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Barclays Wealth Insights Volume 11: The Changing Wealth of Nations In co-operation with Ledbury Research
Barclays Wealth Insights
Volume 11: The Changing Wealth of Nations
In co-operation with Ledbury Research
About Barclays Wealth
About this report
Barclays Wealth is a leading global wealth manager, and the UK’s largest, with total client assets of £151.2bn, as at
31 December 2009. With offices in over 20 countries, Barclays Wealth focuses on private and intermediary clients
worldwide, providing international and private banking, investment management, fiduciary services and brokerage.
Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate banking,
investment banking, wealth management and investment management services, with an extensive international
presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking,
Barclays operates in over 50 countries and employs approximately 144,000 people. Barclays moves, lends,
invests and protects money for over 48 million customers and clients worldwide.
For further information about Barclays Wealth, please visit our website www.barclayswealth.com
and www.barclayswealth.com/insights
Follow us on www.twitter.com/barclayswealth and www.twitter.com/wealthinsights
Researched by Ledbury Research and written in conjunction with Barclays Wealth, this 11th volume of Barclays
Wealth Insights looks at the next decade of wealth, its opportunities and challenges in a new and evolving landscape.
It is based on two main strands of research. Firstly, Ledbury Research conducted a survey of more than 2,000 high
net worth individuals, all of whom had over £1m (or equivalent) in investable assets and 200 with more than £10m.
Respondents were drawn from 20 countries around the world, across Europe, North America, South America,
Middle East and Asia Pacific. The interviews took place between February and March 2010.
Secondly, Ledbury Research conducted a series of interviews with business leaders, economists, entrepreneurs,
philanthropists, and other experts from around the world. Our thanks are due to the interviewees for their time
and insight.
For information or permission to reprint, please contact Barclays Wealth at: +44 (0)141 352 3952 or email [email protected]
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ForewordThe period running up to the publication of this latest volume of Barclays Wealth Insights has been one of transition. Not only have we drawn a line under the ‘Noughties’, we have seen the global markets continue their fragile recovery from the protracted economic dislocation of the last three years, we have seen increased regulatory focus on the global banking system and, in the UK, we have experienced the most closely fought General Election in a generation.
The wealth management industry is itself experiencing seismic shifts, as it adapts to a post-crisis paradigm and seeks to re-affirm relationships with clients who have made it clear that they expect an advice-led, client-centric and transparent proposition.
The changing nature of clients’ relationships with their wealth and their wealth managers is one of the themes highlighted in the 11th volume of Barclays Wealth Insights, entitled “The Changing Wealth of Nations.” Working in partnership with Ledbury Research, we have once again surveyed more than 2,000 wealthy individuals globally and interviewed a series of experts who have provided their views on what it means to be wealthy.
From this intelligence, we have produced a report which draws out the differing cultural attitudes to the opportunities and responsibilities that come with wealth, whether earned or inherited. It suggests that this decade will see the emergence of a generation of high net worth individuals and families who are increasingly engaged, both with the management of their own affairs and in terms of social responsibility.
With our Wealth Insights series and our white papers, we hope to spark debate and foster ideas. I hope that you find this report achieves these aims.
Thomas L. Kalaris Chief Executive Barclays Wealth
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Our Insights PanelWadah Abusin, Co-founder and Commercial Director of Ecobility Energy Solutions
Gerard Aquilina, Vice Chairman at Barclays Wealth
Charlotte Beyer, Founder and Chief Executive Officer of the Institute for Private Investors
Elim Chew, Founder and President of 77th Street
Michael Dicks, Chief Economist at Barclays Wealth
Collette Dunkley, Managing Director, Global Marketing, Communications and Events at Barclays Wealth
David Lincoln, Head of Research at Family Office Exchange
Julie Meyer, Founder and Chief Executive Officer at Ariadne Capital
Dilek Sabanci, Chair at Vista Tourism and Honorary President, Turkish Special Athletes Association, Special Olympics
Mitul Sanghavi, Director at Akry Organics
David Semaya, Head of UK and Ireland Private Bank at Barclays Wealth
Lena Schreiber, Senior Consultant at New Philanthropy Capital
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Introduction
We continue to live in uncertain times. In the first half of 2010, the global economic recovery seemed to be gathering momentum, particularly in the emerging markets. But severe fiscal problems in Greece and elsewhere confirm an underlying fragility.
Uncertainty has prompted a new “wealth consciousness” in high net worth individuals around the globe. As we start the new decade, wealthy investors are both reconsidering their attitudes towards the process of investment, and towards what they expect from it.
As this report makes clear, the wealthy are becoming increasingly knowledgeable about how they invest. As “engaged investors,” they want to question the rationale and risks that lie behind their investment approach. The notion of a completely hands-off investor seems increasingly out of date.
The wealthy also want different results from their investments. The growing importance of wealthy individuals based in the emerging markets is helping to crystallise a change in attitude. Spending priorities are changing, and there is a rising interest in the social implications of wealth – as demonstrated through a hands-on and often innovative approach to philanthropic activity.
With new attitudes, new priorities and an increasingly rigorous approach to both wealth management and wealth transfer, this looks set to be a transformational decade for wealth.
The aim of this report, the 11th volume in the Barclays Wealth Insights series, is to examine how the global downturn has affected high net worth individuals around the world, and explore some considerable differences in outlook for the decade ahead.
Based on a survey of more than 2,000 high net worth individuals, the report delves into what wealth means in a post-downturn world. It draws on insights from leading economic and business thinkers to shape a view of what it means to be wealthy, and the role that wealth plays as we progress through this decade.
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Executive summary Optimism in emerging markets. Wealthy individuals based in the emerging markets are much more optimistic about global economic prospects than those in the developed economies. In part, this reflects the recent relative outperformance of emerging markets. But, as the survey reveals, the impact of the recent economic downturn on the wealthy’s net assets has also been much smaller in the emerging markets than in the US and Europe. As a group, US and Europe survey respondents are markedly more downbeat about global economic prospects than most professional economists.
