The United States remains the world’s undisputed leader in wealth management creation and accumulation, according to the 2024 USA Wealth Report from global advisory firm Henley & Partners.
According to the study, the U.S. accounts for 32% of the world’s investable liquid wealth, some $67 trillion.
From that amount, the U.S. is now home to 37% of the world’s millionaires: some 5.5 million high net worth individuals (HNWI) who own more than $1 million in investable liquid assets, the report adds.
This figure has grown by an impressive 62% over the past decade, well ahead of the global growth rate of 38%.
Although U.S. GDP is similar to China’s, the American powerhouse is far ahead in terms of liquid wealth, which the study simplified into listed company holdings, cash and debt-free residential properties.
Likewise, wealth per capita and the number of superrich is substantially higher in the United States. The United States has 9,850 centimillionaires, compared to 2,352 in China, and 788 billionaires, compared to 305 in China. Although China is home to just over 862,000 millionaires, its per capita wealth is only USD 18,800, compared to USD 201,500 in the United States, which ranks sixth in the world after Monaco, Luxembourg, Switzerland, Australia and Singapore.
To read the full report you can access the following link.
Private investment in infrastructure has had sustained growth, with a compound annual growth rate (CAGR) of 18% from 2018 to 2023. Stable returns, low cyclicality, the ability to pass through cost inflation, a frequently regulated operational environment, and high barriers to entry have guaranteed unlisted infrastructure a spot in state-of-the-art strategic asset allocations, according a Boston Consulting Group’s new report.
Despite the 2023 decline in dealmaking and fundraising, the outlook going forward is positive. As evidence of the forthcoming recovery in infrastructure fundraising, limited partners plan to increase their commitments to the asset class. Led by pension funds and private wealth managers, limited partners expect to boost their investments by more than $600 billion by 2027.
The report titled Infrastructure Strategy 2024: Creating Value Through Operational Excellence highlights that energy, transportation and digital are key areas of investment and that infrastructure investors must redouble their commitment to operational excellence.
Geographically, the great majority of private infrastructure investment activity in 2023 occurred in Europe and North America. Almost 75% of the world’s infrastructure portfolio companies are located there.
The most active areas for deal-making are energy and environment, transport and logistics, and digital infrastructure, with social infrastructure seeing increasing investor interest.
Aggregate deal value of private investment in the energy and environment sector, which is seeing massive tailwinds from the global decarbonization agenda, totaled $1.1 trillion from 2018 to 2023, accounting for almost 45% of all private infrastructure aggregate deal value during the period, the report added. Most privately held assets in the sector focus on renewables and energy services; Europe hosts the largest share of assets, followed closely by North America.
Private investment in the transport and logistics sector totaled almost $510 billion from 2018 to 2023, comprising approximately 20% of all private infrastructure investment during the period. Railroad, air-related, and sea-related projects make up the majority of privately held assets in this sector.
Private investment in the digital infrastructure sector from 2018 to 2023 totaled nearly $420 billion—almost 20% of all private infrastructure investment during the period. In 2023, most of the activity in Europe in this sector focused on privately held data-center assets, while the vast majority of assets in North America were in mobile data and end-user services.
On the other hand, as costs rise and the potential for returns from higher multiples and reduced debt diminishes, investors in infrastructure assets must take a more refined approach to generating returns. Operational improvements in portfolio companies will become even more critical to creating value.
In this regard, funds that want to be leaders will follow a clear playbook:
Focus on the full investment cycle. All too often, funds restrict their operational value creation efforts to extrapolating sell-side plans or devising plans that cover only the first 100 days after closing a deal. In contrast, leaders begin planning at the due diligence stage, developing and quantifying a clear hypothesis on how to improve operational performance throughout the ownership cycle to serve as a foundation for their efforts.
Assess all value creation levers. Leaders take into account every potential operational lever in the value creation framework in light of the portfolio company’s future positioning, including both top- and bottom-line levers—even if the value creation plan focuses on a selection of the most promising initiatives.
Institute performance requirements. By commanding a systematic value creation framework, leaders ensure that they have an excellent management team and the right capabilities in place. They also establish proven governance mechanisms and foster needed cultural changes—all in order to create the greatest value through operational improvements.
“Infrastructure investing has been put to the test by recent macroeconomic uncertainty, but the path to value creation is clear,” said Alex Wright, BCG managing director and partner, and a coauthor of the report.
To download the complete report, please click on the following link.
The wealth management industry in Brazil had a 7.5% growth in 2023, reaching $91 billion, according to data from Anbima (Brazilian Association of Financial and Capital Market Entities, as translated from Portuguese).
According to the association, one of the main drivers of this growth was the atypical movement in equity funds. Without the stock exchange’s help, the growth would have been more modest, at 1.8%, indicating a stability in the financial volume. In 2023, the Ibovespa (main index of the Brazilian stock exchange) rose 22.28%.
