Population of world millionaires shrinks

NEW YORK – The world’s population of millionaires shrank dramatically last year as the global economic crisis took its toll on the wealthy, according to a report by Merrill Lynch Global Wealth Management and consulting firm Capgemini.

The number of people with assets of between $1 million and $30 million fell 14.9 percent to 8.6 million, according to the World Wealth Report released Wednesday.

The former parent of the wealth management unit, Merrill Lynch & Co. – which reported more than $35 billion in losses in 2007 and 2008 – was acquired by Bank of America Corp. this year.

The steep reduction in millionaires represented the largest decline in the report’s 13-year history, said Ileana van der Linde, a principal with Capgemini. It also brought the number of millionaires and their wealth below 2005 levels.

“We’ve never seen such a decline in all the years we’ve been doing the report,” she said in an interview with The Associated Press. “This market was really unprecedented.”

The downturn lowered the combined wealth of the world’s millionaires by 19.5 percent to $32.8 trillion.

It also brought even greater losses to the ultra rich.

The population of individuals with more than $30 million in assets dropped 24.6 percent, and the group’s wealth fell 23.9 percent, largely because many favored riskier investments that experienced hefty losses this past year.

Geographically, the fallout occurred around the globe, touching every region, the report noted.

The most significant declines in the millionaire population came in North America, Europe and the Asia Pacific region.

In the US, the number of millionaires fell 18.5 percent to 2.5 million people, but the country remains the single largest home to such wealthy individuals, followed by Japan and Germany.

China’s millionaires surpassed those of the UK to become the fourth-largest population. Hong Kong’s population of millionaires shrank the most in percentage terms, down 61.3 percent, to 37,000.

Other countries, notably those in Latin America, fared better.

Millionaires in Brazil, for instance, saw their combined wealth decline only 8.4 percent, far less than the global average.

Such a trend may be explained by the fact that Latin America investors tend to be more conservative, van der Linde said, and favor fixed-income securities.

“Latin America lost the least of all regions,” she said. “That also helped mitigate some of the loss that was experienced throughout the rest of the globe.”

As the economy spiraled downward, though, many investors looked to park their money in cash or cash equivalents with maturities of less than a year, said Dan Sontag, president of global wealth management at Merrill Lynch.

“As the year progressed and people saw their net worths decline,” he said, “they got ultra conservative and hoarded cash in the marketplace.”

Yet investors found few safe havens in 2008. Nearly all asset classes, from real estate to equities, posted declines, Sontag said.

That made this downturn different from previous ones, such as the technology bust of 2000, which was limited to a certain sector of the economy, he said.

“I’ve never seen markets like this,” he said. “I think you’d have to be older than 80 to say you’ve seen markets like this. It left no asset class unscathed here.”

Wealthy individuals, like others, reacted with a back-to-basics approach to investing.

Many are now taking greater control of their portfolios and requesting simplified investments with greater transparency, van der Linde said.

Sontag said Merrill Lynch clients are also increasingly looking to invest in municipal bonds, US Treasury bills and fixed income securities that are fairly straightforward and easy to understand.

Of course, not all investors have lost their appetite for risk.

In the past month or so, Sontag said he’s seen more people asking questions, looking to take advantage of the down market.

“Clients are beginning to look forward here, they’re out of this neutral position,” he said. “They’re beginning to think what do I want to do here, and what are the opportunities in the market?” - AP