New purposes for wealth. High net worth individuals around the world are in agreement that wealth offers opportunity and choice. Yet, how people view their wealth, and what they choose to do with it, varies considerably from region to region. The concept of wealth commanding respect seems to be diminishing in Europe, whilst in Asia Pacific and Latin America it is considered very important. Spending on children’s education is a top priority for Latin Americans and charitable giving is a focus for the US. By contrast, Europeans are more likely to view wealth as a vehicle for personal enjoyment, with foreign travel a top spending priority.
A new wealth consciousness. The impact of the global downturn has encouraged high net worth individuals to become more informed about investment and to play a more active role in investment decision making. Over a quarter are spending five or more hours a week reviewing their portfolios, and three-quarters of respondents see themselves as interested in, and knowledgeable about, finance and investment. This increasingly engaged approach is evident in the wealthy’s changing attitude to charitable giving. But, despite this, wealthy investors may still find it difficult not to base future asset class predictions on recent events.
Traditional asset classes retain investors’ faith despite poor performance. The majority of respondents believe that equities and property will offer good returns over a twelve-month or five-year horizon, despite these asset classes’ recent travails. Against a turbulent backdrop, investors continue to favour investing in what they know. The tangibility of property and the simplicity of equity investment are both attractive propositions for investors in an uncertain global economy.
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Wealthy individuals based in the
emerging markets are much more
optimistic about global economic
prospects than those in the
developed economies.
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7
In terms of net wealth, the European wealthy have been the worst affected by the recent downturn. Wealthy individuals in Asian and other emerging markets appear more positive, both in regards to the impact of the downturn locally and the outlook for the global economy generally. However, wealthy individuals overall are still more pessimistic than professional economists about global economic prospects.
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The impact of the downturn varies by region
This has been a challenging few years for investors generally, and the wealthy have not emerged unscathed. Quantifying the scale of the losses is difficult, but our survey provides an interesting snapshot into how wealthy individuals believe they have been affected.
Thirty eight percent of respondents report that the recession has had a “negative” or “quite negative” impact on their net worth; a rather larger share (42%) report a marginal impact. A fortunate minority (6%) report a positive impact, with 14% claiming no change.
This impact on personal wealth varies considerably by region. Europe fares the worst, with 46% reporting a quite or very negative impact on their net worth. At the other end of the scale, only 33% of respondents
in Asia Pacific say this – and when respondents in Japan are removed from the calculation, this share falls to just 30%.
Chart 1– Impact of the downturn: five key points
Chart 2 – Impact of downturn on personal net worth by region*
29.8%
18.8%
Forced to spend less than previously** 37%
Company's profitability* 26%
Salary and bonus* 18%
Value of main home* 27%
Personal net worth* 38%
29.8%
18.8%
Rest of world 29%
Asia Pacific 33%
US 37%
Latin America 41%
Europe 46%
* Quite or very negatively affected ** Agree or slightly agree with this proposition Source: Ledbury Research
* Quite or very negatively affected Source: Ledbury Research
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At an individual country level, the variations are more extreme. Some 65% of respondents in both Spain and Ireland declare that the downturn has had a “negative” or “quite negative” impact on their net wealth; at the
other end of the scale were respondents in Singapore (15%). Respondents from the UK and US fall in the middle of the range – 43% and 37% respectively reporting a “negative” or “quite negative” impact.
These regional and country-by-country variations on the impact of the downturn open up a number of questions. Are the variations primarily due to differing overall performances of local economies and markets, or to wealthy individuals’ varying investment preferences? A quick look at property prices helps illustrate the complexities here. Property investments in Ireland and Spain played a large part in generating wealth over the last decade – so the abrupt fall in property prices in these two countries has hit the wealthy hard, as reflected in the numbers above. But the wealthy
in other countries which have experienced a sharp fall in property prices (e.g. the US) don’t appear to have been hurt so much. Surprisingly, of the respondents who indicate property as a source of wealth, only 34% indicate that their net wealth has been “negatively” or “quite negatively” impacted by recession, rather below the 38% average. This relatively upbeat view is difficult to explain, over a period when property prices (in the developed world at least) have been depressed. It may reflect an unwillingness amongst investors to face up to the full extent of their losses.
Chart 3 – Impact of downturn on personal net worth*
* Proportion saying that their personal net worth has been very or quite negatively affected by the downturn Source: Ledbury Research
Top five
Spain 65%
Ireland 65%
Qatar 53%
Japan 53%
UK 43%
Bottom five
Saudi Arabia 36%
South Africa 29%
UAE 21%
India 18%
Singapore 15%
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Incomes and profitability bear up surprisingly well
Views on global economic recovery vary from region to region
Similarly, the survey’s findings of a relatively small fall in respondents’ income levels can be interpreted in different ways. A large proportion of respondents in some countries (e.g. Ireland) report falls in income and bonuses. But, in contrast, only 16% of those in the UK think that the recession has had a quite or very negative impact on their salaries and bonuses – and only 19% of those in the US think likewise.
Corporate profitability also appears to have held up well in many countries. Overall, some 25% of survey respondents say that the profitability of their company has been quite or very negatively affected by the recession – exactly the same proportion who thought
that the recession had had no impact or a positive impact on profitability. Again, this sits oddly with the falls in profits recorded by national accounts statistics or by publicly-reported companies.
Part of the reason for this discrepancy may be suggested by the substantial country-by-country variations. Corporate profitability has been badly hit in Ireland, South Africa and Spain (54%, 48% and 40% respectively) but has held up well in the UAE, Switzerland, Singapore and Australia. Australian respondents’ upbeat assessment can be linked (for this and several other survey questions) to the Australian economy’s apparent ability to profit from continued Asian economic growth.
Respondents do not think that the recovery in the global economy will be straightforward. Only 18% of the respondents think that the global economy will grow in a sustained way over the next few years, with 36% forecasting that it will be stable but with limited growth. A further 24% think that it will deteriorate and then improve; 5% that it will grow and then deteriorate. Women and the very wealthy are particularly pessimistic.
