World’s wealthiest play it safe

World’s wealthiest play it safe

Ultra-rich investors are looking for clarity and straight talk from business before investing their money and trust. And it seems to be working out for them.

June 23, 2010 5:31 by Katherine Azmeh

“The rich just keep getting richer” – or so goes the saying. But the wisdom behind the old adage appears sound, as Merrill Lynch released this week its annual World Wealth Report, which finds that the world’s population of HNWIs (high net worth individuals) returned to 10 million last year, as their financial wealth increased 19 percent to $39 trillion.

The richest among them, termed the Ultra-HNWIs, saw their wealth climb more than 21 percent last year, suggesting that the “wealth recovery” has nearly recouped losses posted in 2008.

Regionally, the Middle East’s HNWI population rose 7 percent, to 400,000. Their combined wealth is estimated at $1.5 trillion. And while turbulent economic times offer the allure of dirt cheap blue chips, the richest investors remain cautious despite rebounding markets and emerging signs of a global economic recovery.

For more than two months, observers have eyed the nosedive of BP’s share price, now at a level not seen for more than a decade. Investors looking for expert guidance are assaulted with persuasive headlines like “BP: A screaming good buy”; “BP shares should be snapped up”; or “Declining BP stock: good time to buy.” But it seems the ultra-rich are not the target audience.

“Wealthy investors have not rushed to chase performance or seize risky market opportunities,” according to the Merrill Lynch report.

Deeply shaken investor confidence has profoundly altered the investor behavior of the world’s wealthiest. Now, ultra-rich investors are voicing concerns that support the contentions of analysts: reviving investor confidence depends squarely on the ability of business to demonstrate corporate transparency and a level headed approach to investing.

“High net worth individuals have remained cautious and point to effective risk management (90 percent), transparency and simplicity (93 percent),” Merrill Lynch said. These investors want specialized advice from business and financial advisors, and are prepared to assume a proactive partnership in order to understand the nature and performance potential of investments. Managing risk has become a new priority, and the HNWI knows that unless business moves in the direction of greater transparency, clarity, and investor friendly dialogue, true risk management will not be achieved.

In search of a more balanced approach to investing and risk-taking, wealthy investors looked for reliable and consistent returns last year, reflected in a conservative approach to equities. Cash holdings among Latin American and Japanese investors, regarded as the most conservative of the HNWI investors, comprised more than 50 percent of their portfolios. Falling residential real estate prices also lured wealthy investors, who showed an increasing preferences for “tangible assets.” Merrill Lynch said that residential real estate holdings rose to 48 percent, while commercial holdings dipped slightly.

Tangible assets, bargains, and risk-management are the new mantras of the mega-rich. Seems they’re leaving the “screaming buys” for the rest of us.

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