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Super-rich earn more but give more away

Angela Balakrishnan


Charitable giving globally in 2006 amounted to more than $285 billion.


The wealth of the world’s super-rich soared last year at the fastest rate for seven years. But the rise in riches was also accompanied by a surge in charitable giving to $285 billion — believed to be a record. The downside for the super-rich was that the cost of their favourite luxury products and activities rose at nearly twice the average rate for goods and services.

The 11th annual study of 71 countries by investment bank Merrill Lynch and consultancy firm, Capgemini found that buoyant economic growth across the world pushed the riches of “high net worth individuals” (HNWIs) up by a hefty 11.4 per cent last year. The dramatic increase took the total prosperity of the world to $37.2 trillion. HNWIs are those with $1 million to invest in financial assets excluding first homes. Ultra-HNWIs have $30 million at their disposal.

The United States, Japan, Germany, and Britain are the countries with the largest numbers of super-rich. Part of the rise in world wealth last year came from booming stock markets. The Dow Jones world index, for example, increased by a solid 16.4 per cent.

The boost in cash held by the world’s millionaires and billionaires also generated a surge in philanthropy, the report said. Rich individuals donated 7 per cent of their wealth to charity, while the ultra-rich donated more than 10 per cent to these causes. This charitable giving amounted to more than $285 billion globally. Warren Buffett, the world’s second-richest man, added to the trend last year when he donated 85 per cent of his $45 billion fortune to a foundation established by Microsoft’s Bill Gates and his wife Melinda.

“Philanthropy is central to what wealth managers are having to do; it cannot be ignored,” said Nick Tucker, a Merrill Lynch executive director and co-author of the report. “New wealth especially are keen on this.” Environmental and socially responsible investing were no longer niche categories. Nearly half of all British investment firms put more than 10 per cent of their assets in socially responsible projects, a rise of 20 per cent from 2004.

The report predicted that global wealth was expected to grow by 6.8 per cent each year until 2011, pushing the total amount to $51.6 trillion, though Mr. Tucker warned that a slowing world economy may put a brake on the soaring expansion of wealth over the coming years. “With many central banks tightening monetary policy, the period of high liquidity that has stimulated recent growth may soon come to an end. The growth rates of Asia and Latin America are expected to ease back as global demand slows. The dual risks of rising energy prices and geopolitical conflicts are a continued threat, adding a level of uncertainty to our current forecasts.”

There were 9.5 million HNWIs last year, according to the report — a rise of 8.3 per cent from 2005. Europe saw its wealth increase at the sharpest rate since 2000, by 7.8 per cent to $10 trillion. The performance of financial markets in Eastern Europe in particular was a key driver in this, Mr. Tucker said. Ultra-HNWIs also rapidly increased by 11.3 per cent to 94,970 last year.

India’s role

The largest share of the growth in the world’s higher net worth population came from Singapore and India, where numbers rose by 21.2 per cent and 20.5 per cent on the year respectively. This continued the rise of a new elite of super-rich individuals in developing nations as their economies expanded, in the case of India and China at rates more than triple that of the U.K. Many of these emerging economies, which included Russia, were gaining strength from domestic private consumption, competitive services, and manufacturing sectors. Wealth generated in Latin America, the Middle East and Russia was buoyed up by high commodity and oil prices.

“The globalisation of wealth creation has accelerated,” said Chris Gant, head of wealth management at Capgemini Financial Services. “If 2005 was characterised by a flow of investment to international funds from HNWIs, 2006 ushered in a new era whereby emerging economies leaped ahead with direct foreign investment, strong domestic demand and hefty stock market gains.”

The report found that as the rich got richer, the demand for luxury products increased, making them more expensive. The Cost of Living Extremely Well Index measured the cost of a basket of 42 luxury goods and services, including designer handbags, tuition at Harvard University and filet mignon. Last year, this index rose nearly twice as fast as the cost of everyday consumer products.

The world’s millionaires nevertheless devoted about a quarter of their “investments of passion” to yachts and private jets, dubbed “mobile mansions,” and a fifth to art. The report said more investors were moving their money out of the U.S. to Europe and to a lesser extent Asia. This was likely to be because of signs of a slowdown in the U.S. economy. The study found investment in property showed a large rise thanks to spiralling prices.

Guardian Newspapers Limited 2007

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