Business models have to be modernized to respond to declining investable wealth around the world, so the key findings of the new World Wealth Report. The World Wealth Report, released today and conducted by Capgemini and RBC Wealth Management, annually examines global trends impacting high net worth individuals (HNWIs), defined as those with $1m or more at their disposal for investing.
Investors struggled in 2011, as the dynamics of global markets changed and economic uncertainty made them shy away from risk and increasingly look for safe-havens all over the world. As a result, fixed-income was the best-performing asset class in 2011.
Although a year of economic turmoil and political change, the high net worth market continued to be highly concentrated. The US, Japan and Germany still capture 53.1 per cent of the total HNWI population. The overall financial wealth of high net worth individuals, however, declined across all regions, due to a variety of factors. In Europe and North America, the downgrading of several sovereign-debt ratings increased market volatility. Asia Pacific nations fell victim to rising inflation, declining exports and natural catastrophes, downshifting their role as growth engines for the world economy. The Middle East remained vulnerable to protests and regime changes, which has kept oil prices high.
As investors struggled with these dynamics, global GDP grew at an annual real rate of 2.7 per cent, compared to 4.1 per cent in 2010, largely due to weaker demand from Europe. Looking ahead, global GDP growth is expected to further slow to 2.2 per cent in 2012. Uncertainty will remain and high net worth investors are preparing themselves for ongoing market volatility.
For businesses, scalability is now key to hitting growth targets, the report suggests. Coping with the current investment environment and changing conditions requires flexibility. The wealth management industry in particular has had business models developed “over years for long-term market cycles and long-term strategies,” said Rowan Taylor, vice president of Capgemini Financial Services. “The industry needs to adapt its business models to cope with the new economic climate.”
Firms are facing challenges of rising client demands, compliance costs and a lack of operational scalability, which increases expansion-led expenses. Smaller and mid-sized companies have the advantage of being more nimble than their larger counterparts, allowing for more flexibility to adapt quickly to changing business conditions.
“Whatever the starting point, the path to next-generation business models essentially begins with identifying the effects of legacy business models and re-focusing on core competencies to expand the business,” said Jean Lassignardie, Capgemini Global Financial Services’s corporate vice president.
In re-thinking their long-term business models, entrepreneurs are preparing for another year of uncertainty as a hallmark of economic and market conditions. In 2011 it was the Eurozone crisis, or rather the lack of consensus across Europe on how to resolve it, that was the most unsettling force for the global economy. But even if the Eurozone stabilises, the World Wealth Report warns, individual economies will take time to rebound, depending on governments’s ability to manage a confluence of challenges.
Share this story