The Wealth Report 2009


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Welcome to the 2009 edition of
The Wealth Report, the third such collaboration between Knight Frank and Citi Private Bank.
Over the past 12 months the economic outlook has become even more uncertain. Most of the developed world is now in recession, and even the emerging economies have been forced to pause for breath. Every commentator accepts 2009 will be tough. Our Attitudes Survey (page 12) indicates clearly that HNWIs will look to protect their wealth from the ravages of the downturn with an emphasis firmly on security and transparency rather than risk.
The tangible nature of property means it is well placed to benefit from this shift in emphasis, and there are signs that some mature prime property markets, such as London and New York, have readjusted to price levels that offer good value for purchasers. For some emerging markets, the rollercoaster ride looks set to continue. A full analysis of prime global markets is included on page 26, and we recommend 10 locations and sectors that offer potential for growth on page 23.
As property is just one aspect of wealth, we have expanded the scope of The Wealth Report by including an investigation into the performance of alternative assets, from art and cars to wine (page 36), and an assessment of the state of the philanthropy sector (page 16). Influential thinkers, such as Alain de Botton (page 20), also share their views on how the world will adjust to life post credit crunch.
We hope you enjoy reading the report.

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The Wealth Report 2009

  1. 1. the wealth report 2009ProPerty: Tracking prices in The world’s prime residenTial locaTionsassets: how The markeTs for classic cars, wine and arT are faringIntervIew: ciTy designer alejandro guTierrez shares his visionary ideasoPInIon: money isn’T everyThing, says philosopher alain de BoTTon Change your view ne w investment opportunities o n t h e h o r i zo n – t h e g l o b a l g u i d e
  2. 2. Destination Anywhere. Now you can search and compare beautiful residential properties across the world. Our new comprehensive search facility uses a single interface, so you can browse our global property listings effortlessly. Whether your list of requirements is long or short, our website will help you find your ultimate property dream. Get connected to your perfect property.Market coverage: UK  Europe  Caribbean  Asia  Australia  AfricaResidential: Agency Sales & Lettings  Equestrian & Rural  Financial Services Residential Development  Valuations & ConsultancyCommercial: Agency & Capital Markets  Trading Properties  Professional Services  Financial Services
  3. 3. PHOTOGRAPH: Richard Powers ( wealth n 1. a large amount Contents Attitudes Growing concerns 32 Attitudes to wealth 12 How global farmland of money or Welcome letter and contributors 5 Where HNWIs invest, values are faring during possessions. how and why the economic downturn 2. Econ. all goods Monitor Causes for concern How the credit crisis is 16 Trading places Asian financial centres 34 and services with World overview 6 affecting the trend towards will overtake London, monetary value. Sebastian Dovey, of Scorpio philanthropy according to Joergen Oerstroem Moeller Partnership, assesses the 3. an abundance impact of the economic Money matters? There’s more to wealth than 20 or great profusion: downturn on the super rich a healthy bank balance, says Trends a wealth of gifts. The future foretold A panel of experts dissects 8 philosopher Alain de Botton The art of investment 36 Unravelling the allure of 4. Arch. wellbeing key economic issues art, cars and wine for the Property or prosperity. Rouble trouble 10 New horizons 23 modern investor Why Russia’s economy Ten emerging global What’s next? 40 is feeling the chill, opportunities The latest fashions in by Edward Lucas property, interiors and Prime property 26 luxury travel, as identified The annual PIRI index by Katherine Vaughan World Cities Survey 29 Design for the times 44 The new Knight Frank index Arup’s Alejandro ranks the world’s top cities Gutierrez shares his vision for sustainable cities Contacts 47 Notes and definitions: hnWi is an acronym for high net worth individual’, a person whose investible assets, excluding their principal residence, total between $1m and $10m. an UhnWi (ultra high net worth individual) is a person whose investible assets, excluding primary residence, are valued at between $10m and $100m plus. the term ‘prime property’ equates to the most desirable, and normally most expensive, property in a defined location. commonly, but not exclusively, prime property markets are areas where demand has a significant international bias. Exchange rates: unless otherwise stated these were calculated using the rate on 2 January 2009. the Wealth report 2009 attitudes Survey: the participants of the survey comprised 60 citi Private Bank wealth managers around the world, representing around 2,000 hnWis. Survey conducted between 1 December 2008 and 31 January 2009. Written and edited by andrew Shirley and Liam Bailey, knight frank LLP. For research and press enquiries: Liam Bailey, knight frank LLP, 55 Baker Street, London