The eurozone crisis
is bringing the country’s economic performance under the
microscope, but research from WealthInsight suggests that while the
lower-tier wealthy have had their confidence shaken, Germany’s
ultra high net worths are proving remarkably resilient
The German economy has been one of the bright spots
of the recent confidence crisis in the eurozone – although its
growth rates are nothing to shout about.
Go deeper with GlobalData
The Organisation for
Economic Co-operation and Development reported annual real GDP
growth reached 3% in 2011, and it is set to fall back sharply this
year to around 0.5% before increasing back towards 2% in 2013.
This flow-on effect means
that the number of high net worth individuals (HNWIs) in Germany
declined by 8.4% between 2007 and 2011, according to
WealthInsight’s report, Germany – The Future of HNWs to 2016:
Wealth in the Powerhouse of Europe.
Loss of wealth, however,
was concentrated among HNWs with less than $5m.
Many of these saw their
wealth manager or private banker as contributing to their
collective and personal loss of wealth.
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By GlobalData
Bankers: information sources, not money
managers?
WealthInsight says
Germany’s HNWs will increasingly use private bankers and wealth
managers as sources of information rather than money managers.
This is not the case
among ultra-HNWs, however, which is why the global consultancy is
excited about this super wealthy segment.
“There is some
conflicting data, but our research suggests that UHNWs in Germany,
who had their wealth managed professionally, did better through the
crisis than those who did not,” says Stephen Gross, senior analyst
with WealthInsight.
“This bodes well as our
forecasts for growth, especially among UHNWIs, indicate there are
some great opportunities for wealth managers and private bankers,”
he adds.
With 11,392 – 9.3% of the
global total – Germany has the third-largest number of UHNWs in the
world.
According to
WealthInsight, Germany’s UHNW population increased by 0.7% between
2007 and 2011, making it considerably more resilient than Germany’s
HNW population.
Germany’s
UHNW show resilience
Germany’s UHNW population
was also more resilient than the UHNW populations of France and the
UK, which declined by 12% and 11.4%, respectively.
This segment of super
rich has an average wealth of $118m per person, slightly below the
global average for UHNWs of $120m.
This lower average is at
least partially due to the fact that Germany’s 81 billionaires and
2,529 centimillionaires (those with hundreds of millions of
dollars) are fewer than the corresponding populations in China and
the US.
Likewise, Germany has
fewer billionaires than the UK and only slightly more
centimillionaires.
Unlike these other
countries, whose UHNW populations are skewed towards the higher
end, Germany has a proportionally larger number of affluent
millionaires (those individuals with between $30 and $100m in
assets).
8,782 affluent
millionaires resided in Germany as of December 2011.
The buoyancy of Germany’s
large population of millionaires, which increased by 2.8% over the
course of the financial crisis (2007 to 2011), has much to do with
the relative stability of Germany’s UHNW population compared with
France and the UK.
Affluent
millionaires maintain fixed income products
According to Andrew
Amoils, a senior analyst at WealthInsight and lead author of the
report, one of the key reasons that affluent millionaires have
fared comparatively well is because, as a group, they have
maintained a high weighting of their assets in fixed income
products, which have done particularly well over the past few
years.
The amount of alternative
assets held by Germany’s HNWs increased over the course of the
financial crisis, from 7.1% of total assets in 2007 to 8.8% in
2011.
This was due not only to
a significant rise in commodity prices, but also to a flight from
uncertainty. HNWs – and especially UHNWs – sought alternative
investments as a way of adding stability to their portfolios. This
is part of a trend away from traditional strategies.
Allocations to
collectable assets – such as art, wine, classic cars, watches and
jewellery – increased from 0.6% of total assets in 2007 to 0.7% in
2011.
Amoils points out that
though the share of total HNW assets is small, “the aggregate
figure is huge: $28bn.
And it’s especially
remarkable when you compare it with the UK, where collectables
amount to $25bn, and France, where HNWs hold just over $12bn in
collectables.”
WealthInsight projects
that collectables will comprise 0.8% of HNW assets in 2016 and pass
$35bn. Alternative assets are forecast to comprise 9.3% of total
assets, compared with 8.8% in 2011 and 7.1% in 2007.
Competition for
managers
WealthInsight finds that UHNWs are poised to experience the kind
of growth over the next few years typical of emerging markets.
This growth could prove a great opportunity for those wealth
sector professionals looking to expand in Germany. But competition
remains intense as the country’s wealth sector is already well
developed.
UniCredit is just one
bank targeting the segment.
A new unit is being
piloted in UniCredit’s HypoVereinsbank (HVB) in Germany, which has
the highest density of UHNWs in Europe, with a focus on clients
with disposable assets of €20m and more.
Last November, the
private banking division recruited the former global head of
research and UniCredit chief strategist Thorsten Weinelt with 12
staff and plans to create dedicated UHNW units in Munich, Frankfurt
and Hamburg.
According to
WealthInsight, Germany’s wealth managers and private bankers had
assets under management (AuM) of $1.1trn as of year-end 2011.
This is 28% of the total
wealth of Germany’s HNWs and 92% of the total wealth of Germany’s
UHNWs, ratios that are well above the global averages.
German HNWs account for
57%, or $630bn, of the total AuM of Germany’s wealth management
sector, meaning that 16% of total German HNW wealth is managed by
the German wealth management sector.
Germany has more than 300
wealth managers, more than 200 family offices and more than 50
private banks. The top 10 private banks control 40% of the wealth
management market and have AuM of over $440bn.
Essen-tial
opportunity
Centimillionaires and billionaires, whosepopulations will
respectively grow by 18% and 20% over the next few years.
They are prime candidates for joining multi-family offices
(MFOs) or for starting their own single family offices (SFOs) – as
many of their peers in Germany have already done.
Germany has a good number of both MFOs and SFOs, with over 200
set up to date. Centimillionaires and billionaires are thus not as
likely to be prime candidates for private bank services.
Gross says: “Affluent
millionaires are where wealth managers and private bankers
targeting the UHNW segment in Germany should really focus their
attention.”
WealthInsight expects the
number of affluent millionaires to increase 17.8% by 2016.
In particular,
WealthInsight research shows that Essen, where the number of UHNWs
increased by 23% between 2007 and 2011, will continue to see
phenomenal growth to 2016, with a forecast increase of 19.1%.
Essen has received an
especially high opportunity ranking from WealthInsight, primarily
due to the fact that it is greatly underserviced by the wealth
sector despite being ranked among the top 10 German cities for the
size of its UHNW population.
The city also has a
favourable business environment and many firms with high growth
potential. “We’ve taken a good long look at Essen and we think
there are a large number of businesses and individuals that are
going to see their net worth balloon over the next few years,” said
Amoils.
Hanover, where the number
of UHNWs is expected to increase by 21.8% by 2016, is another city
to watch. WealthInsight has also given high ratings to Hamburg and
Bonn.
The short-term outlook for the eurozone makes grim reading, but
with a strong base of HNW and UHNW, Germany’s wealth industry will
have better chance of prospering.
The country’s tax agreements with Switzerland, to increase
transparency over tax payments from German citizens, could also
provide it with a much-needed shot in the arm.
