026, 80 per cent more ultra-wealthy individuals will make their money there.
   The explanation is that domestic consumption looks set to increase. This is fed by a high proportion of imported goods, which opens the way for entrepreneurs to trade and generate their wealth.
   Yes, there are political risks. Kenya, along with quite a few other African states, has experienced difficulties within relatively recent memory. There’s also an ever-present threat of Islamic fundamentalism. 
   But Kenya’s almost 50 million people are reaching out for a more prosperous future and this translates into burgeoning personal wealth for some of them.

 


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