W1U 8an; +44 (0)20 7629 8171 Cover image: richard Powers Colour repro: colour Systems Printing: the Westdale Press Ltd. the Wealth report 2009 is published by redwood (7 St martins Place, London Wc2n 4ha; +44 (0)20 7747 0700) on behalf of knight frank LLP in association with citi Private Bank. For Knight Frank: Head of Residential Research Liam Bailey Head of Rural Research andrew Shirley Marketing and Communications marisa Ling. For Citi Private Bank: Head of Business Development David Poole Marketing and Communications Susan tether, alison taylor. For Redwood: Editor alison tyler Art Director Jo raynsford Deputy Editor marcus trower. With thanks to chris hodgson and chris hubbard. Account Manager kirsty Ware Creative Director Paul kurzeja Editorial Director Sara cremer. © knight frank LLP 2009. the views expressed in this report are collated by the authors from opinions expressed by individuals working within or alongside the property and financial industries. although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by knight frank residential research or knight frank LLP for any loss or damage resultant from the contents of this document. this material does not necessarily represent the view of knight frank LLP in relation to particular properties or projects. reproduction of this report in whole or in part is allowed with proper reference to knight frank residential research. knight frank LLP is a limited liability partnership registered in England with registered number oc305934. our registered office is 55 Baker Street, London W1U 8an, where you may look at a list of members’ names. kn i g ht f ra 3
  4. 4. Providing a Clear Path in an Increasingly Complex World Preserving assets is always a priority. But even in uncertain times, good long-term opportunities exist for those who know where to look. At Citi Private Bank we work to identify these opportunities. Allow us to show you the way. As one of the world’s leading private banks, we have a history of expertise and intellectual leadership that few institutions can match. We understand that our clients seek to build upon the successes of their own hard work. We provide capital as well as investment opportunities. Call us to schedule a private meeting to discuss the comprehensive services and industry-leading insights that you can get only from a global private bank. For locations worldwide visit Call us for a dialogue in these and other cities:Europe, Middle East & Africa Latin America North America Asia PacificAbu Dhabi (971) 2 678 2727 Brazil (55) 11 4009 3432 Chicago (1) 312 384 1450 Hong Kong (852) 2868 8688Dubai (971) 4 604 4411 Mexico (52) 55 22 26 83 17 Los Angeles (1) 213 239 1927 Singapore (65) 6227 9188Geneva (41) 58 750 5000 Miami (1) 305 347 1800 New York (1) 800 870 1073London (44) 207 508 8000 New York (1) 212 559 9155 Washington D.C. (1) 800 870 1073“Citi Private Bank” is a business of Citigroup Inc., which provides its clients access to a broad array of products and services available through bank and non-bank affiliates. Not all prod-ucts and services are provided by all affiliates or are available at all locations. In the United Kingdom, Citibank N.A., London branch and Citibank International plc, Canada Square, CanaryWharf, London E14 5LB, are authorized and regulated by the Financial Services Authority. The contact number for Citibank N.A. London branch and Citibank International plc in the UnitedKingdom is +44 (0)20 7508 8000.Citi, and Citi with the arc design are registered service marks of Citigroup or its affiliates.©2009 Citigroup. All rights reserved Citibank. N.A., Member FDIC
  5. 5. Contributors Andrew Welcome to the 2009 edition of Edward The Wealth Report, the third such collaboration Shirley Lucas between Knight Frank and Citi Private Bank. the head Lucas has of rural Over the past 12 months the economic outlook has been coveringProperty research at knight russia and Eastern Europe become even more uncertain. Most of the developedfrank, Shirley edited this since 1986 for the likes of the world is now in recession, and even the emergingedition of the Wealth report. independent, BBc and mosthe formerly covered Uk and recently, the Economist, for economies have been forced to pause for breath. Everyglobal property markets as which he was the moscow commentator accepts 2009 will be tough. Our AttitudesBusiness and Property Editor Bureau chief from 1998 toat the Uk’s leading farming 2002 and is now central and Survey (page 12) indicates clearly that HNWIs will lookmagazine. he has an Eastern Europe correspondent. to protect their wealth from the ravages of theinternational background, his book, the new cold War:having worked on agricultural how the kremlin menaces downturn with an emphasis firmly on security andprojects in asia and africa. both russia and the West, was transparency rather than risk.Farmland focus 32 published in february last year. The tangible nature of property means it is well Future wealth trends 10 placed to benefit from this shift in emphasis, and there are signs that some mature prime property markets, Katherine Liam such as London and New York, have readjusted to price Vaughan Bailey levels that offer good value for purchasers. For some after