But respondents in some regions are much more optimistic than others. As Chart 4 suggests, the picture here is complex, but respondents in Latin America are particularly optimistic about global economic prospects, whereas those in Europe and the US are more likely to think that conditions may deteriorate. Asia Pacific respondents lie somewhere in the middle of the spectrum – although, again, once respondents from Japan are removed from the calculation, then the respondents’ mood seems rather brighter.
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Chart 4 – Outlook for the global economy
It will deteriorate overthe next few years
18%25%
10%14%
6%
It will deteriorate nextyear but then improve
26%26%
22%18%
29%
It is stable, but there will be limited growth over the next few years
34%34%
37%46%
25%
It will grow next year,but then deteriorate
3%2%2%
5%17%
It will grow over thenext few years
19%13%
29%17%
24%
Europe US Latin America Asia Pacific Rest of world
Source: Ledbury Research
At a country-by-country level, it is clear that while expectations about global economic recovery do not always match local experience, the latter often reflect expectations about the future. Twenty five percent of US respondents think that the global economy will deteriorate over the next few years. Respondents in Asia (excluding Japan) are, in contrast, much more likely to have a positive outlook: Only 5-6% of respondents in Hong Kong, Singapore and India think that the global economy will deteriorate. And as Chart 5 indicates, they are also more likely to forecast growth.
Rather more surprisingly, some of those who have been badly burnt by economic slowdown, such as respondents in Spain and Ireland, are among the more optimistic regarding global prospects. For example, 26% of respondents in Ireland think that the global economy will grow over the next few years, as did 40% of respondents in Spain – well above the 18% average for this response.
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Chart 5 –The economic outlook
* % thinking that the global economy will deteriorate over the next few years ** % thinking that the global economy will grow over the next few years Source: Ledbury Research
Top five pessimists*
Monaco 52%
Japan 35%
US 25%
Switzerland 17%
UK 16%
Top five optimists**
Spain 40%
Qatar 34%
Saudi Arabia 32%
Ireland 26%
India 26%
The very wealthy are more pessimistic
It is also clear that the very wealthy (those with investible assets of £10 million plus) are more downbeat about global economic prospects, despite having been less affected by the downturn. Twenty five percent of these respondents think that the global economy will deteriorate over the next five years (vs. a 17% average); whilst 15% think that it will grow (vs. an 18% average).
Interestingly, their source of wealth does not seem to make much of a difference to respondents’ views on global economic prospects: Entrepreneurs are not markedly more optimistic than those who have accumulated wealth through investment gains, for example.
Individuals’ forecasts for their local economy broadly match their outlook for the global economy. The same proportion (18%) believes that their local economy will grow over the next five years, with the most optimistic regions being Latin America, Australia and parts of Asia (excluding Japan). Again, the very wealthy would appear gloomier than the other groups about the prospects for the economy in which they live – as are those over the age of 55. Also of note is that a full 25% of US respondents think that their own domestic economy will deteriorate over the next few years, and only 12% think that it will grow consistently.
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Individuals’ forecasts for their local
economy broadly match their outlook
for the global economy.
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Michael Dicks, Chief Economist at Barclays Wealth, draws a comparison between the survey respondents’ views on the global economy and those of professional economists. As he points out, “High net worth individuals are rather more gloomy than most professional economists.” Nearly one in four of our survey respondents expect the global economy to deteriorate this year and a little over one in three expect it to be broadly stable – leaving just one in four of them pencilling in growth. When it comes to professional forecasters, by comparison, about three out of four are looking for decent or strong growth during 2010, with only one in four expecting a failed take-off.
Using the past variation in growth rates to calibrate what respondents likely mean when they say they expect “growth” or “deterioration” in activity, it is possible to translate these qualitative survey responses into numeric values. Such an exercise suggests that the single most likely outcome, in terms of growth, expected by survey respondents is not that different from those of professional economists — a global growth rate above 3% this year.
However, respondents in the developed economies are notably downbeat. This suggests a significant tendency to extrapolate from your own “home country” experience to the world at large. In developed economies, often still struggling to return to sustained growth, there seems to be a presumption that the world will soon fall apart.
This difference in attitude between survey respondents and professional economists is particularly evident if we look at forecasts for the US economy. The US-based wealthy are very gloomy, with more than half expecting weak growth or outright falls in GDP in the US this year, whereas most professional economists judge that there will be strong growth – a view shared by the Federal Reserve and international organisations such as the IMF and OECD.
Mr Dicks can understand survey respondents’ caution. “Barclays Wealth is rather more gloomy than most other professional economists: high net worth individuals are even more so. It is most likely they fear that the high, and rising, burden of public debts may make it increasingly difficult for policymakers to keep the recovery on the road.”
High net worth more downbeat than economists?
“High net worth individuals
are rather more gloomy
than most professional
economists”
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Chart 6 – Expectations for global growth in 2010
Chart 7 – Expectations for US growth in 2010
Source: Barclays Wealth Economics
Source: Barclays Wealth Economics
<2.2% 2.2% – 3.0% 3.0% – 3.6% 3.6% – 4.5% >4.5%
% of respondents
Global GDP expectations
DEV
OAE
EM
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Developed Economies Other Advanced Economies Emerging Markets
-2% or less -2% to 0% 0% to 2% 2% to 4% 4% or more
% of respondents
80%
70%
60%
50%
40%
30%
20%
10%
0%
Professional economists US survey respondents
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The desire to accumulate and increase wealth remains constant around the world. But different regions have different views on the meaning of wealth. Asians continue to see it as source of respect, Europeans give personal spending higher priority while the US places more emphasis on charitable giving. With the continuing rise of the emerging markets, the focus on the social implications of wealth may deepen, along with an interest in philanthropy.
What wealth means
As well as affecting their individual net worth, the downturn may also have prompted many to think about what wealth really means – and how they should use it.
The survey suggests that wealthy individuals’ desire to accumulate remains, despite a realisation that their material needs are largely met. Nearly three quarters
of respondents list “saving for the future” as a priority use for their wealth; only a slightly smaller proportion are aiming to double their net worth.
