High net worth individuals (HNWI) in Asia-Pacific, excluding Japan, enjoyed high investment returns in 2016 relative to global peers - thanks to the leverage they use in portfolios to multiply returns, according to Capgemini’s 2017 World Wealth Report.
The study found that HNWIs in the region minted 33% in returns last year, more than double of Japan’s HNWIs (15.3%) and 13% higher than European counterparts. Latin American HNWIs made 31.3% in returns.
Robust economic activity in Asia-Pacific in 2016 – with GDP growth at 5.3% according to the International Monetary Fund -- is believed to have contributed to the outsized returns. Moreover, Asian HNWIs have a trading mind-set and tend to leverage their portfolios using credit, which multiplies returns.
Equities were cited as the greatest contributor across all regions, ages, and wealth segments. After equities, alternative investments were cited as an important factor by 17.8% of ultra-HNWIs – those with over $20 million in investable assets.
At the end of the second quarter, Apac HNWIs held 27.7% of their financial assets in equities, followed by 24.9% in cash. Alternative investments made up around 10% of the average portfolio.
Taking it a step further, the report stated that accounts advised by wealth managers performed better than a wide variety of indices, building a case for active management as passive investing becomes a trend.
The S&P 500 gained only 9.9% in 2016, which was 18.5 percentage points lower than what wealth management firms delivered in North America. In Asia-Pacific, excluding Japan, the MSCI returned only 3.8%, nearly 30 percentage points less than wealth management firms.
However, the numbers are clouded by high fees that eat into returns. Apac HNWIs pay their wealth managers approximately 9% per annum in total, which includes commission, custody and wealth planning services.
Despite the high fees, the report found that 90% of Apac HNWIs trust their wealth managers, and the region has the highest levels of trust in financial regulators and regulatory bodies.
The report defines HNWIs as those having more than $1 million excluding primary residence, collectibles, consumables, and consumer durables.
Furthermore, Asia-Pacific recorded a lively increase of 7.4% in HNWI population and 8.2% in HNWI wealth, but the market growth was dimmed by sharp declines in equity market performance in China and Japan.
Both of which have acted as robust engines of HNWI growth in the past. Market capitalization in China plunged by more than 10%, and grew only modestly in Japan in 2016.
At the end of 2016, China had over 1.1 million HNWIs, the fourth largest population after the US, Japan and Germany. Indonesia (13.7%), Thailand (12.7%), and Taiwan (11.9%) were the stand-outs in terms of growth in the region.