reading the head of emerging markets, the rollercoaster ride looks set to English at knight frank’sBrasenose college, oxford, continue. A full analysis of prime global markets is market-leading residentialVaughan spent 10 years research team, Bailey is a included on page 26, and we recommend 10 locationsworking at the Spectator,where she was Strategic recognised authority on and sectors that offer potential for growth on page 23. residential and property trends,Director, and later at and is widely quoted in the As property is just one aspect of wealth, we haveinternational art magazine, media. he works with clients expanded the scope of The Wealth Report by includingapollo, as associate Publisher. in the Uk, US, australia andShe is now a freelance writer Europe, advising on their an investigation into the performance of alternativespecialising in luxury brands. market strategies. assets, from art and cars to wine (page 36), and anLuxury trends 40 Prime property 26 assessment of the state of the philanthropy sector (page 16). Influential thinkers, such as Alain de Botton (page 20), also share their views on how the world will Jon Alain de adjust to life post credit crunch. Neale Botton We hope you enjoy reading the report. knight franks Born in Zurich, head of SwitzerlandDevelopment research is in 1969, de Botton now lives ina former journalist with five London. a writer of essayisticyears’ experience of writing books that have been describedabout property and housing. as giving a philosophy ofa former residential Editor everyday life, de Botton alsoof Estates gazette, he has helps to run the School of Lifeparticular expertise in in London, which is dedicated toresidential development, a new vision of education. his Patrick Ramsay Peter Charringtonregeneration, planning and next book, the Pleasures and HEAD OF RESIDENTIAL HEAD OF CITI PRIVATE BANK UKgovernment policy. Sorrows of Work, will be Knight Frank Citi Private BankAttitudes to philanthropy 16 published later this year. The meaning of wealth 20 kn i g ht f ra 5
  6. 6. monitor Overview Overview monitorstatus report GLoBAL WEALtHcrunch DiStriBUtion (% of total number of HnWis by region, 2008*)time 25% asia pacificWhat impact has the global economicdownturn had on the fortunes of theworld’s super rich? Sebastian Dovey, of 3% middle eastScorpio Partnership, sets out his view & africai l l u s t r at i O n b y n i C K r E D D y H O F F 28% europe ealthy investors across the world have been as shocked by the severity of the 37% north current financial crisis as the average america investor. To a degree, many superwealthy have fared slightly better, as theirprofessional advisers will have been able toforecast the storm and they would have moved 7% latin america & caribbeaninto a more defensive asset allocation as muchas 12 months ago. However, the big question oneveryone’s mind is how long the current economicconditions will last – and here even the superwealthy do not have the answer. Inevitably, the next question is: when willbe the right time to get back into the market interms of investing? At the end of 2008, I was witha family in Singapore who felt that the risk ofbeing slightly early to the market was going to money are undergoing complete revision due to the intense review. Investors now look at financial slowdown in property investment interestbe worth taking in the first quarter of 2009. They turmoil. My best guess is that the mature economies institutions in a totally different light. There is en masse, there are some specialist super richalso freely acknowledged that they were basing that are supported heavily by government “Both buyers a loss of confidence that the institutions are as investors who are now beginning to deploy capitalthis assessment on a hunch rather than any intervention and a strong currency will recover more and sellers have mighty as they claim. in new property ventures.mathematical certainties. quickly. In particular, we would look to European to re-engage Indeed, in my view, we have shifted into a new We can expect some big changes in the year Global wealth distribution remained broadly countries. But there are also certain emerging with the concept world order for wealth management where clients ahead: clients will want to take much greater controlstatic last year following a period of strong growthin emerging markets. As the credit crunch and markets, such as South Africa, which have not been as substantively affected and may show green shoots of responsible will actively seek out independent advice and recognise this as a value solution. Strange though of their wealth matters. This is perfectly reasonable. In many ways, I am very excited about this marketrecession unfold, the distribution will remain the of recovery earlier. and realistic this may sound, I think this is going to be a good condition. For over a decade I have been callingsame globally, although in absolute terms the In terms of wealth management, the world’s investing” thing in the long run. Both buyers and sellers have for change in the industry, with greater respectnumber of HNWIs will inevitably fall, as most super rich, particularly in Europe, are beginning to re-engage with the concept of responsible and