“Despite diversified portfolios, the segment’s clients have a large participation in private credit, which was impacted by the crisis at the beginning of 2023,” says Fernando Vallada, one of the institution’s directors and also managing director of Julius Baer, referring to the review of credit offers in Brazil’s capital market following the revelation of a $5 billion fraud in the balance sheet of Lojas Americanas company, at the beginning of that year.
“Another factor corroborating the lower growth was the drop in mergers and acquisitions,” explains Vallada. Equities, boosted by equity funds, saw an increase of 14.6%, representing 34% of the total invested. These funds, specifically, grew by 26%, reaching $21 billion in the year.
“Wealth managers did not reflect the optimism caused by the annual rise of the Ibovespa, stimulated by the beginning of the Selic rate cut in Brazil and the prospect of monetary easing in the United States. The interest rate still in double digits may also have motivated more caution in the sector,” says Vallada.
Multimarket funds fell by 5% in the year, reaching $19 billion, and currency funds faced declines, impacted respectively by market performance and the fall of the dollar against the real, with an 8% decrease of the American currency in relation to the Brazilian currency. As a result, currency funds fell by 59.6%, ending the year with $20 million invested.
ETFs double in size
However, there was a surge in ETFs, of 111.3%, totaling $ 560 millions. FIPs (Private Equity Funds) recorded an increase of 17.9%, totaling $ 5.46 billions, and Real Estate Funds closed 2023 at $ 3.26 billion, a growth of 22.8%.
Fixed income grows 8% with interest rates in double digits
Fixed income, still benefiting from the Selic rate in double digits, grew by 8%, reaching $27 billion. Tax-exempt products led the advance, such as incentivized debentures and debt securities from the real estate and agribusiness sectors.
The highlights were the income tax-exempt products. Among the applications with the highest investment volumes, incentivized debentures advanced 78.5%, totaling $1.76 billion, and LCAs (Agribusiness Credit Bills) grew by 18.4%, reaching $1.54 billion.
LCIs (Real Estate Credit Bills) increased by 90.8%, reaching $1.5 billion. CRIs (Real Estate Receivables Credits) recorded a rise of 28.5%, to $1.34 billion, while LIGs (Guaranteed Real Estate Letters) went up by 26.2%, totaling $0.74 billion. The growth of CRAs (Agribusiness Receivables Credits) was more modest, at 2%, to $1 billion.
The Securities and Exchange Commission (SEC) announced settled charges against two investment advisers, Delphia and Global Predictions, for making false and misleading statements about their purported use of artificial intelligence (AI).
The firms agreed to settle the SEC’s charges and pay $400,000 in total civil penalties.
“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” said SEC Chair Gary Gensler. “We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”
According to the SEC, Delphia, Toronto-based firm, made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning that incorporated client data in its investment process.
According to the order, Delphia claimed that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.” In addition, the order finds that these statements were false and misleading because Delphia did not in fact have the AI and machine learning capabilities that it claimed. The firm was also charged with violating the Marketing Rule, which, among other things, prohibits a registered investment adviser from disseminating any advertisement that includes any untrue statement of material fact.
In the SEC’s order against Global Predictions, the SEC found that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “expert AI-driven forecasts.” Global Predictions also violated the Marketing Rule, falsely claiming that it offered tax-loss harvesting services, and included an impermissible liability hedge clause in its advisory contract, among other securities law violations.
Without admitting or denying the SEC’s findings, Delphia and Global Predictions consented to the entry of orders finding that they violated the Advisers Act and ordering them to be censured and to cease and desist from violating the charged provisions. Delphia agreed to pay a civil penalty of $225,000, and Global Predictions agreed to pay a civil penalty of $175,000.
The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert about artificial intelligence and investment fraud.
Photo courtesyMurat Kalkan, BBVA Global Wealth Advisors Director
BBVA Group has announced the creation of BBVA Global Wealth Advisors in Miami. The new service aims to serve high net-worth Latin American clients and complement the international wealth management service already offered in Switzerland and Spain.
Initially, the service will be available to non-US resident clients from Latin America who are interested in having an international investment advisory solution in the United States. To qualify for the service, clients must bring assets under management of at least $500,000.
BBVA Global Wealth Advisors clients will have access to non-discretionary portfolio management services, advisory and wrap fee accounts, and other investment options, the press release said.
“The opening of BBVA Global Wealth Advisors in Miami will allow us to advance the integration of the local and global capabilities of BBVA’s wealth management, enhancing the value proposition for our clients,” said Jaime Lázaro, Global Head of BBVA Asset Management & Global Wealth.
Murat Kalkan, Head of BBVA Global Wealth Advisors, added: “Establishing our own US-based investment advisory service for the Group’s high net worth clients is a critical component to our value proposition in our service to these clients.”
