The Knight Frank Wealth Report is an annual survey of almost 500 private bankers and wealth advisors who are asked by the global real estate consultants at Knight Frank to assess the attitudes and behaviors of their ultra-wealthy clients. Their clients are ultra-high net worth individuals (UHNWIs) with a combined wealth of $1.7 trillion. Their attitudes are indicative of global trends and help shape investment strategies. Here are a few key takeaways from this year’s report, courtesy of EmpireCLS.
1. Material Investments
In the past decade, UHNWIs have expressed rising concerns about the security of paper assets. Instead, they are turning to passion investments and luxury assets. The scarcity of material assets like classic cars, fine wine and luxury watches makes them an appealing investment strategy that, historically, is hedged against inflation. In addition to an increasing interest in passion investments, those surveyed by Knight Frank also noticed that property was increasing as a mainstream investment class.
UHNWIs interest rose most in art as a luxury asset, with many advisors confirming that the art market has completely recovered from the economic crisis. Fancy diamonds in rare colors like pink and blue have also seen a huge surge in interest from investors.
Advisors caution that the most common risks encountered by passion investors are fraudulent goods and poor portfolio diversification. Experts suggest a “multi-asset solution.”
2. Growing Wealth
The population of UHNWIs only continues to grow, with a surge of 61% in the past decade. Furthermore, 80% of those surveyed expect their clients’ wealth to grow in 2015. The North American region takes the lead in growth, with a 100% growth rate in 2014 and 100% growth projected again in 2015. Africa and Latin American are close behind in terms of past growth combined with projected growth for the next year.
In conjunction with growing wealth, most of those surveyed expect that their clients’ luxury spending will grow as well. The UK tops the spending growth list, with China, the single biggest consumer of luxury goods in the world, taking the second spot.
UHNWIs are also growing their spending in philanthropy, in addition to real estate and luxury spending.
3. Changing Concerns
The Knight Frank Report, in addition to identifying growth patterns and trends, also identifies widespread changes and concerns regarding money management for UHNWIs. The report found that the health of global markets had less impact on the attitudes of UHNWIs than did matters closer to home. The number one point of concern among UHNWIs last year was family succession, followed by the threat of increased wealth taxes and increased government scrutiny of the wealthy and their assets.
Other concerns had to do with the overwhelming influence of the Internet in daily life. UHNWIs reported a greater need for online reputation protection and management, as well as more pressing concerns about online security from privacy invasions and cybercrime.
The report also reflects changes in money management and lifestyle that indicate an adaptation to an increasingly globalized world. Millennials, especially, are UHNWIs to watch, as they come to control more wealth. Millennials have an even greater interest in philanthropy than their parents’ generation, and are turning to more sophisticated management techniques for their charitable causes. Another interesting trend noted that more non-Western Hemisphere UHNWIs were sending their children overseas for education at increasingly younger ages. This trend was most prominent among UHNWIs from Russia and Commonwealth of Independent States countries, with 60% of this population intending to send their children overseas for primary schooling.