toward the process of offering advice and buildingindividuals have experienced, on average, a fall to seek investment opportunities, and while they realistic investing. a client-centric total wealth of between 20% and 40%. acknowledge they might not be getting it exactly At the moment, we are hearing of a greater Behind this call is a driving passion to see the Investors will have to begin to accept risk again if right in terms of market timing, they know an appeal among clients toward direct investment. customer – of whatever level of fortune – beingthey wish to recover some of their wealth, but the opportunity when they see one. One investor The asset classes could be private equity, real estate better served in financial services. While I did notcrucial matter remains identifying the right time to suggested to me in Geneva recently that “the best and even venture capital. Critically, the clients want realise it would require a cataclysm to bring aboutget back into the market and, more specifically, thing to do when you fall off your ‘investment bike’ to know what it is that they are buying, the the change and for the industry to hear my calls, itidentifying the right asset classes in which to is to get right back on it”. Private equity and real provenance of the opportunity and also have a is here now, so let us just get on with it. It is time forparticipate. Here, we expect many of the super rich estate are asset classes of particular interest. greater influence in the outcome. During the last change. And it is time for a new agenda. • *source: scorpio Partnershipto lead the way, as they are often at the frontier of But the credit crunch has fundamentally 12 months they have learnt that they do not like thewealth creation. changed wealth management. This is a critical sense of helplessness that comes with being swept Sebastian Dovey is Managing Partner and Head Predicting where wealth creation will recover issue. We are now in a new era of wealth re-creation, along in the market crises. This is being of Consulting at Scorpio Partnership.first is almost impossible, as the rules of making and the role of the financial institutions is under demonstrated in the property market. Despite the 6 c it k ni ght f r a nk .com 7
  7. 7. monitor Future wealth trends Future wealth trends monitorcriSiStalkSIn January, Knight Frank hosted a panelof leading experts from the worlds of investment,property and wealth management in order to How bad is the current recession compared with by governments, intensifies. However, the ability of GH It is likely that there will be protectionistdiscuss the critical issues affecting the global others you have experienced? regulation to prevent another bear market is movements in particular industries, especiallyeconomy. Here are the highlights Nick BurNell The most striking characteristic is its questionable. Indeed, intervention of states in “This is the those that take state funding, as shareholders with breadth, both internationally and across different markets has not led to a substantial resumption of worst recession alternative agendas to the norm join the corporatePortr aits By aNNaBel moeller sectors of the economy. Most economic downturns lending so far, although it can be argued it in my working arena. But trade will continue between states and in the recent past have been more concentrated prevented the collapse of the system entirely. lifetime. It companies with regional or global supply chains.the panel geographically and on particular industries. The widespread nature of the current one results from When will property prices stop falling and when connotes One minute we are worrying about inflation, then its root cause in the credit markets, which have will they start to pick up again? profound deflation, then inflation again. What is happening, turned off the tap after a sustained period of ro I think prices will continue to fall for change for the and which should we fear the most? excessive liquidity. The effect of this has been a investment property in secondary and tertiary Anglo-Saxon PW Deflation is today’s principal concern. Sharply radical correction in the pricing of almost every locations throughout 2009, but I think core property business model” deteriorating global growth, prompted by a large asset class, as the disconnect between inflated will reach the bottom this year. People will start synchronous collapse in global trade, is reigniting pricing and fundamentals has been cruelly exposed. buying this type of property because a current yield financial distress. Declining wealth, high levels of of 7% is much better than earning less than 1% in uncertainty and financial disruptions have led toPhilip Watson Roger Orf Nick Burnell roGer orF This is the worst recession in my working your bank account. sharp declines in demand around the world.head of investment president and ceo of head of rutley capital lifetime. It connotes profound change for the Lower commodity prices and rapidly growinganalysis and advice group, citi property investors partners, the real Anglo-Saxon business model. The model is based DaN tHomas The UK housing market is likely to output gaps have led to rapidly declining levels ofciti private