Global wealth hits $40.7 trillion but growth slows

LONDON (Reuters) - Assets held by the world's richest people grew at a slower pace in 2007 than 2006 as the credit crisis began to bite, a study showed on Tuesday, despite rapid growth in emerging markets.

However, growth over the coming five years is forecast to be higher than last year's predictions, as U.S. economic growth eventually picks up and emerging markets continue to beat analysts' forecasts.

The Merrill Lynch and Capgemini Annual World Wealth Report showed global assets held by wealthy investors rose by 9.4 percent to $40.7 trillion (20.6 trillion pounds) in 2007, below 2006's 11.4 percent growth, with the second half of the year seeing a slowdown in Western economies.

Wealth is defined in the report as investable assets of more than $1 million held by one individual.

"Clearly the credit crisis and financial markets had an impact, mostly in the latter half of the year," said Nick Tucker, executive director of Merrill Lynch's global private client group.

"2007 is best described as a year of two halves, with divergence between the mature and emerging economies."

Soaring oil and commodity prices helped lift growth in assets of wealthy individuals in Latin America, which saw a 20.4 percent rise in assets, the Middle East with 17.5 percent growth and Africa with a 14.9 percent increase.

This came as growth in assets slowed in Europe and North America, both of which were hit hard by the subprime crisis, which began mid-way through the year, and associated writedowns and volatile markets.

In Britain, the number of high net worth individuals (HNWIs) rose by 2.1 percent to 494,500, well below the 8.1 percent growth seen in 2006 and below the European average of 3.7 percent.

Whilst Britain is placed fourth in the world, behind the United States, which is top with over 3 million HNWIs, Japan with around 1.5 million and Germany with 826,200, it is likely to be overtaken by China, thanks to that country's booming economy.

"You need to be aware that China is coming up fast behind. I wouldn't be surprised if we saw China ahead of the UK by next year," said Tucker.

And even emerging markets are starting to see a slowdown in growth in the first half of 2008 as the credit crisis rumbles on, Tucker said.

The study also forecasts global assets of wealthy individuals to rise by an annual rate of 7.7 percent to $59.1 trillion by 2012, an increase on last year's forecast of 6.8 percent annual compound growth by 2011.

Meanwhile, wealthy individuals slashed allocations to real estate to 14 percent from 24 percent and exposure to alternatives such as hedge funds and private equity to 9 percent from 10 percent.

"It's the desire to take some risk off the table," said Turner, speaking about alternatives. "We don't see it as a long-term trend."

Instead, they increased allocations to cash and fixed interest to 44 percent from 35 percent in 2006.