We also asked people what wealth meant to them; the results are summarised by region in Chart 8.
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Chart 8 – The meaning of wealth*
Wealth allows me to get thehighest quality products
75%76%
73%76%
73%86%
Wealth allows me to get respect from friends and family
28%41%
38%47%
49%61%
Wealth allows me freedomof choice in my life
91%92%
91%92%
89%91%
Wealth is a rewardfor hard work
80%82%
80%90%
83%87%
Wealth allows meto give to charity
57%67%
74%78%
66%79%
Wealth allows me tosupport my family
87%88%
84%92%
90%93%
Wealth is a signof success
70%62%
67%80%
73%85%
Wealth makesme happy
65%71%
67%76%76%
84%
Total Europe US Latin America Asia Pacific Rest of world
* respondents completely or quite agreeing with the proposition Source: Ledbury Research
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Different region, different priorities
It is possible to trace these different attitudes to wealth through survey respondents’ views on spending priorities.
European respondents are, for example, rather more likely to list travel and interior decoration as a “top three” spending priority.
They are also much less likely to view charitable giving as a priority (20% of Europeans say charity is a spending priority, compared with 41% of US respondents, although this difference may partly reflect the differing age and wealth levels of the two samples.)
Of particular interest are the two outliers – the 91% who think that wealth allows them freedom of choice in their life, and the 41% who think that wealth allows them to gain the respect of friends and family.
The belief that wealth offers freedom of choice varies very little across regions, as Chart 8 shows.
But the proportion of respondents who think that wealth allows them to attain the respect of friends and family varies substantially. As the table shows, this is not a priority for Europeans, whereas it is for many respondents in Asia Pacific and Latin America. A similar, if smaller, variation can be seen in responses to the statement that wealth is a sign of success.
Chart 9 – Three most important spending priorities•
Saving forthe future
Foreigntravel
Paying for (grand)childrens' education
Interior design/decoration of your home
Giving moneyto charity
66%75%
73%80%
78%
83%66%
75%72%
54%
54%49%
73%51%
68%
46%39%
18%40%
36%
20%41%
25%19%
27%
Europe US Latin America Asia Pacific Rest of world
* % of respondents identifying category as a top three spending priority Source: Ledbury Research
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Chart 10 – Social responsibilities*
Wealthy individuals set an important example to others to be successful
46%49%
71%61%
77%
The government in my country handledthe economic downturn well
20%18%
59%48%
39%
I am increasing the amount of moneythat I am giving to charitable causes
31%32%
39%32%
51%
The global recession has changed the way in which the wealthy are seen by others
70%69%
61%60%
64%
Europe US Latin America Asia Pacific Rest of world
* % of respondents completely or slighly agreeing with the proposition Source: Ledbury Research
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Elim Chew is the Founder of the successful retailer 77th Street, and is involved in a number of youth organisations in Singapore. Recently, she was also recognised as one of the 48 Forbes’ Heroes of Philanthropy.
Ms. Chew cautions against holding hard and fast views on an “Asian” approach to wealth, given the variations in race and culture across the region. But, for Chinese people, she thinks wealth is indeed a status symbol and a source of respect.
She stresses the relative youth of many wealthy Asians – which, she argues, makes them more likely to be active investors than their elder peers. There remains, she argues, a desire for investments that are both tangible and controllable (e.g. investment in property or small companies). She thinks that these two attributes will continue to put some Asian investors off more amorphous forms of investment; for example, in funds of funds.
The desire of younger wealthy individuals to get involved in how their money is used has multiple implications. One of the most obvious is in the management of family trusts, social venture funds and so on. This is an area that should be of interest to the financial services industry because, in her words, “this is where the money sits.”
This is an exciting area where a number of governance issues still exist – based around reconciling concepts such as sustainability and profitability. She believes that moving forward these will be resolved over time by innovative collaborations as discussed by Matthew Bishop in his book “Philanthrocapitalism – How Giving Can Save the World.” This will be an increasingly important part of wealth management in future.
This view is reinforced by Dilek Sabanci, a member of one of Turkey’s wealthiest families. The Sabanci Foundation gives grants for youth, women’s and many other projects.
Ms. Sabanci points out that the very wealthiest families in Turkey have been big givers for some time. However, the culture of philanthropy is not broad-based, and there is a tendency to assume that charitable work will be undertaken only by
the exceptionally wealthy, or the government – with nothing in between. “It’s only in the last ten years that the public is more aware that they have to have non-profit organisations and foundations,” says Ms. Sabanci. “It’s not to be done only by government. It cannot be done only by private sector. It has to be done together.” As well as making philanthropy an established concept amongst Turkey’s very wealthy families, Ms. Sabanci is also keen to advocate greater international cooperation between the world’s leading philanthropists.
Ms. Sabanci, like Ms.Chew, is keen to learn from the experiences of foundations and other charitable organisations in other countries. “You can always learn more, you can always do better.”
New Philanthropy Capital is an example of an organisation intended to help charities and donors have a bigger impact. Lena Schreiber, Senior Consultant at New Philanthropy Capital notes two trends in donation by the wealthy. “One is a bit more of a strategic approach to giving… asking a lot more questions around which charity to support and also what happens to the donations once they’ve been made… we’ve seen that more generally but it can be particularly associated with self-made wealth versus inherited wealth.” Another trend is that donors want to give away more while they are still living, rather than passing large amounts of wealth from generation to generation.
Gerard Aquilina, Vice Chairman at Barclays Wealth points out: “Wealth managers can also have an important role here, advising on how to establish foundations, cash management facilities and other operational issues as well as facilitating a network of contacts.”
