Europe Overtakes North America as World’s Wealthiest (Update1)

By Josh Fineman and Alexis Leondis

Sept. 15 (Bloomberg) -- Europe replaced North America as the world’s richest region last year as measured by assets under management, a survey by the Boston Consulting Group said.

North America, defined as the U.S. and Canada, had $29.3 trillion in assets under management, compared with $32.7 trillion in Europe in 2008, according to the survey released today by the Boston-based firm. The U.S. remains the wealthiest country at $27.1 trillion and has the highest number of millionaires -- almost 4 million. Japan’s global wealth is No. 2 with $13.5 trillion and more than 1 million millionaire households.

Global wealth dropped for the first time since the survey started in 2001 as assets under management decreased 11.7 percent to $92.4 trillion last year from $104.7 trillion a year earlier. The credit crisis sent stock indexes to their worst annual losses since the Great Depression and slashed the value of real-estate holdings, hedge-fund and private-equity investments in 2008. The Standard & Poor’s 500 Index dropped 38 percent last year, the steepest annual decline since 1937.

“For the last few years, the industry was blessed with very substantial growth, markets kept rising and people kept getting richer and pumping more money to wealth managers,” said Monish Kumar, a partner and managing director in the firm’s New York office. “That era came to a crashing halt in 2008.”

Latin America Grows

The biggest drop occurred in North America, where wealth plunged 22 percent, according to the survey. The second-biggest decline was Japan, where wealth fell almost 8 percent in local currencies. Europe declined 5.8 percent. Latin America, defined by the survey as Mexico, South America and Central America, was the only region where wealth grew, by 3 percent.

Wealth is expected to begin a “slow recovery” in 2010, according to the survey. Assets under management will grow at an average annual rate of 3.8 percent from the end of 2008 through 2013 to $111.5 trillion.

“We believe wealth will come back, but we remain conservative,” said Peter Damisch, a partner and managing director in Boston Consulting Group’s Zurich office. “Before 2013, we won’t get back to 2007 levels.”

The number of millionaire households globally fell to 9 million from 11 million, with North America and Europe both experiencing decreases in the number of millionaire households by 22 percent, according to the report. The results are similar to a survey released in June by Capgemini SA and Merrill Lynch & Co. that found the number of millionaires slipped 15 percent to 8.6 million.

Singapore Millionaires

Singapore has the highest concentration of millionaires with 8.5 percent of the nation’s households having more than $1 million in assets under management, the report said.

The amount of offshore wealth declined to $6.7 trillion last year from $7.3 trillion in 2007 as regulators pressured countries such as Switzerland to cut down on bank secrecy. Switzerland accounts for 28 percent of offshore assets with the United Kingdom at 23 percent. Singapore and Hong Kong may grow as offshore centers because of their proximity to other Asian countries and sophistication of Asian banks, the report said.

Investors have had their confidence “shattered” by markets, scandals and failed financial institutions, according to Bruce Holley, a senior partner and managing director at Boston Consulting Group’s New York office and topic expert for wealth management and private banking for the U.S. That has resulted in a shift to lower-risk asset classes and investments that are liquid and simple, he said.

Brokerages Lose Clients

Brokers including Morgan Stanley Smith Barney in New York and Zurich-based UBS AG may lose a combined $188 billion of assets this year as advisers moving to independent firms take clients with them, Boston-based consultant Cerulli Associates said last week.

The largest brokerages’ share of assets under management is expected to drop to 40.7 percent by the end of 2012 from 47.7 percent, according to the Cerulli report.