The rich get richer

In 2005 Canada was one of the world’s top performing markets with a return of 26%, but it seems few Canadians struck it rich in that bull run — at least when compared to other countries.

According to the 10th annual World Wealth Report produced by Capgemini and Merrill Lynch, Canada turned out 15,000 new millionaires last year, up 7.2% to 232,000 over 2004. “Canada’s wealthiest citizens benefited from rising oil prices even as the country’s strengthening currency softened the competitiveness of its exports,” notes the report in its findings.

That sounds good, until you compare that to some of the world’s other largest economies. Once other nations are factored in, Canada ranks sixth in terms of its wealthy population growth.

In fact, the number of new high-net worth individuals in this country only outpaced that of China and the United States which grew their share of wealthy individuals by 6.8% each, as well as Germany, which saw the ranks of the rich inch up a mere 0.9% during the same period.

Growth of the millionaire set, defined in the report as individuals who have at least $1 million US in liquid wealth excluding real estate, was strongest in Australia, Brazil, India, Russian and Britain.

And for the first time, the number of HNW individuals in the Asia-Pacific region surpassed those in Europe. India had the greatest growth percentage up 19.3% in 2005, although that represented only an extra 13,000 individuals given the small population of HNW individuals. Russia was a close second with a gain of 17.4%.

Overall, the number of HNW individuals has almost doubled in the past 10 years to 8.7 million worldwide with a combined net worth of $33.3 trillion US. The ranks of the ultra-HNW individuals — those with individual financial assets in excess of $30 million US — grew even faster, which points to greater consolidation of the world’s wealth.

The total number of the ultra wealthy now stands at 85,400 which is up 10.2% in 2005 after an 8.9% increase in 2004.

By 2010, Capgemini and Merrill Lynch predict the number of HNW individuals will reach $44.6 trillion US, growing at an annual rate of 6%.

The good times are not expected to last. According to the report, the rich are “alert to cooling real estate and capital markets.” As a result, HNW individuals are re-assessing market opportunities and investment strategies. They are particularly guarded with respect to real estate and mature markets.

Another trend identified by the report was that interest in hedge funds started to waver in 2005 to the point the sector recently experienced its first quarterly outflow. Low returns, intense media coverage and increasing regulation were some of the reasons attributed to the decrease in interest in hedge funds.

Still, Robert McCann, president of Merrill Lynch’s global private client group, warns against reading too much into these figures. “In my opinion it would be a mistake to conclude from this that there isn’t still a great deal of investor interest in hedge funds, or that hedge funds as a vehicle will not be important to HNW and ultra-HNW individuals” he says. “I think they are here to stay.”

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(06/21/06)