Attitudes to wealth: Social involvement
“It’s only in the last ten years
that the public is more aware
that they have to have
non-profit organisations
and foundations”
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But how do concerns about climate change affect the actual investment behaviour of wealthy investors? Wadah Abusin, Co-founder and Commercial Director of Ecobility Energy Solutions in the United Arab Emirates provides some insights. Mr Abusin argues that social impact is becoming a key component in the investment decision making process. In part, this is because “socially-responsible companies continue to out-perform their peers in the long run.” But he also highlights two specific reasons why “green” investments may appeal to the wealthy. “Energy technology ventures typically require substantial R&D spend, which may depress returns in the short run. But, through the capacity to create reverse innovation or develop disruptive technologies
(those that impact markets in a substantial and unanticipated fashion), offer the opportunity for longer-term gains. In addition, they recognise the benefits that exposure to renewables can bring to their portfolio from a diversification point of view, especially in a regional economy underpinned by hydrocarbons.”
Mr Abusin draws a distinction between those who are looking for exposure to a particular sector: Those who will tend to take a more hands-off approach, and those who want to enter the sector and add the green element to their existing businesses – who tend to be much more involved.
The survey asked respondents to give their views on climate change and ethical consumption.
The responses reveal climate change to be an important, if not overwhelming issue. Fifty six percent completely or slightly agree with the statement that they are increasingly concerned about climate change. Forty two percent often encourage friends to buy more environmentally-friendly products.
The individual is seen as having an important role in dealing with this problem: 56% disagree with the statement that only governments and big businesses
could make a difference. But there is also some lingering scepticism: 44% agree or slightly agree with the statement that the climate change threat has been overstated.
Asia Pacific and Latin American respondents are much more concerned about climate change than those in Europe or the US, as shown in the table below. This goes against the general perception that this is just a ‘dinner party debate’ for those in the developed economies; those directly affected by high levels of pollution clearly do not like what they see and inhale.
Climate change on the radar
Chart 11 – I am increasingly concerned about climate change*
* % completely or slightly agreeing with the proposition Source: Ledbury Research
Top five
Latin America 84%
South Africa 81%
Hong Kong 76%
Japan 75%
Singapore 72%
Bottom five
Switzerland 50%
UK 47%
Australia 46%
US 39%
UAE 38%
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“They recognise the benefits that
exposure to renewables brings to
their portfolio from a diversification
point of view.”
Wadah Abusin, Co-founder and Commercial Director of Ecobility Energy Solutions
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A degree of investor caution remains after the downturn. But wealthy individuals remain engaged with the markets, and demonstrate a considerable degree of self-reliance. They continue to hold faith with equities and property, relative to other asset classes – but are more gloomy on equities in relative terms than institutional investors. Women take a different approach to investment than men.
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A desire for knowledge
After the downturn, investor caution remains. Fifty one percent of respondents are avoiding high-risk investments more than before the downturn and only 7% are not. Fifty seven percent are more concerned about wealth preservation than before the downturn. This caution is evident across all regions.
Less than half say that they rely on others for financial advice and around three-quarters view themselves as both knowledgeable and interested in financial investment (see Chart 12). But these proportions vary across regions. Less than half of wealthy individuals in Hong Kong and Japan see themselves as knowledgeable about investing, although this could be attributed to modesty rather than fact.
This has not, however, stopped a search for further information. Some 30% say that they are reading financial newspapers/magazines/websites more than before the downturn, and 26% say that they are talking to friends and family more about investing. Twenty seven percent say that they are talking to their financial adviser more frequently than before the downturn.
This demonstration of self-reliance is backed up by the amount of time people spend actively managing their investments. Twenty five percent spend two to five hours a week actively investing their money, 16% spend 5-20 hours and 10% spend over 20 hours a week. The very wealthy spend more time managing their investments than other groups, with wealthy Europeans spending less time than the average. However, the notion of the wealthy as passive investors, who are keen to delegate the task to others, is clearly out of date. Only 5% of respondents are reviewing their portfolios less frequently than before the crisis.
Furthermore, the search for new opportunities continues. David Semaya, Head of UK and Ireland Private Bank at Barclays Wealth notes, “What’s particularly interesting is that we are seeing emerging market investors and clients move from investments in developed economies and look to emerging markets for their investment opportunities: For example, the Chinese are looking to Brazil. Investors who are putting their cash back to work are looking for transparency with a mix of active and passive management.”
Fifty one percent of
respondents are avoiding
high-risk investments more
than before the downturn
and only 7% are not.
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Chart 12 – Investor attitudes summarised
29.8%
18.8%
46%I rely on others forfinancial advice*
76%I am knowledgeable aboutfinance and investing*
77%I am interested infinance and investing*
51%I am avoiding high risk investments more than before
27%I am speaking to my financialadviser more than before
43%I am reviewing my investment portfolio more than before
23%I am investing in othercountries more than before
26%I am talking to friends and colleagues about investing more than before*
25%Time spent each week actively managing portfolios 2-5 hours
16%Time spent actively managing portfolios each week – 5-20 hours
10%Time spent actively managing portfolios each week – 20 hours+
* Completely or quite agree with the proposition Source: Ledbury Research
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Individual case studies suggest that investors are indeed taking a much more engaged approach to investment.
Julie Meyer is Founder and Chief Executive Officer of Ariadne Capital, which helps wealthy entrepreneurs invest in high-growth firms. “These wealthy entrepreneurs” she says “are very hands on people… they have built successful firms, so know what it takes to control all of the variables to exit. They are control freaks.” Ms. Meyer also notes that these wealthy investors (often with a technology background) monitor their investments carefully; some even create online dashboards so that they have ‘on-demand’ information about their positions and stakes.
As Head of Research at the US-based Family Office Exchange, David Lincoln starts from a rather different perspective, but he sees similar developments. As he puts it: “The disruptive effects of all this volatility and uncertainty has made people pay closer attention to how their wealth is actually being managed and what types of processes and what type of safeguards they have in place.”
Gerard Aquilina of Barclays Wealth comments: “Wealthy individuals are, indeed, taking plenty of time over their investment strategy. They are asking more questions, taking more responsibility for their investments and performing considerably more ‘due diligence’ on, for example, issues such as counter-party risk which were not major worries a few years ago. Many family offices have expanded, both in terms of staff numbers and skills. Wealthy investors are more concerned about fees and costs in general,”– a point echoed by Mr Lincoln.
