The Boston Consulting Group (BCG) has reported that global wealth grew by a staggering 10.6% to $530trn (£423trn, €495trn) in 2021.
The consulting firm said the $26trn surge last year was the fastest rate in over a decade, which it attributed to strong equity markets propelling gains.
BCG said in its Global Wealth 2022: Standing Still Is Not an Option report: “Driven by healthy corporate profits, the S&P 500 index soared by 26.9% in 2021, a remarkable rise given the record-setting levels of 2020. Real assets were another source of growth.
“Physical goods in the form of real estate, wine, art, watches, and related holdings remain the destination of choice for much of the world’s wealth—and investor interest continues to intensify.
“Over the past year, demand for real assets surged by 9.4% ($22trn), bringing the total to $256trn. Taken together, these assets now account for almost 50% of the total wealth pool.”
The report also found that despite geopolitical and economic destabilisers such as inflation and Russia’s invasion of Ukraine, approximately $80trn in new wealth is likely to be created over the next five years.
BCG said that in a “notable industry shift”, Hong Kong will probably overtake Switzerland in 2023 as the domicile managing the largest amount of private cross-border wealth, ending a run of more than 200 years of Swiss dominance.
The report also predicted that wealth assets will continue to rise in value in all regions.
But Asia Pacific will maintain the fastest rates of wealth growth, with asset values poised to increase by a compound annual growth rate (CAGR) of 8.4% through 2026.
If that rate holds, the region could be home to nearly one-quarter of the world’s wealth by 2026.
Wealth in the Middle East and Africa is on track to rise by a compound annual growth rate (CAGR) of 5.4% over the next five years, the biggest overall leap in regional wealth growth.
In North America, wealth growth will be slower than in years past, with an estimated CAGR of 4.7% through 2026, down from a prior five-year average of 9.1%.
Likewise, in western Europe, wealth growth is likely to slow from roughly 4.5% over the past five years to less than 4% annually until 2026.
Anna Zakrzewski, global leader of BCG’s wealth management segment and a co-author of the report, said: “Wealth development is resoundingly resilient, and even against the backdrop of geopolitical turmoil the growth rate will remain positive.
“Although this stability provides tremendous opportunity for wealth managers, they must make strategic choices to remain competitive.
“Wealth clients are looking for next-generation offers and next-level service—including net zero, crypto, personalisation, and digitization. The most important question facing wealth managers today is not which initiatives to prioritise, but how best to implement them.”
Areas of interest
BCG also named some areas of interest for financial advisers and wealth managers to keep an eye on.
It said sustainable investing—of which net zero is a key component—is growing three-to-five times as fast as traditional investments, and by 2026, the asset class could account for 8%-to-17% of privately invested wealth, up from 7% today.
The consulting group said that although people tend to think of net zero as a 2050 goal, wealth managers “must act immediately to embed sustainable investing across the entire client life cycle”.
The report added that “non-traditional wealth managers” currently manage up to $1trn in crypto-related wealth, and the market capitalisation for crypto could increase four- to fivefold by 2030.
BCG continued: “The opportunity for wealth managers is clear: nearly 80% of clients surveyed said that they would consider increasing their crypto holdings if wealth managers offered advisory and education services.
“Two-thirds of clients who sourced their crypto investment with third parties said that they did so because they didn’t think their wealth managers offered such services.
“To determine whether crypto is right for their businesses, wealth managers must consider if, when, and how they want to participate.”
Lastly, the report said that valuation multiples of digital wealth management firms are six-or-seven times as high as those of traditional wealth managers.
Furthermore, private funding in wealth tech has increased, with digital wealth management firms attracting $14.5bn in funding in 2021 (11% of total global investments).
Zakrzewski added: “Traditional wealth managers have known for years that they need to accelerate the pace of their own digitisation.
“Now they have an additional incentive to emulate the practices of these digital leaders as they look for ways to secure future growth and increase their value to clients.”