BBVA Asset Management & Global Wealth is the unit that coordinates the asset managers, investment advisors, and private banks of the BBVA Group globally.
VanEck, a global investment manager with a focus on providing innovative investment strategies, is pleased to announce a reduction in the management fees for two of its fixed income exchange-traded funds (ETFs), effective immediately.
The management fee for the VanEck Intermediate Muni ETF (ITM) has been lowered from 0.24% to 0.18%, while the management fee for the VanEck Fallen Angel High Yield Bond ETF (ANGL) has been reduced from 0.35% to 0.25%. These adjustments reflect VanEck’s commitment to offering competitive pricing and enhancing value for investors.
“As part of our regular review of our pricing strategy, we are delighted to lower the management fees for these ETFs,” said Ed Lopez, Head of Product at VanEck. “Lower fees add to the value proposition of these ETFs, along with efficient access to targeted opportunities in the fixed income space that we believe are compelling right now within an income-oriented portfolio.”
ITM seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE Intermediate AMT-Free Broad National Municipal Index, which is intended to track the overall performance of the U.S. dollar denominated intermediate-term tax-exempt bond market. ANGL seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE US Fallen Angel High Yield 10% Constrained Index, which is comprised of below investment grade corporate bonds denominated in U.S. dollars, issued in the U.S. domestic market and that were rated investment grade at the time of issuance.
The US ISM services index shows that business activity and new orders are performing well, but companies are increasingly focused on trimming their workforce. The employment component of the index has dropped into contraction territory, indicating a potential risk of job losses in the coming months.
However, with inflation pressures looking less worrying, the Federal Reserve should have the flexibility to respond, said James Knightley, Chief International Economist, ING Bank in a new report for ING Bank.
The ISM services index for February came in at 52.6, below the consensus forecast of 53.0. However, business activity and new orders improved to 57.2 and 56.1, respectively, indicating expansion in these areas. Employment, on the other hand, dropped to 48.0, the second sub-50 print in the past three months, and the six-month moving average is also below the 50 line.
The relationship between the ISM services employment index and the monthly change in nonfarm payrolls has historically been strong, but in 2023 and into 2024, they have had an inverse relationship. With job loss announcements seemingly picking up and the quit rate falling, it does appear that the jobs market is cooling.
Prices paid fell back in the report, which is a positive sign given the recent strength in core inflation readings. The ISM indices and GDP growth, indicating that the economy may not be as robust as GDP alone suggests. Nonetheless, there is little sign of employers taking an axe to jobs, and the Federal Reserve should have the flexibility to respond to any potential job losses.
The full report can be found on the ING Group site.
Photo courtesyDavid Nicholls, portfolio manager at Global Emerging Markets Sustainable de East Capital.
According to David Nicholls, portfolio manager of East Capital’s Global Emerging Markets Sustainable fund, emerging markets are, in many ways, the most obvious destination for sustainable investment: investing in line with the UN Sustainable Development Goals. Given his experience, in this interview we wanted to discuss with him the complex issue of investing sustainably in these markets.
In this context, is there a difference when talking about emerging markets in Asia, Europe and Latin America?
While the investment backdrop for these regions is indeed very different, the sustainability integration process remains constant – finding good quality companies that are managing well their material sustainability impacts across their value chains. Generally, we find that Latin America and Europe are a bit more sophisticated in their disclosure, but we always look beyond the glossy sustainability reports and more at how companies are actually run, because what really matters is what companies are doing, not what policies they have or how they report.
How does the fund manager deal with this issue in the investment process of its funds and in particular of this fund?
We believe that by far the most useful way of assessing a company’s sustainability profile is to be on-the-ground, meet management in their offices and ask the tough questions. Often a one-hour meeting will tell us more than reading pages and pages of sustainability disclosure ever would. We also try never to give companies the benefit of the doubt, if we have concerns, we engage with management and encourage them to address these issues.
We do our own assessment, we do not buy external ESG data and scores, and we apply a forward-looking lens when analysing the practices and standards. We also look at the ownership of companies, we believe that KYO “Know Your Owner” is an important part of our work, especially when we invest in entrepreneurs-led companies.
Do you think this myth that “it is difficult to invest sustainably” is slowing down European investors’ interest in emerging markets?
It is more likely that the exceptionally poor performance of China in recent years (especially compared to the US) has turned investors away from emerging markets rather than concerns about sustainable investing.
Having said this, we have received feedback from various investors that the huge wave of downgrades of peer funds from Article 9 (the highest level of sustainability) to Article 8 or even Article 6 has led to questions about the validity of the concept of “sustainable investing”. However, we believe that investors such as ourselves who remain at Article 9 have robust processes and detailed disclosure that clearly documents this.
In Europe we read that the energy transition is a great investment opportunity under ESG criteria, is the same true for emerging markets?
