Wealthy investors rebalanced portfolios last year in favour of fixed income, real estate as well as alternatives while slashing cash and trimming exposure to equities, according to the latest Capgemini survey of the global super-rich.
The annual study of high net worth investors (HNWI) – defined as having at least US$1 million in spare change – by the France-headquartered business consultancy firm found the elite group in more optimistic mood last year following a dash to cash in 2022.
“Early 2024 data reveal a normalization of cash holdings to 25% of portfolio totals, a stark contrast to the multi-decade highs of 34% seen in January 2023,” a Capgemini release says.
Alternative asset allocations also hit a record high of 15 per cent as of January this year, up 2 per cent on 12 months previously but largely in line with levels seen since 2019.
Capgemini data from its 2002 report show wealthy investors held 10 per cent in alternatives before falling to 7 per cent early in 2008 amid the global financial crisis.
“The report indicates two out of three HNWIs are planning to invest more in private equity during 2024, to leverage possible future growth opportunities.”
Despite persistent higher interest rates and inflation that hit commercial property valuations, the survey shows rich investors remain keen on real estate with allocations rising from 15 per cent in the previous report to 19 per cent this year.
Similarly, wealthy portfolios started this year with more bonds as fixed income holdings jumped 5 per cent year-on-year to reach 20 per cent.
But even as stock markets boomed last year on the back of AI-enhancements and anticipation of rate cuts, the high net worth-set dialled back listed equity allocations to 21 per cent – down 2 per cent from January 2023 and the lowest exposure to the asset class since 2002.
Capgemini attributes the rich cool attitude to shares to high costs of borrowing, “geopolitical tensions, and continued market volatility”.
“Rising interest rates made traditionally safe assets like bonds more attractive,” the report says. “Therefore, the ‘hurdle rate’ shifted the minimum return needed to justify equities’ risk changed.”
Following a dip in both the number of uber-rich and assets held by the cohort during the broad investment markets crash of 2022, the wealth trends reset last year.
“ global HNWI wealth expanded by 4.7% in 2023 reaching $86.8 trillion. Similarly, the HNWI population increased by 5.1% to 22.8 million globally and continues to grow despite market unpredictability,” the Capgemini release says.
“This upward trend offsets last year’s decline and puts HNWI trends back on a growth trajectory.”
However, regardless of the (possibly ketamine-fuelled) return of optimism among the world’s most-wealthy, the survey found about two-thirds of respondents are worried “about the lack of personalized advice tailored to their changing financial situation”.
Nilesh Vaidya, Capgemini global industry head of retail banking and wealth management, said financial advisers should consider new ways to engage with HNWIs including AI-powered behavioural finance tools.
“Clients are demanding more from their wealth managers and the stakes have never been higher. There are active steps firms can take to engage and retain clients for a personalized, omnichannel experience as the great wealth transfer unfolds and growth of HNWIs continues,” he said.
The Capgemini survey tapped almost 3,120 of the global HNWI sector (of which more than 1,300 are classed as ultra high net worth – or those with US$30 million or more to invest) in 26 countries including Australia but not NZ.