bank emea estate private equity and investment management on leverage and consumption, and the model is continue to come under pressure throughout 2009 inflation in most countries. It is likely that attention business of the broken. It will take three to five years to recover but will hopefully stabilise in 2010 and start to see will eventually turn towards central banks and knight frank group from this downturn. a relatively sound recovery in the years after. Never authorities to ensure reflationary policy is bet against further shocks to the system: the controlled and does not spiral rapidly into heavily Should banks and other financial institutions brace banking bailout has had no discernible effect on inflationary policy. themselves for increased regulation in light of the the supply of mortgages or lending criteria, and failings exposed by the credit crunch, and would that showed no sign of changing in the first quarter How would you rate government attempts to unlock that help prevent a similar scenario in the future? of this year. Buying into an economic recession the credit crunch, and will they work? PHiliP WatsoN Without doubt we will see change – the seems ill-advised, and all the indicators suggest this NB I would not rate them highly. The truth is theDan Thomas Graham Harvey big question is what type. There is no question that year will be tough, with climbing unemployment, taxpayer does not have sufficient financial resourcesproperty correspondent for Senior associate at Scorpio momentum towards the establishment of tighter economic contraction and issues around inflation. to rebuild the balance sheets of the major banks,the financial times, with a partnership, a business regulation is underway. Disparate regulation in the and this has to be accepted by government and freshbeat that includes both Uk strategy firm dedicated toand global markets the global wealth industry past, such as the imposition of leverage ratios, the People are worried that the recession could usher in policy developed accordingly. An examination of risk weighting of assets and – even more a new era of global protectionism. Do you think that most banks’ balance sheets reveals a large liability fundamentally – the meaning of capital, has led to will happen, and what would be the consequences? component in the shape of bonds. They should be some confusion. This has led to differing scenarios NB There is certainly a risk of this type of knee-jerk obliged to convert these to equity in a manner akin emerging across geographies. Remedies, therefore, reaction. I happen to think, however, that the credit to the recapitalisations by creditors seen in most also differ. A transparent, globally coordinated and crisis will only be solved by concerted international other industries. The government should participate harmonised approach with adequate resourcing action that will eventually occur on a properly alongside to a restricted extent, perhaps only at a would better support today’s global markets. Bank coordinated basis. This approach will be level necessary to protect depositors. nationalisations, whether partial or complete, may fundamentally incompatible with the adoption by serve to speed the process, too, though it is individual countries of strongly protectionist PW This is a difficult question to assess. There was conceivable that immediate concerns, such as policies. Conversely, therefore, were a mood of no dress rehearsal for the crunch. Furthermore, easing credit conditions, may in the short term lead strong protectionism to take root, then I think this governments responded in different ways and over to looser bank capital constraints. would hamper efforts to restore the flow of differing lengths of time. In my opinion, the key international credit and greatly prolong the issue here is how governments interact with their GraHam Harvey There will be regulatory change, as recession. I think we will see a little protectionism global counterparts to manage this international public and shareholder pressure on financial going on for domestic political reasons, but not at a economic reality, while also managing their institutions, especially those partly or wholly owned level that will be critically dangerous. electorates’ local fears and concerns. • 8 c it k ni ght f r a nk .com 9
  8. 8. monitor Future wealth trends Future wealth trends monitor ussia’s economic performance over the Equities have plunged. Safe government debt yields the public attitude to past eight years has been astounding. almost nothing. Risky commercial debt is worth banks during the crunch Between Vladimir Putin becoming prime next to nothing. Worst of all, our sensible, wealthy Russia in figures... minister in 1999 and stepping down as president last year, GDP rose more than six times in nominal Russian may be facing demands from friends and associates to repatriate some money to repay $386bn A survey by the All-Russian Public Opinion Research Centre (VTsIOM), ‘People and Banks Amid the The nation’s foreign Finanical Crisis: What Should Depositors Do?’, terms. Poverty halved – only a sixth of Russians live favours and help them out. For those scrambling currency reserves on conducted in October 