This is a great question because historically we have generated significant alpha by investing in the energy transition in China, a market which controls over 90% of the entire solar value chain. Unfortunately, we are now seeing quite alarming overcapacity in the Chinese solar sector, as well as in batteries and even electric vehicles, which has driven down margins and prices. This is great to support the demand, with solar panel prices down 50% from their peaks in Q3 2022, but less good for investors. As a result, we currently have little direct exposure to the energy transition, although we do see some value in some very niche areas with large moats, such as smart meter manufacturers.
Where do you see the main investment opportunities for 2024 within emerging markets? What geographies, types of companies or sectors do you prefer?
Our approach is to remain broadly country neutral in our allocation, so that we can focus on stock picking within countries, our active share has always been very high. Having said this, the most exciting opportunities in the emerging markets universe, are to be found in countries like India and Indonesia, which offer strong structural growth for many years to come.
Of course, the “elephant in the room” is China. Its weight in the benchmark (MSCI EM Index) has fallen from 44% to 26% over the past four years due to underperformance, but China remains the largest country. We believe much of the bad news is priced in, given the extremely low valuations. Here we have a balanced portfolio of high-quality exporters whose revenue streams are uncorrelated to the domestic economy (for instance Africa’s largest mobile phone seller), as well as bottom fishing in some bombed-out stocks; for example, we bought a fintech company trading at 1.5x PE with a 15% dividend yield at the beginning of the year.
What type of strategies do you recommend for investing in emerging markets and why?
A core part of our investment philosophy is that emerging markets remain highly imperfect and are thus fertile grounds for active on-the-ground investors like us. For example, five of our eight core team members are based in Asia and this support that we aren’t afraid to deviate from the usual emerging market names. We believe sustainability is an important lens, even if just to give a “quality bias” to the portfolio, though the ability to remain dynamic and react to the constant change takes precedence.
Given the current macro context, what can this type of strategy bring to investors’ portfolios?
The perception amongst investors we have spoken with recently is that this type of strategy offers a huge option value if China starts to rerate, something we saw in November 2022 when China returned 60% in three months. We would, however, argue that it is a bit more nuanced than this, and that the strategy offers exposure to high quality, exciting companies in fast growing economies, while maintaining the potential upside to benefit if China does rerate.
Mutual fund assets decreased slightly in January 2024, but still managed to have their best month for flows since January 2023, according to the latest issue of The Cerulli Edge—U.S. Monthly Product Trends.
Meanwhile, ETF assets reached a new all-time high, with a notable division of flows between active and passive ETFs. However, commodities and allocation ETFs had a particularly bad month, shedding 2.5% and 2.3% of assets due to flows during the month, respectively.
The uncertain economic, monetary, and political outlooks, as well as increased emphases on tax awareness and ESG considerations, are driving high-net-worth (HNW) wealth management firms to improve their strategic asset allocation services in many ways.
Integrating customization and optimization tools, such as direct indexing, into wealth managers’ standard asset allocation service offerings is increasing firms’ ability to provide their clients additional value.
Implementing more bespoke investment solutions and private market investment access to clients at scale increasingly requires intermediaries to have a robust account aggregation and performance reporting ecosystem.
The trend towards customization and private market investments is becoming increasingly important in the HNW wealth space. As clients demand more personalized and tailored investment solutions, wealth management firms must adapt and innovate to meet these needs.
By providing access to private market investments and implementing customization tools, firms can differentiate themselves from their competitors and provide added value to their clients, concludes the report.
This issue of The Cerulli Edge-U.S. Monthly Product Trends analyzes product trends through January 2024, including mutual funds and exchange-traded funds (ETFs), and explores the product and service offerings being adopted by high-net-worth (HNW) practices.
The report highlights that mutual fund assets declined by just $10 billion to $18.5 trillion in January, due to the small effects of both net outflows and market developments. However, in terms of flows, this was their best month since a year ago January 2023.
In addition, ETF assets grew by 0.6% in January thanks to net flows of $43.5 billion, and reached a new all-time high. The split of flows between active and passive ETFs was notably tight at $20.9 billion and $22.7 billion, respectively. Commodity and allocation ETFs had a particularly bad month in January, with losses of 2.5% and 2.3% of assets by flows for the month, respectively.
On the other hand, the uncertain economic, currency and political outlook-as well as increased emphasis on tax awareness and ESG considerations-are prompting high-net-worth (HNW) wealth management firms to enhance their strategic asset allocation services in many ways.
In this context, Cerulli highlights that the integration of customization and optimization tools (e.g., direct indexing) into wealth managers’ standard asset allocation service offerings is increasing the ability of firms to provide their clients with additional value. The implementation of more customized investment solutions and access to private market investing at client scale increasingly requires intermediaries to have a robust ecosystem of account aggregation and performance reporting.
