The Destruction Of Wealth Continues
“I am having an out of money experience.”
-Author Unkown
The financial crisis continues to take its toll on global wealth. From Reuters’ Joe Rauch this morning:
The 2008 global recession caused the first worldwide contraction in assets under management in nearly a decade, according to a study that found wealth dropped 11.7 percent to $92.4 trillion.
A return to 2007 levels of wealth will take six years, according to a Boston Consulting Group study that examined assets overseen by the asset management industry.
North America, particularly the United States, was the hardest hit region, reporting a 21.8 percent decline in wealth firms’ assets under management to $29.3 trillion, primarily because of the beating U.S. equities investments took in 2008.
Also hit hard were off-shore wealth centers, like Switzerland and the Caribbean, where assets declined to $6.7 trillion in 2008 from $7.3 trillion in 2007, an 8 percent drop.
The downturn has “shattered confidence in a way we have not seen in a long time,” said Bruce Holley, senior partner and managing director at BCG’s New York office.
The study forecasts that wealth management firms’ assets under management will not return to 2007 levels, $108.5 trillion, until 2013, a six-year rebound.
The study also focused on the world’s millionaires. Rauch added:
The economy’s retreat also pounded millionaires who made risky investments during the economic boom.
The number of millionaires worldwide shrank 17.8 percent to 9 million, the BCG study found.
Europe and North America were hardest hit in that regard, posting 22 percent declines.
These findings come on the heels of a report showing that a rising number of wealthy Americans are going bankrupt. From Bloomberg’s Jeff Plungis last week:
Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center, a research firm in Burlingame, California.
More individuals or families with at least $1,010,650 in secured debt and $336,900 unsecured are using Chapter 11 of the U.S. bankruptcy code typically associated with business reorganizations. Falling U.S. home prices leave them unable to refinance or sell properties when they drop below the value of the mortgage, said Joseph Baldi, a Chicago bankruptcy attorney.
Chapter 11 is more expensive and time-consuming for debtors and creditors than a Chapter 7 liquidation of assets. Wealthier people filing for bankruptcy typically have large homes, two car payments and children in private schools, said Leslie Linfield, executive director of the Institute for Financial Literacy in Portland, Maine, a credit-counseling and research group.
“You’re living on the edge, you’re juggling those financial balls,” Linfield said. “When one ball goes, they all fall down.”
Sources:
“World wealth down 11 percent, fewer millionaires”
Joe Rauch
Reuters, September 15, 2009
“Wealthy Families Face Bankruptcy on Real Estate Crash (Update1)”
Jeff Plungis
Bloomberg, September 9, 2009
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