The world's richest are even richer because of the market's muscle

Surging US stock markets fueled the growth of wealth in North America last year, although fiscal instability, currency pressures, and more sluggish markets led to fewer wealthy folks in Europe, the Middle East, and Latin America, according to the Capgemini Research Institute.
In North America, the ranks of those with at least $1 million in investible assets grew by 7.3% to 8.4 million last year, up from 7.9 million in 2023. As the S&P 500 rose more than 23%, the wealth held by these rich folks grew 8.9% to nearly $30 trillion, up from $27.5 trillion a year earlier, according to Capgemini's 29th annual World Wealth Report.
Slower wealth growth outside North America shows up in Capgemini's worldwide figures. The numbers of wealthy individuals globally rose by only 2.6% last year to 23.4 million—that compares with a 5.1% gain in the number of wealthy people the year before to 22.8 million.
Globally, the wealth of the world's richest grew by 4.2% to $90.5 trillion last year from $86.8 trillion a year earlier, Capgemini said.
A good chunk of the rise was among the ultrarich—those with at least $30 million in investible assets—who gained 6.3% in assets and 6.2% in number to 234,000. This elite group represents only 1% of all wealthy individuals, but holds 34% of all the wealth, the firm said.
A reason the ultrawealthy have experienced outsize gains is that they tend to invest all over the world, not just in their local markets, says Kartik Ramakrishnan, CEO of the financial services strategic business unit at Capgemini. 'They can go where they see opportunities for profit," Ramakrishnan says.
Those with $1 million to $5 million in assets—a group Capgemini defines as the 'millionaires next door," however, tend to stick close to home with their investments, he says. According to the report, this segment also concentrated their assets in safer, lower-yielding investments last year, such as fixed-income and real estate. This conservative bent meant their ranks only grew by only 2.4%, when in 2023, the millionaires-next-door were the fastest-growing segment, adding 5.4% to their numbers.
The effects of an orientation to local markets is evident in Europe, for instance, where the pan-European Stoxx 600 index rose only 5.9% in 2024. The continent's millionaires-next-door didn't capture the same sort of wealth gains as their U.S. counterparts, with wealth rising among this group by only 0.7% to $19 trillion in 2024, as the population of Europe's wealthy fell by 2.1% to 5.7 million, the report said.
Globally, the wealthy have a 22% allocation to equities (up one percentage point from the previous year), a 19% allocation to real estate (same as 2023), and an 18% allocation to fixed-income (down two percentage points). The biggest allocation was 26% to cash, but that is likely because the survey is taken in January as investors gear up to deploy assets for the year, Ramakrishnan says.
More intriguing is that the wealthiest have 15% of assets in alternative investments. Although that is the same level as in 2023, those surveyed revealed rising interest in such investments as private equity and private credit, in addition to cryptocurrencies, he says.
Also, Capgemini's data show younger investors are already more invested in alternatives. Millennials (ages 28 to 43) surveyed have 17% of their assets in the sector, while Gen Z investors (ages 12-27) have 16%, compared with allocations of 14% each for both baby boomers (60 and older) and Gen X (ages 44-59), the survey found.
It makes sense, however, that as investors become more experienced, and can think through strategic return estimates over time, they begin to realize there are opportunities in private markets they don't want to miss—particularly as more companies choose to remain private, says Kris Bitterly, global head of Citi Wealth at Work.
'Let's say that you want to invest in generative AI in some capacity—There are the big megacap players that are dominating the U.S. equity market and will probably continue to do so in some capacity, given their free cash flow generation, and given their ability to self fund and invest," says Bitterly, who was among wealth management execs serving as a steering committee member for the report. But for someone who wants to invest in companies developing the 'full ecosystem" of AI, 'that is going to be in private markets."
Citi believes a modest-risk allocation to alternatives for is closer to 27%-28%, more than double a current level the firm sees of about 10%, 'even for investors who are familiar with alternatives."
The generational split in how the wealthy invest is interesting to think about as wealth rapidly shifts from older to younger generations. Among those Capgemini surveyed, 30% expect to receive an inheritance by the end 2030, 63% expect to receive one by the end of 2035, and 84% expect to have their inheritance by 2040. UBS has said this great wealth transfer will total $83.5 trillion through 2048.
Write to Abby Schultz at abby.schultz@barrons.com

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