What does it take to become a high net-worth individual?

The latest global wealth survey adds to Piketty – but with a twist

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There are just over 500,000 millionaire households in Britain, more than in any other European country but fewer than in China, Japan and of course the US.

As for billionaires, the UK has 1,044 and is second only to the US, though as we all know most of those billionaires are people who made their money elsewhere and then moved to the UK, rather than the home-grown variety.

Worldwide there were 16.3m millionaire households at the end of last year, up from 13.7m at the end of 2012.

Those are three of the conclusions from the latest study by Boston Consulting Group of global wealth – it does it every year and 2013 was notable as the rich got quite a lot richer.

Total global private wealth grew by 14.6 per cent to reach $152bn, the two main drivers being the rise in equity markets and the continuing strong economic growth in the emerging world. The region in which wealth grew fastest, unsurprisingly, was the Asia-Pacific. Since the financial crisis China has passed both Germany and Japan in terms of total household wealth.

Boston Consulting thinks that by 2018 the Asia-Pacific region will account for half of global personal wealth. To oversimplify, the old rich – people who rely on their existing assets to grow larger – will increasingly reside in Europe and North America, while the new rich – people who are adding to their assets by their earnings – will live mostly in Asia.

On the face of it, this would seem to support the thesis of the French economist Thomas Piketty, whose recent book on inequality, Capital in the Twenty-First Century, has aroused something of a storm. His central idea – that capital brings higher returns than wages – was certainly supported by the data last year. But the numbers support him with a twist: they apply only to the developed world, for in the emerging economies most of the additional wealth is newly created.

There is a further twist. What Boston Consulting is doing is measuring financial or investable wealth, rather than total wealth. So a family’s main home is excluded. Pension rights are included if people control their own pension pot but not if they have a similar-sized pension from the state. The figures are in dollars, not sterling, so to qualify as one of the 513,000 millionaires in Britain, you need £600,000 in addition to your home, not £1m in total.

That, by the way, qualifies you as a high net worth individual, or HNWI, pronounced like Henry but with a “w” sound instead of the r. If you really want to make yourself depressed, note that to become an ultra-high net worth individual or UHNWI, you need $50m of investable assets.

Looking ahead the report expects somewhat slower growth in wealth, particularly for the developed world. Last year was exceptional in that global stock markets rose by 21 per cent, a performance unlikely to be repeated.

One of the effects of quantitative easing does seem to be that owners of assets have benefited relative to earners, and QE in the US is coming to an end and in the UK has already done so.

This will have helped the middling rich, who have much of their assets in public markets, more than the very rich who rely more on alternative investments such as hedge funds and private equity. These very rich also tend to keep their funds offshore, with Switzerland remaining the largest single location, but challenged increasingly by Hong Kong and Singapore.

Two other trends seem likely to continue. One will be lower overall returns on assets as central banks tighten policy; the other will be a shift of wealth from the old world to the emerging world.

This raises some huge questions. For example, will the new rich use their wealth in the same ways as the old rich? Will the developed world continue to be able to create products and services that attract new money – note that luxury sales to China are down this year? How will European attitudes to wealth shift when we realise that we are, in relative terms at least, not as rich as we used to be?

Another landmark passed. Or not

Is it possible that the UK economy is growing even faster than the figures suggest and therefore the rise in interest rates needs to come much sooner than the market expects?

Yesterday saw some very strong figures on manufacturing, and today we will get the new employment and unemployment numbers. The NIESR yesterday estimated that the economy grew by 0.9 per cent in the three months to end-May, and while its estimate for growth this year is 2.9 per cent, multiply 0.9 per cent by four and you get 3.6 per cent. Is it really likely that growth will slow during the rest of this year?

Yesterday was a landmark in another way. If the NIESR is right, the economy is at last past its previous peak and is about where it was in January 2008. About time too, you might say, but I think that all these numbers should be taken with a punch of salt. North Sea oil and gas output is a lot lower than it was in 2008, so the onshore economy passed its peak around the middle of last year, and we are probably undercounting the size of the economy in any case. Since 2008, there has clearly been some rise in the so-called grey economy – the cash economy or the economy outside the tax net – but we have only vague ideas as to how much that might have been.

The big question is: when will this rapid growth start to show up in current inflation? So far there is nothing happening in official wage rates but these may lag behind what is actually taking place. I keep hearing about the huge rise in construction costs – something like 20 per cent since last autumn – but that does not seem to have been picked up in the official stats either. It is hard to argue about latent inflation when nothing is showing in the numbers, but this whole upturn has taught us to rely on monetary data (and intuition) rather than the official forecasts, especially those of the IMF. My guess remains that the first rise in interest rates will come in November this year.

A Brazil win adds up

Brazil will win the World Cup. Says who? Well, the punters at Paddy Power say so, for the bookie is quoting Brazil as a 3-1 favourite, ahead of Argentina at 4-1.

But out of 171 economists surveyed by Bloomberg, no less than 98 put Brazil as número um. If you put your trust in mathematical models, Bloomberg has created one that has Brazil beating Spain in the final. However, Goldman Sachs, Danske Bank, and Unicredit have built models that all produce Brazil beating Argentina in the final.

Conclusion? If you trust economists’ predictions you should put money on Brazil. But to judge by the odds being offered not many people do, which, given the track record of economists, is hardly surprising.

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