Mr Aquilina argues that wealthy investors remain keen on emerging market equities, because of the higher returns potentially available from these markets, and also because of their increased depth and sophistication compared with a decade ago. He suggests, “While investors may be upbeat about the possible performance of hedge funds and private equity, there is still a reluctance to invest in these asset classes.”
Looking forward, Mr Aquilina thinks that increased investor involvement will continue, along with the focus on fees. Like Ms. Meyer, he thinks that technology will become increasingly important in providing personalised investment performance reporting to clients.
The engaged investor
“While investors may be
upbeat about the possible
performance of hedge funds
and private equity, there is
still a reluctance to invest
in these asset classes.”
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Chart 13 – Views on asset classes
* (Very well + quite well) - (very poorly + quite poorly) Source: Ledbury Research
One-year horizon
Asset class will do:
Very well Quite well Quite poorly Very poorly Balance* Don't know
Equities 3% 44% 24% 5% 18 24%
Government bonds 4% 27% 31% 7% -7 32%
Property 9% 41% 27% 4% 19 19%
Private equity 4% 28% 21% 4% 7 42%
Hedge funds 4% 22% 19% 7% 0 48%
Five-year horizon
Asset class will do:
Very well Quite well Quite poorly Very poorly Balance* Don't know
Equities 10% 55% 10% 2% 53 22%
Government bonds 5% 33% 21% 4% 13 37%
Property 15% 51% 13% 2% 51 20%
Private equity 7% 37% 12% 2% 30 42%
Hedge funds 6% 28% 13% 4% 17 50%
A continued faith in equities and property
We asked respondents how they thought different types of investments would perform, both on a one-year and a five-year horizon.
The survey reveals an enduring faith in equities and property, relative to other asset classes, although as
discussed in the chart below, wealthy investors appear more gloomy than institutional investors about the outlook for equities. It is also clear that there is a continuing interest in “alternative” asset classes such as hedge funds and private equity. However, there are large variations in the survey responses by country.
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Equities
Some 47% of respondents say that they expect equities to perform quite or very well over the next year, compared with 28% who think that they will perform quite or very poorly. On a five-year horizon, this enthusiasm for equities is reinforced, with two-thirds of respondents believing that equities will perform quite or very well.
Where does this enthusiasm for equities come from? In the short term, it could derive from investors seeking to gain from a quick rise in equities in the pull out of recession (when this survey was taken in February – March 2010, the equities markets were moving upwards). Yet the increased enthusiasm for equities on a five-year horizon suggests a different and more profound attraction.
On a country-by-country basis, the variations suggest that recent history does play a part in such judgements. Respondents in Spain and Ireland are more gloomy than average about equities on a one-year horizon – although keen on them on a five-year horizon.
In contrast, respondents in the emerging markets are highly enthusiastic about equities on one-year and five-year horizons – as are respondents in some economies with very direct exposure to the emerging markets, such as Australia. But this is not just an emerging market/developed economy split: Swiss respondents are enthusiastic about equities. And, within regions, markedly different views about equities can co-exist from country to country.
Chart 14 – Equities – One-year horizon*
Chart 15 – Equities – Five-year horizon*
* % believing that equities will perform quite or very well Source: Ledbury Research
* % believing that equities will perform quite or very well Source: Ledbury Research
Top five optimists
Australia 68%
India 65%
Switzerland 64%
South Africa 63%
Singapore 62%
Top five optimists
Australia 86%
South Africa 85%
Saudi Arabia 78%
Hong Kong 75%
Switzerland 75%
Top five pessimists
Monaco 23%
Ireland 22%
UAE 19%
Spain 19%
Japan 15%
Top five pessimists
Spain 53%
Ireland 44%
Monaco 42%
Qatar 32%
Japan 30%
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Michael Dicks, Chief Economist at Barclays Wealth, has attempted to gauge numerical expectations from survey respondents’ qualitative answers. Again, the calculations use long-runs of past data to measure historical variation in asset class returns, thus permitting a calibration to be made from terms such as “well” or “very well”. The expected returns are then compared with those from a recent JP Morgan survey of European institutional investors’ global views (its European Equity Survey).
This comparison suggests that wealth investors are indeed more pessimistic than their institutional peers — which is consistent with their view of economic prospects. They have markedly lower average forecasts for the rise in equity prices over both a one-year and five-year horizon. Looking one year out, survey respondents (on the basis of these calculations) expect a 2.4% increase in equity
prices, while institutional investors expect an 8.3% rise. On a five-year horizon, the expected average annual increases of the two groups are rather closer: 5.9% for survey respondents and 8.4% for institutional investors.
As in the global economy forecasts discussed earlier, it is the uneven distribution of the responses that is interesting. Survey respondents tend to be much more worried by the downside risks to equities than their institutional peers — perhaps mirroring their uncertainty about the global economy in general, on both a short and long horizon (see charts 16 and 17). Survey respondents assess the probability of equities experiencing a negative rate of return at around one in four, whereas institutional investors put it at less than 5%. As with the macro picture, Barclays Wealth shares the view that institutional investors may be overly optimistic.
Equities: wealthy and institutional investors’ views compared
Chart 16 – Expected equity returns over the next year – survey respondents vs. institutional investors
Source: Barclays Wealth Economics
-10% or less -10% to 0% 0% to 5% 5% to 10% over 10%
% of respondents
Equity return expectations
Private investors
Institutional investors
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Private investors Institutional investors
32
Chart 17 – Expected equity returns over the next five years
Source: Barclays Wealth Economics
-10% or less -10% to 0% 0% to 5% 5% to 10% over 10%
% of respondents
Equity return expectations
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Private investors Institutional investors
33
Property
Wealthy individuals’ interest in property owes something to its tangible “bricks and mortar” appeal. Moreover, accumulation of property can be directly useful to wealthy individuals’ families and other relations, whether or not its value as an investment rises. (See Wealth Insights Volume 10: Prospects for Property; On Solid Foundations?)
