World's richest people got even richer in 2006

For the super-rich it's all give and take - at record levels

· Prosperity leads to rise in charitable donations
· Good times put up prices of luxury goods

Angela Balakrishnan
Thursday June 28, 2007
The Guardian


The wealth of the world's super-rich soared last year at the fastest rate for seven years. The rise in riches was accompanied by a surge in charitable giving to $285bn - believed to be a record.
The downside for the super-rich was that the cost of their favourite luxury products and activities rose at nearly twice the average rate for goods and services.

The 11th annual study of 71 countries by investment bank Merrill Lynch and consultancy firm, Capgemini found that buoyant economic growth across the world pushed the riches of "high net worth individuals" (HNWI) up by a hefty 11.4% last year. The dramatic increase took the total prosperity of the world to $37.2 trillion - equivalent to 15 times the annual output of the UK economy.

High-net worth individuals are those with $1m (£500,000) to invest in financial assets excluding first homes. Ultra high-net worth individuals have $30m at their disposal.
Britain had the fourth biggest number of the world's wealthiest, with a total of 484,580 high-net worth individuals, up 8.1% from 2005. Only the US, Japan and Germany have more. Britain is home to 16.7% of Europe's super-rich.

Part of the rise in world wealth last year came from booming stock markets. The Dow Jones world index, for example, increased by a solid 16.4%.

The boost in cash held by the world's millionaires and billionaires gave way to a surge in philanthropy, the report said. Rich individuals donated 7% of their wealth to charity, while the ultra-rich donated more than 10% to these causes. This charitable giving amounted to more than $285bn globally. Warren Buffett, the world's second-richest man, added to the trend last year when he donated 85% of the $45bn earned from his lifetime of investments to a foundation established by Microsoft's Bill Gates and his wife Melinda.

"Philanthropy is central to what wealth managers are having to do; it cannot be ignored," said Nick Tucker, a Merrill Lynch executive director and co-author of the report. "New wealth especially are keen on this."

Environmental and socially responsible investing were no longer niche categories. Nearly half of all British investment firms invest more than 10% of the assets under their management in socially responsible projects, a rise of 20% from 2004.

The report predicted that global wealth was expected to grow by 6.8% each year until 2011, pushing the total amount to $51.6 trillion, though Mr Tucker warned that a slowing world economy may put a brake on the soaring expansion of wealth over the coming years.

"With many central banks tightening monetary policy, the period of high liquidity that has stimulated recent growth may soon come to an end. The growth rates of Asia and Latin America are expected to ease back as global demand slows. The dual risks of rising energy prices and geopolitical conflicts are a continued threat, adding a level of uncertainty to our current forecasts."

Britain in particular was facing slowing growth, and therefore a lower generation of wealth, as a result of higher inflation and low household savings rates this year.

There were 9.5 million HNWIs last year, according to the report - a rise of 8.3% from 2005. Europe saw its wealth increase at the sharpest rate since 2000, with a rise of 7.8% to $10 trillion. The performance of financial markets in eastern Europe in particular was a key driver in this, Mr Tucker said. Ultra-HNWIs also rapidly increased by 11.3% to 94,970 last year.

The largest share of the growth in the world's higher net worth population came from Singapore and India, where numbers rose by 21.2% and 20.5% on the year respectively. This continued the rise of a new elite of super-rich individuals in developing nations as their economies expanded, in the case of India and China at rates more than triple that of the UK.

Many of these emerging economies, which included Russia, were gaining strength from domestic private consumption, competitive services and manufacturing sectors.

Wealth generated in Latin America, the Middle East and Russia was buoyed up by high commodity and oil prices.

"The globalisation of wealth creation has accelerated," said Chris Gant, head of wealth management at Capgemini Financial Services. "If 2005 was characterised by a flow of investment to international funds from HNWIs, 2006 ushered in a new era whereby emerging economies leaped ahead with direct foreign investment, strong domestic demand and hefty stock market gains."

The report found that as the rich got richer, the demand for luxury products increased, making them more expensive. The Cost of Living Extremely Well Index (CLEWI) measured the cost of a basket of 42 luxury goods and services, including designer handbags, tuition at Harvard University and filet mignon.

Last year, this index rose nearly twice as fast as the cost of everyday consumer products. The CLEWI rose at 7% while the consumer price index increased by 4%.

The world's millionaires nevertheless devoted about a quarter of their "investments of passion" to yachts and private jets, dubbed "mobile mansions," and a fifth to art.

The report said more investors were moving their money out of the US to Europe and to a lesser extent Asia. This was likely to be because of signs of a slowdown in the US economy. The study found investment in property showed a large rise thanks to spiralling prices.