World's rich lost 20 percent of wealth in 2008: study

NEW YORK Wed Jun 24, 2009 3:10pm EDT

NEW YORK (Reuters) - The world's rich lost a fifth of their wealth in 2008 and the number of people with fortunes of more than $1 million fell 15 percent as the financial crisis wiped out two years of growth, a study showed on Wednesday.

The total value of the world's wealthy -- people with net assets of more than $1 million excluding their main home and everyday possessions -- dropped below 2005 levels to $32.8 trillion, the 13th annual Merrill Lynch/Capgemini World Wealth Report found.

Nearly 35 percent of that wealth belongs to so-called ultra rich people with fortunes of more than $30 million, who account for 0.9 percent of the rich population. In 2008 the number of ultra-rich people and their value dropped by nearly a quarter.

"There was really nowhere to hide as an investor in 2008," Dan Sontag, Merrill Lynch Global Wealth Management president, told a news conference. "No region ended the year unscathed."

The United States, Japan and Germany are home to 54 percent of the world's rich and this year China surpassed Britain and now has the fourth largest rich population. Rounding out the top 10 are France, Canada, Switzerland, Italy and Brazil.

The United States saw an 18.5 percent drop in its rich population, but it still remains No. 1 with 29 percent, or 2.5 million, of the world's rich. Japan's rich population fell 10 percent, but Germany lost only 2.7 percent of its wealthy.

As global markets plunged, wealthy investors fled with the study showing the proportion of cash-based holdings increased to 21 percent of overall portfolios, up 7 percent from 2006.

In North America, which traditionally favors equity investments, stocks made up 34 percent of portfolios of the wealthy in 2008, down from 43 percent a year earlier.

"That tells you how risk averse people got," Sontag said. "Last year was about preservation, not appreciation."

"The 2008 flight to safety imperative ... is easing now," he said. "We're encouraging (rich people) to return to higher risk, higher return assets and away from capital preservation instruments as conditions improve."

PHILANTHROPY, LUXURY TRAVEL, GOODS HIT

Sontag said the market was showing signs of improvement and that after the technology bubble burst and the September 11, 2001 attacks, rich people were able to grow their wealth at an annualized rate of 9 percent from 2002 to 2007.

"The tech downturn and the most recent crisis are not identical forms of disruption, but we're optimistic that the recovery of wealth will follow a very similar pattern," he said. "We still think (rich people) are expected to maintain a cautious outlook this year and next."

The report forecast that the wealth of the world's rich would grow to $48.5 trillion by 2013 and that North America and the Asia Pacific would lead the way. The Asia Pacific region was expected to surpass North America by 2013 as the top regional home for the world's rich.

More than 40 percent of the world's wealthy said they cut spending on luxury travel and luxury goods, but 54 percent said they had increased spending on health and wellness, which includes activities such as spa visits, fitness equipment and preventative medical procedures such as full body scans.

In the first half of the year philanthropy by rich people was unchanged, but "charitable giving was severely impacted in the fourth quarter, as (rich people) gave less, and focused on fewer causes," the study showed.

It found philanthropy was likely to suffer further in 2009 with 60 percent of rich North Americans saying they would give less. However 54 percent of rich Japanese plan to give more.

The study covered 71 countries and accounts for 98 percent of global gross national income and 99 percent of the world's market capitalization.

It is based on primary and secondary research corroborated with sources including the World Bank, the International Monetary Fund, national account statistics and surveys with advisers from 31 wealth management firms around the world.

(Editing by Ellen Wulfhorst and Vicki Allen)

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