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The United States far outpaced the rest of the world in creating millionaires last year, adding 600,000 new millionaires and generating record fortunes at the top, according to a new study.
The millionaire population of the United States grew by 7.3% in 2023 to 7.5 million people, according to a report from capgemini. Their combined fortunes grew to $26.1 trillion, up 7% from 2022. Capgemini defines millionaires as those with investable assets of $1 million or more, not including primary residence, collectibles or durable consumer goods.
While interest rates remain higher, the rally in stocks in late 2023, combined with trillions of dollars in government spending and stimulus, continues to fuel the American wealth machine.
Fortunes at the top of the wealth ladder are growing faster. The number of Americans worth $30 million or more grew 7.5% in 2023, to 100,000, while their fortunes rose to $7.4 trillion.
Globally, ultra-high net worth individuals represent 1% of the millionaire population, but now own 34% of their total wealth, demonstrating the growing concentration of wealth even among the wealthy.
The big question is whether the wealth boom of the last decade, fueled initially by low interest rates and liquidity, and more recently by Covid-19 pandemic stimulus and artificial intelligence, can continue. Global conflicts, elections, interest rates and a possible economic slowdown could slow the pace of wealth creation, said Elias Ghanem, global director at Capgemini Financial Services Research Institute.
“The last 10 years have been exceptional,” Ghanem said. “Now we have inflation, a possible recession and geopolitical problems and elections. The environment is completely different.”
In fact, globally, the wealth landscape appears more heterogeneous than in the United States. The number of millionaires worldwide grew 5.1% last year, to 22.8 million, according to the report. Their combined fortunes grew to a record $86.8 billion.
After North America, Asia-Pacific had the highest million-dollar growth, with 4.8%, followed by Europe with 4%, Latin America with 2.7%, the Middle East with 2.1% and Africa with a decrease of 0.1%.
Ghanem said that while Asia surpassed North America's millionaire population and growth in the years before the Covid-19 pandemic, the United States is once again dominant.
When it comes to their investments, the wealthy are moving their money from safe, wealth-preserving assets to more aggressive growth assets, according to the report. Their holdings of cash and cash equivalents have dropped from a high of 34% of their portfolios in early 2023 to 25% in January, meaning they are starting to put their cash to work.
Its fixed income holdings increased from 15% to 20% and its real estate investments increased from 15% to 19%. Its stock holdings continue to fall, down to 21%, its lowest level in more than 20 years. While the major stock market averages have performed well this year (with the S&P 500 so far 12% and the Nasdaq Composite up 14%: Wealthy investors are avoiding a market largely driven by a handful of giant tech stocks.
Ghanem said alternatives, especially private equity and private credit, are likely to see the biggest inflows from wealthy investors this year. According to the study, two-thirds of millionaires plan to invest more in private equity in 2024.
“Everything is cyclical and since private equity has not had good results, it is a good entry point,” he said. “They think if they come in now, when it's cheaper, it will be a good long-term option.”
As the wealth and population of the rich increase, the battle to manage their fortunes becomes increasingly fierce. Ghanem said the winners will be those who best serve ultra-high net worth clients, or those worth $30 million or more. Capgemini said the ultra-wealthy will be the fastest-growing customer base, as well as the most profitable.
They are also the hardest to attract and retain: The ultra-wealthy have an average of seven wealth management relationships, up from three in 2020. More than three-quarters of the ultra-wealthy plan to change their primary wealth management firm by 2024.
Ghanem said the most important strategy for companies trying to get more business from the ultra-wealthy is to better understand customers. Firms may know their clients' finances, but they rarely understand their family dynamics, psychological risk profiles, investment biases, lifestyles or geographic diversification, he said.
As ultra-wealthy clients increasingly choose wealth management firms for value-added services (such as estate and next-generation planning, taxes, concierge services, and access to private settlements), firms need to conduct deeper research into their lives. financial and family in general.
Ghanem also said wealth management firms face an attack from family offices, the private investment arms of wealthy families. More than half of ultra-wealthy investors plan to set up a family office and say family offices provide greater privacy, personalization and independence.
Instead of trying to compete with family offices, wealth management firms should become better partners by offering a full suite of financial and non-financial products, he said. Companies that can offer truly global, multi-country advice, as well as loans, lifestyle advice, insurance solutions, portfolio tracking, real estate, travel, and next-generation healthcare and education advice will be the winners.
“They need to provide the entire ecosystem,” he said.
