The global economic downturn has significantly impacted the fortunes of the world's super wealthy, with most high net worth individuals experiencing wealth declines of 20-40% on average; however, those with professional advisers were able to better navigate the crisis by shifting to more defensive asset allocations over a year ago. Going forward, the world's richest individuals will seek greater control over their wealth and independent advice, and will take a more cautious approach focused on responsible and realistic investing rather than risk.
Evolving Work Trends Require New-age Businesses to Design Thoughtful Workspac...
The Wealth Report 2009
1. the wealth report
2009
ProPerty: Tracking prices in The world’s prime residenTial locaTions
assets: how The markeTs for classic cars, wine and arT are faring
IntervIew: ciTy designer alejandro guTierrez shares his visionary ideas
oPInIon: 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. 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 Africa
Residential: Agency Sales & Lettings Equestrian & Rural Financial Services
Residential Development Valuations & Consultancy
Commercial: Agency & Capital Markets Trading Properties Professional Services Financial Services
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 covering
Property research at knight russia and Eastern Europe become even more uncertain. Most of the developed
frank, Shirley edited this since 1986 for the likes of the world is now in recession, and even the emerging
edition of the Wealth report. independent, BBc and most
he formerly covered Uk and recently, the Economist, for economies have been forced to pause for breath. Every
global property markets as which he was the moscow commentator accepts 2009 will be tough. Our Attitudes
Business and Property Editor Bureau chief from 1998 to
at the Uk’s leading farming 2002 and is now central and
Survey (page 12) indicates clearly that HNWIs will look
magazine. he has an Eastern Europe correspondent. to protect their wealth from the ravages of the
international background, his book, the new cold War:
having worked on agricultural how the kremlin menaces
downturn with an emphasis firmly on security and
projects 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’s
Brasenose college, oxford,
continue. A full analysis of prime global markets is
market-leading residential
Vaughan spent 10 years research team, Bailey is a included on page 26, and we recommend 10 locations
working 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 have
international art magazine, media. he works with clients expanded the scope of The Wealth Report by including
apollo, as associate Publisher. in the Uk, US, australia and
She is now a freelance writer Europe, advising on their
an investigation into the performance of alternative
specialising in luxury brands. market strategies. assets, from art and cars to wine (page 36), and an
Luxury 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 frank's Born in Zurich,
head of Switzerland
Development research is in 1969, de Botton now lives in
a former journalist with five London. a writer of essayistic
years’ experience of writing books that have been described
about property and housing. as giving a philosophy of
a former residential Editor everyday life, de Botton also
of Estates gazette, he has helps to run the School of Life
particular expertise in in London, which is dedicated to
residential development, a new vision of education. his Patrick Ramsay Peter Charrington
regeneration, planning and next book, the Pleasures and HEAD OF RESIDENTIAL HEAD OF CITI PRIVATE BANK UK
government policy. Sorrows of Work, will be Knight Frank Citi Private Bank
Attitudes to philanthropy 16 published later this year.
The meaning of wealth 20
kn i g ht f ra nk.com 5
6. monitor Overview Overview monitor
status report
GLoBAL WEALtH
crunch
DiStriBUtion
(% of total number of
HnWis by region, 2008*)
time 25%
asia pacific
What impact has the global economic
downturn had on the fortunes of the
world’s super rich? Sebastian Dovey, of
3%
middle east
Scorpio Partnership, sets out his view & africa
i 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 super
wealthy have fared slightly better, as their
professional advisers will have been able to
forecast the storm and they would have moved
7%
latin america
& caribbean
into a more defensive asset allocation as much
as 12 months ago. However, the big question on
everyone’s mind is how long the current economic
conditions will last – and here even the super
wealthy do not have the answer.
Inevitably, the next question is: when will
be the right time to get back into the market in
terms of investing? At the end of 2008, I was with
a family in Singapore who felt that the risk of
being 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 interest
be 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 rich
also 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 capital
this 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 control
static last year following a period of strong growth
in 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 market
recession 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 calling
same 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 respect
number 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 building
individuals have experienced, on average, a fall to seek investment opportunities, and while they realistic investing. a client-centric focus.
in 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 – being
they 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 not
crucial 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 about
get 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, it
identifying 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 for
participate. 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 Partnership
to 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 the
wealth 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 www.scorpiopartnership.com
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7. monitor Future wealth trends Future wealth trends monitor
criSiS
talkS
In January, Knight Frank hosted a panel
of 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 protectionist
discuss the critical issues affecting the global others you have experienced? regulation to prevent another bear market is movements in particular industries, especially
economy. 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 corporate
Portr 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 to
Philip 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 growing
analysis 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 of
citi 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 the
Dan 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 resources
property 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 fresh
beat that includes both Uk strategy firm dedicated to
and 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.
•
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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 Money
WiLL 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 price
BuckLE?
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 past
russia 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-economic
recent 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 bad
on 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 do
i 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.
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9. Attitudes Attitudes to wealth Attitudes to wealth Attitudes
pHotoGrApHy: richard powers
re 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 the
Changing
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
28
fortunes
%
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 the
The 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 of
HNWI 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 where
Andrew 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 has
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