Global billionaire wealth hits $6 trillion on back of sustained pension growth

Global billionaire wealth has risen by 17% to $6 trillion, while the global collective of affluent High Net Worth Individuals (HNWI) have seen their total haul increase to $72.3 trillion. Pension funds and sovereign wealth funds have also seen their capital increase at a steady pace, following uncertain years.

Wealth managers have seen their total assets under management (AuM) increase steadily in recent years, in part due to growing pension pots, and new wealth being created across Asia. In a report from PwC, titled ‘Asset & Wealth Management Revolution: Embracing Exponential Change’, the Big Four firm has examined changes in the level of investment in the segment.

According to the study, given a number of key economic fundamentals remaining relatively stable – low interest rates and no large scale geopolitical upheaval – total AuM is set to increase from $84.9 trillion to $111.2 trillion by 2020, before increasing again, albeit somewhat more slowly, to $145.4 trillion by 2025. In the firm’s most conservative assessment, in which equity and/or bond markets take a tumble, wealth is still projected to increase by 2025, up from $84.9 trillion to $107.8 trillion.

The research notes that growth rates will vary considerably between regions in its base-case. Between 2016 and 2020, the 7% average CAGR is boosted in particular by Asia-pacific and Europe, at 8.7% and 8.4% respectively, while the US sees more reserved growth of 5.7%.

According to the study, considerable changes in distribution between active, passive and alternative fund types are expected between 2016 and 2025. The changes reflect shifts in the wider market as technologies, such as robo-investors, as well as cost cutting, changes in fee structures and changes in fund demand, shift.

EFTs are increasingly popular, with particularly young, wealthy investors, opting to invest in a range of such funds, pushing up the passive fund total asset as a share of total AuM by 2025 to 25% from around 17% in 2016. Alternative assets, meanwhile, are set to grow from 12% in 2016 to 15% by 2025.

Alternatives market

The alternatives market has grown in leaps and bounds since 2004, initially at CAGR 28.5% to 2007, before growth fell to 4% over the crisis years. In the years since (from 2012), however, growth picked up again to 11.8% - with total assets in the category growing to $13.9 trillion.

Going forward, infrastructure investment is likely to see the strongest interest in the segment, with AuM in the built environment projected to grow at 27.5% between 2016 and 2020, from $0.6 trillion to $1.7 trillion. Private equity, meanwhile, is set to see growth of around 7.8%, up from $4.7 trillion to $6.4 trillion. Hedge funds are on track for the least growth, relatively, up 4% annually over the years to 2020, from $3.3 trillion to $4 trillion – in the base scenario.

In terms of client types, asset growth is projected to be relatively even across major client categories. Pension funds are set to grow by around 6% to 2025, while insurance companies are set to see their assets increase by around 4.8%, the lowest equal to the mass affluent. HNWI will likely see their assets increase by an average of 5.8%, to $119 trillion. Sovereign wealth funds are likely to see their total assets up by 7% to $13.6 trillion.

According to the study, total client assets across the major categories will stand at around $345 trillion in 2025, at an average increase across all categories of 5.4% annually. AuM are set to grow slightly more, at 6.2%, with their AuM at around $145 trillion – at penetration rates of 42.1%, up from 39.6% in 2016.

In contrast, while society’s elite enjoy continuous good times amid this growth, the bulk of the population are seeing little, if any, benefit from this. Heightened inflation and the stagnation of wages, mean that the consumers have become increasingly defensive in their spending behaviour, while the net expansionary spending behaviour has fallen. In a consumption-based economic system, this increased disparity could spell economic crisis in the future – impacting the potential growth of HNWI wealth, as the number of consumers willing and able to invest in their companies dwindles.