Asia-Pacific represented 27.1% of the world’s high net-worth individuals (those with net financial assets of at least US$1 million excluding their primary residence and consumables) in 2005, according to a special report issued by Merrill Lynch & Co., Inc. and Capgimini.

It was also reported that the region was home to five of the 10 fastest-growing HNWI populations in the world, and the number of HNWIs grew by 7.3% to 2.4 million from 2004.

The number of Ultra-HNWIs, those having net financial assets of more than US$30 million, also grew by 12.1%, to 15,600, it noted. The total wealth of the Asia-Pacific high net worth population was US$7.6 trillion in 2005, growing at an 8.0% pace over 2004.

The report noted that above-average performance of wealth-creating economic drivers, including the primary catalysts of GDP and market capitalization, bolstered wealth accumulation in the region. Raymundo Yu, head of EMEA and Pacific Regions for Merrill Lynch’s Global Private Client Group, said: “The future of the wealth management industry in Asia holds many exciting opportunities as the region is home to some of the world’s fastest-growing economies.”

The region’s economies grew at a faster rate than those in other parts of the world in 2005. HNWIs in Asia-Pacific continued to benefit from strong economic conditions in 2005, adding wealthy investors to their ranks and expanding their financial wealth, it noted.

The report found that wealth was more heavily concentrated in the lower HNWI wealth bands and that Ultra-HNWIs grew at a faster pace than HNWIs in 2005. This faster-paced growth in the higher wealth bands suggests that wealth will concentrate as Asian markets further develop, it said, noting that this trend is confirmed in maturing markets.

Five Asia-Pacific markets ranked among the global top 10 fastest-growing HNWI populations in 2005, according to the report. South Korea, India and Indonesia were the three fastest growing HNWI populations in the world, surging 21.3%, 19.3% and 14.7%, respectively.

Japan maintains more than half of the HNWIs in the region, but only a 30% share of Ultra-HNWIs. Together, China and Japan hold over 65% of the region’s US$7.6 trillion financial wealth.

HNWI saturation levels differed by market, suggesting varying levels of market potential, it said. The report found that Hong Kong, Japan and Singapore showed higher than average levels of market saturation, while Indonesia, India and China ranked lowest in terms of their HNWI concentrations. HNWIs from China and Hong Kong had the highest average
net worth.

HNWIs in Asia-Pacific pursued diversified asset allocations in 2005, the firms noted. Favoring equities and alternative investments, HNWIs invested nearly a quarter of their portfolios, 24% and 23% respectively, into each asset class. “While they exhibited a preference for sophisticated alternative investments, Asia-Pacific HNWIs sought to offset higher-risk investments by holding a significant portion of their assets in more conservative asset classes,” said Yu.

Asia-Pacific HNWIs’ international allocations exhibited a more narrow focus compared to other regions, it reported. More than half of HNWIs’ assets were invested within the Asia-Pacific region and more than a quarter of assets were allocated to North America, with the balance spread across Europe, Latin America and the Middle East.

China and India represent the ‘emerging’ markets of Asia-Pacific as they provide a largely untapped pool of wealth for wealth management institutions, it said. Currently, the wealthy sectors in these two markets, while growing rapidly, lack investment experience. Underdeveloped capital markets, capital controls, currency inconvertibility and strict licensing requirements create a thorny wealth investment environment for HNWIs looking to invest and for wealth management providers aiding in the process.

“Difficulties exist specifically in developing entry strategies, attracting clients to wealth management services and building investor sophistication” said Dirk Chanmueller, vice president and financial services leader, Capgemini Greater China.

Markets classified as ‘developing’ in the report include Indonesia, South Korea and Taiwan. These markets prospered earlier than the ‘emerging’ markets and provide valuable lessons for wealth management institutions looking to access emerging HNWIs. With more advanced capital markets, HNWI clients have started showing enhanced investment sophistication and the need for more complex wealth management solutions. Some clients have moved up to more sophisticated services such as trusts, philanthropy and capital-raising. “Foreign institutions will find it more difficult to break into these markets as domestic banks control the majority stake of HNWI clients,” Chanmueller said.

@page_break@Japan, Hong Kong and Singapore are the Asia-Pacific’s key mature markets. The Japanese wealth management market is encountering strong demand. With client demand up, there is intense competition for experienced financial advisors, training personnel, and IT professionals, it noted.

Hong Kong and Singapore are the most advanced wealth management markets in Asia-Pacific and “each has an influence span significantly wider than its own borders,” said Chanmueller. While sharing similar traits, a competitive rivalry fuels each market’s drive to be considered the best. Singapore aspires to become ‘Asia-Pacific’s Switzerland’, an island oasis for HNWIs, while Hong Kong has long been considered the gateway to China’s HNWI market.