Private bankers and investment managers say the world's wealthy have largely weathered the inflation shock that has rippled around the world over the past three years.
According to the US, outflows have increased despite annual inflation rates still running at 3.5% in the US and 2.4% in the euro zone after hitting multi-decade highs two years ago. Despite this trend, the world's billionaires and ultra-rich people are getting richer. Media group “Forbes”.
Industry insiders say the wealthy are protecting their wealth from inflation by investing in a technology-driven stock boom that has outpaced rising costs of living and making smart bets on private equity, bonds and infrastructure that have delivered strong returns. It is said that there is.
Hannes Hofmann, Global Head of Family Office Group at Citi Private Bank, said: “Wealthy individuals and their families are sophisticated investors, like hedge funds, who want to participate in the rise of the stock market.'' I've done that,'' he says.
“Although they have been affected by the cost of living crisis, many of the large family offices that manage the wealth of the wealthy have invested wisely in stocks, bonds and private equity.”
The wealthy continued to spend, even though inflation rates for the goods and services they primarily purchase or use were high relative to broader consumer prices.
Forbes' annual Extremely Good Living Cost Index (CLEWI), which tracks spending on things like opera tickets, tuition and luxury cars, rose more than the U.S. consumer price index last year.
CLEWI rose 4.9% in 2023, following gains of 7% in 2022 and 10.1% in 2021, outpacing the 3.4% rise in U.S. CPI over the same period.
However, this has not stopped the total wealth of the world's wealthy from increasing. According to the Global Billionaires Index released by Forbes magazine in April, the total wealth of the world's wealthy will reach a record high of $14.2 trillion in 2024, up from $12.2 trillion recorded in the same period last year. % increase. .
The 400 richest Americans will also see their wealth significantly outpace inflation in 2023, with the average net worth of Forbes' 400 richest Americans rising 13% from a year ago to $11.3 billion.
“Ultra-high-net-worth individuals are typically less exposed to inflation because their portfolios are well-diversified,” explains Alessandro Caironi, head of banking, lending and investment solutions at Deutsche Bank Private Bank. “They have investments in public and private equity and real estate to protect them.”
Rebecca Gooch, Head of Global Insights at Deloitte Private, a division of the Big Four consulting firm group, added:They are now more concerned about geopolitics [with wars in the Middle East and Ukraine] and global economic uncertainty. ”
Still, inflation remains a threat to investment portfolios, even though it has slowed sharply from peaks of 9.1% in the US and 10.6% in the euro area in 2022.
“We're facing the final hurdle of reining in inflation, especially in the U.S.,” said Matthew Morgan, head of fixed income at Jupiter Asset Management. “The big question is how quickly the Fed will rein in inflation.”
Morgan believes the US Federal Reserve will likely pave the way for a soft landing for the US and global economies, but added that there is a risk of a crash if geopolitical instability increases.
“How temporary is the rise in inflation?” asks John Stopford, head of multi-asset income at investment group NinetyOne. “Is it a response to the pandemic? Or will there be lasting effects?”
John Law, head of multi-asset funds at Legal & General Investment Management, said that even though the threat of inflation has receded, there is still a need for high-net-worth investors to diversify their investments. Emphasize.
“Inflation can mislead people into thinking that the stock market is doing better than it actually is. If inflation is rising at 3-4%, stock prices need to rise more than that, and they are not. Otherwise, the rate of increase in real capital will remain flat.
“Diversification is absolutely key,” agreed Mark Hefele, chief investment officer at UBS Global Wealth Management. “You need to diversify geographically and across asset classes.”
But investment managers and strategists remain confident that wealthy people can continue to grow their wealth by buying assets in the private market, which offers high returns despite rising inflation. They also expect the public equity market to hit new highs and continue rising as they increase the value of their portfolios.
“The changing macro environment has created new investment opportunities,” said Charles Jewkes, head of global wealth at Aviva Investors. “In an environment of rising interest rates and inflation, the private market can become attractive.”
Grace Peters, global head of investment strategy at JPMorgan Private Bank, added: Over time, we believe U.S. stocks should continue their upward trajectory to deliver healthy returns. ”