Almost half of respondents thought that property would do quite or very well on a one-year horizon. On a five-year horizon this share rises to two-thirds – a rather more optimistic outlook than revealed by the previous Wealth Insights report (December 2009). It is also worth noting that there is a rather high correlation between short and long-term forecasts for this asset class, perhaps due to a natural tendency for people to be too pessimistic after a bust, and too optimistic at the peak of a bubble.
Again, recent experience has inspired some caution. Less than 9% of respondents in Spain think that property will do well on a one-year horizon, for example. And in Ireland the percentage is even less. Respondents in Japan (which has experienced several decades of falling property prices) are also less keen on property. Those surveyed in emerging market economies – for example India and South Africa – are enthusiastic, but (as with equities) this is not a simple emerging markets/developed economy split. Respondents in Switzerland and the UK are also enthusiastic about property on a one-year horizon, partly due, in the latter case, to the fall of sterling. On a five-year horizon, this enthusiasm becomes even more marked.
Chart 18 – Property – One-year horizon*
Chart 19 – Property – Five-year horizon*
* % believing that property will perform quite or very well Source: Ledbury Research
* % believing that property will perform quite or very well Source: Ledbury Research
Top five optimists
Singapore 89%
Australia 80%
India 79%
South Africa 77%
Saudi Arabia 74%
Top five optimists
South Africa 94%
Australia 89%
Singapore 82%
Qatar 77%
UAE 77%
Top five pessimists
US 26%
UAE 17%
Japan 16%
Spain 9%
Ireland 6%
Top five pessimists
Monaco 65%
US 50%
Spain 40%
Japan 32%
Ireland 31%
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Alternatives
Of course, this enthusiasm for equities and property may be less a rational calculation, and more a case of simply trusting the familiar. A dissection of the responses on private equity and hedge funds, two asset classes which have often not had a good press over the last few years, provides some support for this hypothesis.
On the face of it, these asset classes appear to have relatively few admirers among the survey respondents.However, if you strip out the “don’t know” responses – which were, as one would expect, widespread for both
asset classes – then amongst those who had an opinion, the enthusiasm for these alternative asset classes increases. Over two-thirds of those who have an opinion believe that hedge funds will perform very or quite well over the next five years; an even higher share (76%) think this of private equity. And, even on a one-year basis, enthusiasm for private equity and hedge funds is approaching that for equities and property. Of course, a belief that an asset class will do well may not translate into actual investment if the risks perceived are substantial.
Charlotte Beyer is Founder and Chief Executive Officer of the US-based Institute for Private Investors (IPI), which provides educational and networking facilities for wealthy families and their advisers.
Her organisation’s research says that its members almost halved their cash holdings over the course of 2009, as confidence began to return to the markets. In contrast, their holdings in (US) municipal bonds increased marginally, and those in global equity also increased.
One problem was with hedge funds, on which US family offices have traditionally been keen.
IPI members remain bullish on the potential returns from hedge funds – but continue to have worries about the ease of withdrawing money from them.
More broadly, she wonders how easy it is for individuals to judge recent events and form a clear view of the future. “We become very accustomed to what we’ve lived through and, because we are human, we put on that lens going forward,” she says. “I use the image of driving using the rear view mirror. Very few people can really break out of that and just look forward and say, ‘Well, what’s really going to happen?’”
Investment preferences: driving with the rear view mirror?
35
Women are more likely than men to have reduced spending as a result of the recession, as Chart 20 demonstrates. They are also more likely than men to believe that there will be a deterioration in the global (and their local) economies over the next few years – and are less likely to expect a sustained recovery.
Women are also much less likely to view themselves as knowledgeable about finance and investing, and are much less likely to have a view about the future performance of asset classes. As the table shows, 34% of women responded “don’t know” when asked to predict equities performance, compared to just 23% of men. This “knowledge” or “conviction” gap exists for all the other asset classes too. Other differences, not in Chart 20, are also important – for example, women are much less likely to think that their government handled the downturn well. They are also more likely to be concerned about the environment.
Collette Dunkley of Barclays Wealth, who has spent over six years researching the differences in the way that women and men communicate and is regarded as the UK’s expert on the subject, points to some intrinsic attitudinal differences, based as much on biological as on social factors. Women, she points out, “like to process more information than men before reaching an investment, or other, decision. This makes them more willing to be advised – by another person, if they think that they are better placed to do this.”
But those offering advice should be aware of different criteria: she stresses the importance of security and safety to women in investment decisions. The clarity of information provided will also be critical. Women may take longer to choose a wealth adviser, but once they have made this choice they are more likely to build a long and trusting relationship with them.
Julie Meyer, Founder of Ariadne Capital, offers a different view. “Women assess people and opportunities differently than men do; it’s not better or worse, just different. Until there are more women who are backing female entrepreneurs, we won’t have as many global leading, high-growth firms led by women founders.”
Women: different attitudes to investment
“Women assess people
and opportunities differently
than men do; it’s not better
or worse, but just different.
Until there are more women
who are backing female
entrepreneurs, we won’t
have as many global leading,
high-growth firms led
by women founders.”
36
Chart 20 – The gender divide: 10 points of comparison
47%40%
Forced to cut back spendingby the downturn*
61%81%
See themselves as knowledgeableabout finance and investment*
66%80%
Are interested in financeand investing*
54%50%
Are avoiding high risk investmentsmore than before the downturn
59%57%
Are more concerned withwealth preservation
26%27%
Talking to my financial advisermore than before
46%43%
Reviewing my financialportfolio more than before
28%25%
Talking more to friends andcolleagues about investing
20%16%
Think that the global economy will deteriorate over the next few years
31%22%
Don't know about the performanceof equities over the next year
Female Male
* Completely or slightly agree with proposition Source: Ledbury Research
One way to predict changes in the wealthy’s investment needs and objectives is to look at how the younger wealthy are now behaving – on the assumption that some of these habits will stay with them in future years.
