High-net-worths look to real estate amid volatility

The ultra and high-net-worth community shrank by 25% and 15% respectively in 2008, according to the latest Merrill Lynch/Capgemini world wealth report. However, the allocation to real estate rose by 4% - despite a general move towards liquid assets.

The wealth of the global high-net-worth community may have shrunk to 2005-levels, but allocations to real estate increased in 2008, rising by 4 percent.

The 2009 World Wealth Report by Merrill Lynch and Capgemini reveals that the ultra and high-net-worth community contracted by 24.6 percent and 14.9 percent respectively last year, with wealth levels falling 19.5 percent to $32.8 trillion – a level not seen since 2005.

Global market dislocations saw many high-net-worth individuals (HNWI) retreat to more liquid assets, including cash and fixed income.

Yet, despite its illiquid nature, the allocation to real estate rose by 4 percent over the past year, with the asset class representing 18 percent of the total global high-net-worth portfolio at the end of 2008.

“Last year was about preservation, not appreciation,” Dan Sontag, president of Merrill Lynch global wealth management, said in a statement. “With no safe havens HNWIs ended up with significant amounts of cash in their portfolios. As markets recover, they will have the flexibility to readjust their strategies and reinvest in new, developing opportunities along the way.”

Park Hill Real Estate managing principal Charles Purse said at a recent conference in New York the “super” high-net-worth community was a capital source to watch “very closely” in the near future. “They see an opportunity to create generational wealth. It's something they have done before and they see that opportunity again,” he said.

According to the Merrill Lynch, Capgemini report, the US, Japan and Germany continue to be the top three locations for high-net-worth individuals, accounting for 54 percent of the world population. China was in fourth place, followed by the UK.

Hong Kong saw its HNWI population shrink by 61.3 percent in 2008, falling to just 37,000 individuals. The US also suffered a contraction in the size of its population, falling 18.5 percent to 2.5 million people or 28.7 percent of the world’s high-net-worth population.

The US and Asia though are set to lead future growth in high-net-worth wealth, with the global community’s financial wealth expected to top $48.5 trillion by 2013.