A Capgemini report hints at the possible end of what was once seen as a secular regional economic and wealth trend.
The high-net-worth set has had a bit of a roller coaster ride these past few years, according to this year’s Capgemini report on wealth management (registration required) as finews.asia reported on Wednesday.
In 2022, macroeconomic uncertainty and geopolitics, likely a euphemism for the drastic increase in interest rates and inflation worldwide, and the war in Ukraine, prompted a significant decline in wealth worldwide, something that was then offset by improved fortunes and markets in 2023, the report indicated.
North American Lead
Given the overall context, North America’s HWNI wealth rose by an eye-watering 7.2 percent and the total population was up 7.1 percent, well above the Asia Pacific gain of 4.2 percent and 4.8 percent respectively.
Much of that was due to the so-called AI rally continuing to propel the Magnificent Seven higher, prompting the American S&P 500 to rise by almost a quarter and the Nasdaq Composite to rise more than 40 percent.
Differing Fortunes
Markets in Asia Pacific, in contrast, saw a mixed-grab bag of developments. Japan’s Nikkei was up well more than a quarter while China, and by extension, Hong Kong, were nearing the end of an almost four-year bear market.
But the most interesting feature of the report is the reversal of what had once seemed to be a secular trend prompting many observers at the start of the 2010s to predict that the region would become dominant in terms of economic and individual wealth in the longer term.
Eclipsed Again
That soon came true, with the total level of HWNI assets regionally surpassing that of North America between 2016 and 2019 to the highest level worldwide.
In 2020, however, North America again managed to eclipse Asia, extending its lead to $2.4 trillion in 2021, $0.9 trillion in 2022, and $1.8 trillion in 2023.
Fewer HWNIs
The same was seen in terms of population, with the region leading the world between 2016 and 2019 but falling behind North America in 2020. And by 2023, it had about 500,000 fewer HWNIs.
Still, the region remains the second largest globally, both in size and growth, outpacing Europe (up 3.9 percent), which has almost $7 trillion less in HWNI wealth on its books and about 1.6 million fewer individuals.
Wealth Managers Squeezed
The roller coaster ride that most HNWIs have experienced since the pandemic has also left its mark on wealth managers, with many of their primary revenue streams facing «substantial pressure», Capgemini indicated.
More than half to almost three-quarters of revenues now come from management and performance-based fees, and they will be under increasing pressure as assets are unlikely to grow as they did between 2010 and 2020, the consultancy maintained.
Little Compensation
That will be compounded by an expectation that net interest income, now about a fifth of revenue for many wealth managers, will come down as central banks start to lower interest rates.
«Advisory and service fees, although driven by external factors, cannot compensate for revenue loss from management, performance and transaction fees,» Capgemini believed.
AI to the Rescue
Some help may be on the horizon for the more tech-versed wealth managers, with almost half of them saying they currently used AI in some areas, with 73 percent maintaining they intended to raise adoption at the so-called enterprise level over the next one to two years.
«Unstructured data fields often contain valuable information – overlooked within structural data reporting – that can uncover behavioral patterns and sentiments, thus enriching advisors’ understanding of client behavior and biases,» the report stated.
