Despite a “triumvirate” of woes in 2022, wealthy individuals are remarkably optimistic about the year to come, with seven in 10 expecting their wealth to grow in the coming 12 months.
The Collins English Dictionary chose “permacrisis” as its word of the year for 2022, reflecting the “extended period of instability and insecurity” that affected geopolitics, the energy industry and global economics amid numerous ongoing emergencies.
Yet despite what the Knight Frank Wealth Report has described as a “tough 12 months”, 40% of the world’s ultra-high network individuals (UHNWI) managed to grow their wealth in 2022, and although a “looming global recession, surging inflation and debt costs” are certainly causing some concerns for investors and their clients in the coming year, the outlook is surprisingly optimistic for 2023: seven in 10 expect to see personal wealth growth.
The Wealth Report’s outlook on 2023, compiled through in-depth interviews with industry experts and a survey of more than 500 private bankers, wealth advisors and family offices, looks at the key opportunities and investment risks for UHNWIs in what it forecasts to be “another turbulent year”.
“The study provides a unique barometer of investors’ shifting views on near-term risks and opportunities, and suggests private capital will play an outsized role in real estate markets,” says Liam Bailey, Global Head of Research at Knight Frank. “While inflation (cited by 67% survey respondents), interest rates (59%) and geopolitical risks (53%) continue to dominate investor concerns, real estate (46%), tech (33%) and equity markets (28%) are cited as the leading opportunities in 2023 for wealth creation.”
Global mobility and real estate
Interestingly, 13% of UHNWIs are planning to apply for a second passport or new citizenship in 2023. A third of personal wealth among UHNWIs is allocated to private property and more than a quarter of this is held outside their country of residence. 15% are looking to purchase additional residential property in 2023, with the US, UK, Spain, Australia and France coming in as the top five desired locations.
The Knight Frank report classes real estate as the leading opportunity for wealth growth and creation, both for direct and indirect investment. The top five sectors attracting UHNWIs are healthcare, logistics and industrial facilities, offices, the private rental sector, and hotels and leisure. Of all respondents surveyed, a third were interested in all five, demonstrating widespread enthusiasm for a diverse portfolio.
Annabelle Bryde, the head of UK Private Bank & Crown Dependencies at Barclays, says, “Property is a passion for many and will remain so, however, decisions are typically driven not only by returns, but sentiment and need. Whether looking for family use or a specialist asset that drives diversification and yield across a broader range of investments, our clients like the idea of combining passion with practicalities. This becomes more important, and a driver, as global leverage funding costs increase.”
Investments of “passion”
Art has retained its seat as the “most sought-after investment of passion” for 2023, with nearly 60% of UHNWIs likely to make a significant purchase this year. Watches follow with 46% looking to buy and wine at 39%. Art tops the list for overall cost too, with classic cars and wine rounding out the top three.
A return to traditional methodologies
Bailey cites the unique conditions of the last few years as having caused “the worst performance for the traditional blended investment portfolio since the 1930s”. The majority of equity and bond markets experienced a simultaneous downturn during 2022.
“Those that saw their wealth shrink attributed declines to equity markets, financial markets more broadly and interest rate moves,” reads the report. “Many interviewees pointed out that the traditional diversified portfolio offered no safety amid a unique set of circumstances. The MSCI World Mid & Large Cap index was down 18%, the S&P 500 by 19%, the FTSE 250 by 17%, the Nikkei by 9% and China’s CSI 300 22%, by way of example.”
Still, long-term investors expect to be rewarded, with panel member Kunal Lakhani of NAB saying, “[2022] provided a shift from a high-growth mindset to more traditional methodologies around value and quality of business management… Now, with the higher-rate environment, there is likely to be a longer-term approach and less looking for quick gains.”
Barclays’ Bryde adds, “We think recessions will broadly be shallow and short-term, and aggressive interest rate hikes from central banks should ease off. For investors, it won’t be plain sailing, but there’s reason enough for longer-term optimism.”
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