2008* below the breadline, compared with one-third when for cash, one option might be to sell a prized 4 February, down by more he took office. Once a basket case, Russia became property in London or New York. But the weakening than a third from their peak of $600bn in August 2008. PeoPle who have one of the largest economies in the world, paying residential property market means that these flats % 40.6% 59.4 40% bank dePosits off its debts and building up a $600 billion foreign and houses, bought at the top of the market, may be (% of the total currency reserve. worth considerably less. number of The drop in value of the respondents) Yet look a bit more closely and the results are less The most likely solution is an uncomfortable one: rouble in the six months to impressive. Russia failed to diversify its economy. thrift and patience. The bad thing about being rich 4 February. The currency Are not AFrAid oF hit a historic low against The number of small and medium-sized enterprises is that you have expensive habits. The good thing is the dollar at a few kopeks losing their money *the Vtsiom conducted the proactive nationwide survey among 1,600 respondents in 140 settlements in 42 regions, territories and republics of russia in october 2008. the margin of error is within 3.4%. shrank. Reform in public service faltered. Plans for that you can always cut back on them in a downturn. short of 41 roubles. new roads, schools, hospitals and power stations The bigger questions are about what the were much-publicised but rarely completed. future holds. Firstly, will the current traumas and 8.7% Are AFrAid oF losing their money Corruption rocketed. As Boris Nemtsov and economic pain in Russia herald a future in which The fall in industrial output in November 2008,e xPert oPinion Vladimir Milov have pointed out in their seminal wealth is held more widely and more durably? compared with the previous pamphlet, Putin: The Bottom Line, the results of the Economic downturns have one good feature: they year, according to figures the safest way to save MoneyWiLL ThE past eight years are actually rather feeble. The same highlight the faults of badly managed businesses. published in December. (% of the total number of respondents) point is made, from a different quarter, by Igor Yurgens, who runs a think tank close to the Russian That can give the well-managed competitor a chance to move in. For now, the story in Russia is $42.8 property 51%BEar The average price for Urals president, Dmitri Medvedev. of the politically motivated bailout. But over the crude oil on global markets gold And Jewellery 19% So when the financial crisis hit Russia, the economy as a whole, the downturn will see more bad in January this year. The sberbAnk (russiA’s lArgest bAnk) 17% country was more fragile than it should have been, businesses go bust than good ones – and that is an budget forecast an oil priceBuckLE? opportunity for the entrepreneurial class. of $70. roubles in cAsh 13% given the recent bonanza. The stock market has plunged by nearly three-quarters. The rouble – once a symbol of Russia’s recovery from the 1998 Secondly, will the business class in Russia develop a political voice? One of the startling 13.8% shAres oF compAnies 8% The rate of inflation last Foreign cAsh currency 7% economic crisis – has been steadily devaluing. features of opinion poll surveys over the pastrussia has seen huge levels of wealth creation in November. One of the Investors who hold Russian commercial debt eight years has been the clash between Russians’ biggest macro-economicrecent years. edward lucas, a leading commentator problems over the previous are twitchy. Inflation is high and unemployment appreciation of higher living standards and complaints of business – about tax rules, about badon the country, evaluates what the global recession is rising. The rickety financial system has not political stability, and their generally gloomy two years, inflation remains roads and about silly regulations – are the stubbornly high.will now mean for its economy and super rich collapsed, but it is in poor health. For many who feelings about the nitty-gritty performance of foundation of political pluralism. have done well out of the past eight years, these are the government. Is corruption getting better or Thirdly, if the business people of Russia doi l l u s t r At i o n b y l u k e w i l s o n worrying times. worse? Worse, say the polls – and president Dmitri demand a better deal, will the Kremlin actually A sensible, wealthy Russian would typically Medvedev agrees. Are elected representatives pay attention to them? For now the arguments diversify his assets and income streams: some following their own interests or those of their seem finely balanced, with people around would be inside Russia – perhaps in the company voters? Their own. Are public services getting Medvedev, such as the economist Igor Yurgens, or job where he first made his fortune. Then there better or worse? Worse. And so on. saying that the time has come for more political might be some property in London, plus a mix of For anyone doing business in Russia, the costs and economic openness, and some people around blue-chip equities and government securities, with of the overloaded infrastructure and predatory Putin saying the opposite. On the outcome of that a few holdings in hedge funds and more exotic officialdom are burdensome and infuriating. Yet, hangs the future of Russia’s new middle class – and investments, perhaps with leveraged bets at brokers in Moscow or London. so far the business world has preferred to keep its head down and enjoy the profits rather than much else besides. • For the truly unlucky, all those have gone sour complain about the costs. With the downturn, Edward Lucas is the Central and Eastern Europe at once. The brokers are demanding margin calls. there is just a chance that this will change. The Correspondent for The Economist. 10 c it k ni ght f r a nk .com 11
