A year of “permacrisis” in 2022 saw the total wealth of the world’s UHNWIs shrink by 10%. That’s almost €10 trillion. But things are looking up for “wealth creation” in 2023, according to the latest report from Knight Frank.
Shocks to the global energy industry, ongoing geopolitical crises and subsequent economic difficulties made 2022 a tough year for investors. Just four in 10 at the top of the scale experienced growth.
“Challenging markets meant the majority of UHNWIs saw their wealth decline last year, with their collective wealth falling by 10%,” says the head of Global Research at Knight Frank, Liam Bailey. “The epicentre of the crisis, Europe, was at the sharp end with an average 17% fall.”
Property – private or commercial – remains key
On average, private residential real estate represents a third of total wealth for UHNWIS, followed by equities at 26% and commercial property at 21%.
“The fall in wealth is unsurprising given the dramatic pivot in monetary policy that culminated in the worst performance for the traditional blended portfolio since the 1930s,” says Knight Frank’s Flora Harley.
The main goals of UHNWIs going into 2023, reads the report, is capital appreciation and preservation. The latter is particularly true for Europe’s most wealthy, who are also the keenest to deleverage debt, mainly due to rising interest rates.
Still, almost seven in 10 UHNWIs across the world are anticipating growth in their portfolios this year. Nearly half plan on adding to them.
“This is a pivotal moment for private wealth,” says Knight Frank’s Rory Penn. “Despite ongoing economic headwinds, we believe that now is the time to focus on the opportunities ahead.”
Property, a traditional favourite, retains its status as a popular investment strategy and “a third of HNWIs are looking to increase their residential holdings, while 28% will seek to increase their commercial property holdings”.
Within the Top 10 destinations for private capital in 2022, France performed best with a 21% increase, making it one of just two locations – in addition to the UK with 1% – to see any rise in 2022. France also has the most international real estate marketplace globally.
Passion investments
Diversification is on the minds of investors going into 2023, and an interesting inclusion in the Knight Frank 2023 Wealth Report are “investments of passion”.
There was a boom in investments in art, cars, watches, jewellery, fine wine and the like over the course of 2022, reflecting an upward trend noted over the last decade.
“Art (up 29%) and classic cars (25%) led the table, propelled by record-breaking sales and some huge and unique collections coming to the markets,” writes Knight Frank’s Andrew Shirley. “While rare whiskies only managed 3% growth last year, early adopters will be happy with a 373% 10-year return. Looking ahead, prospects are good for the two leading categories with 59% and 34% of UHNWIs respectively looking to invest in 2023. Even whisky (18%) might be set for a rebound.”
These “investments of passion” saw a 16% rise during 2022, beating inflation and “outperforming the majority of mainstream investment classes, including equities and even gold”.
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