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Survey: Rich not getting richer

By CNN's Geoff Hiscock, Asia Business Editor

The decline in equity markets over the past three years has helped wealthy investors lose $5 trillion.
The decline in equity markets over the past three years has helped wealthy investors lose $5 trillion.

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(CNN) -- The rich don't always get richer. A new survey shows the world's billionaires and millionaires lost almost $2 trillion in wealth last year as economies slowed and markets declined.

And if 2002 wasn't bad enough, the picture gets bleaker if the start line is moved back to January 2000, when equity markets were near their peak.

According to the Boston Consulting Group's Global Wealth 2003 survey, those same investors have seen their holdings tumble by almost $5.3 trillion in local currency terms since early 2000.

The total increases to $6.4 trillion if investors with holdings of $250,000 to $1 million are included.

Not only are the rich getting poorer, they are getting fewer. According to the BCG survey, in 1999 there were about 36.5 million households around the world who met the criteria of "wealthy" -- assets under management of $250,000 or more.

In 2000 that number slipped to 35.3 million. In 2001 it was down to 33.3 million and last year it fell again to 33.0 million, made up roughly of 13.6 million in North America, 9.2 million in Asia-Pacific and the Middle East, and 9.1 million in Europe.

With total wealth of $38 trillion, that means those 33 million surviving households have average assets under management comfortably in excess of $1.1 million. In contrast, the World Bank says nearly half the world's 6.3 billion people live on less than $2 a day.

Wealth destruction for the rich has been widespread, but with pockets of performance. Last year, wealthy North American investors lost $2 trillion, or more than 10 percent of their financial assets. European investors lost 900 billion euros, down from 10.7 trillion euros to 9.7 trillion euros.

But in contrast, wealthy Asian investors outside Japan saw their holdings grow by 6 percent to almost $2.8 trillion in 2002.

The picture is less rosy in Japan, where investors have suffered from the steady decline of the share market. Although the benchmark Nikkei share average is up about 10 percent so far this year, it still managed to hit a 20-year low at the end of April.

Latin American wealth rose slightly in local currency terms between 1999-2002, but inflation and currency depreciation eroded that enormously in U.S. dollar terms.

According to the BCG survey, the wealthy are continuing to move away from equity and equity-related investments, which have suffered heavy losses in the three-year bear market.

In 1999, equity-related assets accounted for about 47 percent of wealthy investors' assets, with the rest in cash (26 percent), bond mutual funds, direct bonds and money market funds.

But the survey found that by the end of 2002 the equity-related figure was down to 35.9 percent. Cash was up to 30.1 percent, with the remaining 34 percent split between bond mutual funds, direct bonds and money market funds.

The authors of Winning in a Challenging Market: Global Wealth 2003 expect uncertainty and low to no growth to persist over the short and medium term.

Their reasons are firstly, that markets will likely remain stagnant for several years after the sustained rises of the 1990-2000 bull market.

Secondly, they maintain that higher-margin products "do not offer investors the safe havens they now seek".

Thirdly, the authors believe investors have changed their behavior and now focus more on absolute returns rather than relative performance.

"The trading mentality of those years (the 1990s) has been replaced by a buy-and-hold psychology that relies much more on asset allocation," they say in the report.

More than 80 financial institutions in North America, Latin America, Europe and Asia-Pacific took part in the survey, which was released in New York on Monday.

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