Younger respondents to the survey (those under 45) are much more likely to spend 20 or more hours actively investing their portfolios each week (despite being more likely to be working full time too). This extra time seems to have led to some
increased scepticism in some areas – notably over the future performance of equities, perhaps understandable, given the performance of equities over the last decade.
This rather hard-headed approach also translates into a less ‘Calvinistic’ approach to wealth, with younger respondents less likely than elder respondents to see wealth as a reward for hard work. They are also more likely to think that wealth earns respect from friends and family.
The “young” wealthy: New trends emerging?
37
Younger respondents also seem to worry less about the political environment. However it would be wrong to therefore label them as being uninterested in social issues. Perhaps surprisingly, they are more likely than their elders to think that their governments handled the downturn well. They are also more concerned about climate change issues – and are less likely to think that the threat has been overstated.
So how will the young wealthy’s attitudes evolve? Mitul Sanghavi is a Director at Akry Organics, a petrochemicals distributor in India established by his father. “The next generation are getting a better education,” says Mr Sanghavi “and they’re exposed to other countries via the Internet and I think that’s going to really transform the consumption of wealth. At present there’s a lot of saving in India, but I think that these things will start changing.” As Mr Sanghavi puts it, “It’s OK to grow financially, but at the same time, you need to grow mentally too.”
Chart 21 – Attitudes and age: Under 45s and over 45s compared 10 points of comparison
Source: Ledbury Research * % thinking that they will perform quite or very well on a five year horizon ** Completely or slightly agree with the proposition
16%7%
63%67%
78%84%
51%38%
26%40%
33%29%
56%49%
61%68%
59%55%
30%26%
% spending 20 hours a week ormore managing their investments
Performanceof equities*
See wealth as a rewardfor hard work**
Believe that wealth earns you therespect of friends and family**
Regularly worry about thepolitical environment
Think governments handleddownturn well**
Think wealthy individuals have an increasing responsibility to pay higher taxes**
The global recession has changed the waythat the wealthy are seen by others**
Increasingly concerned aboutclimate change**
Believe that only governments, not individuals can make a difference on climate change
Under 45 45+
39
The survey reveals that the wealthy in the emerging markets have been less affected by the recent downturn than their counterparts in the developed markets, and are also much more optimistic about the future prospects for the global economy. This optimism is due, in part, to the strong relative performance of the economies in which they live. However, survey respondents overall do not think that the recovery of the global economy will be straightforward, and appear more pessimistic than professional economists.
The downturn may have prompted many to think about what wealth means, and how they should use their wealth. Major regional differences are evident here, with Europeans much less likely to see wealth as a means of getting the respect of friends and family than the wealthy in the emerging markets. Europeans are also much more likely to prioritise spending on themselves (e.g. on travel), while US respondents focus more on charitable giving and Asia-Pacific respondents are more concerned with social issues.
In regards to investment management, it is possible to see a number of themes running clearly across the regions, and this encourages us to suggest three key themes for the future:
Hard-working wealth. The wealthy want their portfolios to produce results. They are prepared to work hard to ensure this – and will expect others to do so too. In an era of relatively low interest rates and overall
returns, this will require a hands-on approach. This may be an era where technology becomes the driving force – from the minutiae of real-time performance reporting, to much bigger issues of investment strategy.
Holistic wealth. Many want more from their wealth than a simple paper return. Wealth will be deployed to help specific firms, sectors or charitable endeavours. Many new skills will need to be learnt and deployed, for example in the intermediation between the wealthy and individual entrepreneurial organisations – business or charity.
Co-operative wealth. This may be an era when – aided by technology – the wealthy may increasingly operate in peer-to-peer networks, or engage in different ways with governments or their wealth managers, to reach their objectives – both financial and social.
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Contact us
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Tel. 0800 851 851 or dial internationally +44 (0)141 352 3952
www.barclayswealth.com
ConclusionThis report has highlighted the divergence of opinion around the world on what the next decade will mean for wealth and wealth creation. The progress of emerging markets, and their increasing influence on the global economy, is reflected on a local level in an optimistic outlook for the coming decade, whereas the majority of developed economies are cautious regarding the global economy’s prospects for growth.
What this tells us is that the global outlook of individual investors is heavily skewed by their experiences within their own local market. Overall, the wealthy tend to be more pessimistic than professional economists about global economic prospects, and they may have good reason for this, as the escalating burden of public debt will make it more difficult for policymakers to keep the global recovery on the road, as evidenced by recent events in Greece.
The global downturn has also put a meaning on the value of wealth. What wealth means to people varies markedly from country to country and analysis of spending priorities uncovers distinct social attitudes. For some Europeans, wealth is a vehicle for quality-of-life improvement. By contrast, in the emerging markets, the social implications of wealth may be of more importance. Spending on education is a top priority for Latin Americans and charitable giving has greater focus for the US. The concept of wealth as commanding respect is diminishing in Europe, while respondents in Asia Pacific and Latin America view being wealthy as worthy of respect from friends and family. These cultural differences could have huge implications for wealth creation and management in the next decade as local markets maintain differing ambitions and expectations for the opportunities that their wealth affords.
While their country to country, economic outlook and spending priorities may differ, what draws together wealthy individuals around the world is a growing ‘wealth consciousness’. The global downturn has brought about a greater desire for information and closer involvement with their own financial affairs. The emergence of the new ‘engaged investor’ will see the wealth management industry respond with greater transparency and a more discursive relationship with clients. The continued uncertainty around the prospects and timing of the global recovery may be causing investors to favour the more familiar asset classes of equities and property, despite expectations of only modest returns.
But, while wealthy individuals are holding faith that over the long term their investments will bear fruit, they will require more information on investment performance and other matters. The wealth management industry will need to adapt quickly to ensure that it provides the level of support investors are seeking.
The wealth map is evolving – as emerging markets grow in influence, wealth will no longer be concentrated in developed economies. As this report makes clear, the economic, cultural and social influence of the emerging markets’ wealthy will continue to shape global attitudes to wealth as we move into the next decade and a new era for wealth.
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