  9. 9. Attitudes Attitudes to wealth Attitudes to wealth Attitudes pHotoGrApHy: richard powersre Se arch t’s tempting to assume that wealth insulates Survey DiStribution enough to have increased their exposure to equities. quickly. Many investors also acknowledge theChanging HNWIs from the day-to-day worries associated Bank accounts have been the biggest beneficiary long-term nature of property investment: even with economic downturns. Surely, when you are from the flight away from stock market volatility – if values fall your asset is unlikely to disappear % worth millions or even billions, it doesn’t matter almost 60% of those represented by our survey have completely. Despite this, a significant number 33 28fortunes % if stock markets fall a bit or your house is worth substantially increased the amount they have on of HNWIs have either increased or reduced their less than you paid for it. However, according to the deposit. The perceived safety of the bond markets is exposure, with a very small percentage increasing results from The Wealth Report’s Attitudes Survey, reflected by the fact that 67.8% of respondents have it substantially. 7% which was completed by a global spread of Citi 1 22% increased their exposure to this kind of investment. This ambivalence is probably a reflection of theThe results from The Wealth Report’s Private Bank’s wealth managers acting for almost But uncertainty about the ability of even national diversity of the property market and the attitude ofHNWI Attitudes Survey provide a unique 2,000 of the world’s richest people, that is not the governments to repay increasing levels of debt could the wealthy towards it. While stock markets around europe & russia window on how the credit crunch is case. The wealthy have the same preoccupations and Americas explain why 14.3% of people have decided to reduce the world have all been heading one way only,affecting the behaviour and attitudes of concerns as everybody else. If anything, they keep an China, se Asia & Australasia their exposure to bonds. property markets have not reacted homogeneously. even closer eye on their investments and react more middle east, indian As our PIRI survey on page 26 confirms,the wealthy towards their property and subcontinent & Africa investment portfolios. Knight Frank’s quickly when markets start to change. property As An investment performance has varied widely. In those areas whereAndrew Shirley analyses the numbers When looking at bricks and mortar as an investment values dropped fastest and furthest, canny HNWI Asset Distribution class, the picture becomes less clear. The majority investors are sensing the bottom of the downturn is There has already been a substantial shift in asset of HNWIs appear to be sitting on the fence at the imminent and are slowly reinvesting. distribution among the rich, who appear to have moment, with 57.1% making no change to their Experienced investors realise we are firmly into taken decisive action to mitigate risk and protect property portfolios, although over 90% have seen the bargain-hunting stage of the property cycle, their wealth (see bar chart on page 14). Although their property portfolios decrease in value during especially in the commercial and newbuild sectors. the creation of fortunes is often associated with the credit crunch, with about a third of those hit by a A number of survey respondents said their clients risk and daring decisions, safety first seems to be substantial decrease (see the graphs on page 14). were actively looking to take advantage of distressed the mantra in times of economic turbulence, with The illiquid nature of property probably goes sales to cheaply acquire stable assets with good both transparency and stability highly valued. Based some way towards explaining this lack of action. yields. Many fortunes have been property-based and on this survey, almost 90% of HNWIs have either While an entire portfolio of stocks and shares can a large proportion of the HNWI community has a decreased or substantially decreased their exposure be sold with just a few taps on a keyboard, it is passion for property ownership. According to our to equities, while virtually all have moved away from more difficult – and sometimes almost impossible survey, property accounts on average for 30% of their hedge funds. A small proportion, 7%, feels confident – during an economic downturn to sell property asset portfolios. But even this enthusiasm has12 c it k ni ght f r a nk .com 13