How the global elite deploy their wealth
A rare insight into what the wealthiest put in their portfolios
If you're a private investor, especially one without a formal financial training, you constantly hear advice about what to own, and how much.
Today I'll provide an insight into what the world's rich elite actually do.
Financial advisors will tend to recommend a blend of stocks and bonds at the core of portfolios, such as the classic 60/40 split. They'll also tend to push people towards supposedly "lower risk" bonds as they approach and enter retirement.
This must have cost a lot of older people dearly during the bond market crash from April 2020 to October 2023, at the worst possible time in their investing lives. (What’s more, after a partial recovery into the end of last year, bonds have resumed their slide this year, especially in long maturities.)
For my part, I believe that anyone investing with more than a five year time frame should focus their efforts on stocks (a.k.a. equities). That's because both the historical record and financial theory are clear: stocks offer much better return potential than bonds and most other things, over the long run. Since retirements can last for decades these days, the focus on stocks should include retirees.
This core of stocks can be diversified and complemented with cash deposits (or similar, such as money market funds or treasury bills), and gold or gold-linked investments. (See here for a recent analysis of one such gold-linked stock that's comfortably beaten both gold and gold miners over the long run).
But that's just an opinion, as are the recommendations of financial advisors. The question is what people actually do in practice.
In particular, it's interesting to know what the global elite do with their liquid financial assets. These are the world's dollar billionaires (1,000s of millions), centimillionaires (100s of millions), decamillionaires (10s of millions) and plain old millionaires (more than one million).
"Liquid financial assets" are funds held in bank deposits, brokerage accounts, investment funds and a few other areas such as cryptocurrencies or gold bullion. "Liquid" just means they can be sold quickly for cash. (Yes, I know bullion is a physical asset. But it's also a financial investment that's easy to sell.)
As such, these assets exclude illiquid non-financial assets. Those predominantly consist of privately owned businesses and physical real estate (homes, commercial property, farmland etc.).
Just recently I spotted something that gives us a bit on insight into how the world's wealthy invest their financial assets. It's from an organisation that really should know. Namely, UBS Group, a Swiss bank that's the world's largest and most global wealth manager (and also my former employer for 15 years).
Before I get into that, let's just step back and ask another question. Just how much private wealth actually is there in the world?
How much wealth is out there?
Fortunately, UBS also provides some help here, since it publishes something called the UBS Global Wealth Report every year. (Actually this was produced previously by UBS's erstwhile competitor Credit Suisse. But UBS took over the latter last year, when it had to be rescued due to a series of mishaps, and the resultant loss of confidence by depositors.)
According to the latest version of the report, published in June 2023, global net private wealth stood at $455 trillion at the end of 2022.
That consisted of about $265 trillion in financial assets, plus $260 trillion in non-financial assets, less about $60 trillion of debts.
So we can say that about half of total private wealth consists of financial assets.
What's more, wealth is heavily concentrated, which should be no surprise to anyone. It always was, is now, and eternally will be the reality.
Even if everyone each had one dollar, and flipped coins with partners to decide who takes the other's money, it's a mathematical certainty that every dollar would eventually end up in a single person's hands. The dispersion of wealth in an economy is just a far more complex version of this game, where money tends to flow towards relatively few people.
But I digress...
Of the $455 trillion total private wealth, 46% (or $208 trillion) is in the hands of those with $1 million dollars or more. That's 59.4 million adults, or 1.1% of the global total. Of those, 38% live in the United States.
Another 39% ($179 trillion) is owned by those with between $100,000 and $1 million to their names (642 million adults, or 12% of the global total).
Even finer detail given in the report estimates that 5.1 million adults have wealth between $5 million and $10 million, 2.5 million adults are in the $10-50 million range, and 243 thousand are worth more than $50 million (of which over half live in the United States).
In terms of how the total wealth is divided between the financial and non-financial sides, although it’s about 50/50 overall, it does vary a lot by country. In the US, financial wealth is about two-thirds of the total. In the UK and China it's a little under half. In Germany it's around 40%. In India it's about 20%.
(By the way, there's masses of fascinating detail in the report. If you're interested, you can download it at this link.)
How does UBS fit in?
For its part, UBS Group's wealth management division had $3.85 trillion of client invested assets at the end of 2023.
I'm pretty sure that makes it the largest wealth manager in the world these days. But it's certainly the most global. Other major competitors are concentrated in the US, usually with little to no presence in the vast Asian market (for example).
("Invested assets" is the bank's term for what's more usually called assets under management or funds under management. There are small differences in the definitions, and Swiss bankers are nothing if not sticklers for details.)
As such, the bank oversees about 1.5% of global financial wealth. This may not seem like much in terms of market share. But the vast majority will be concentrated in the accounts of some of the world's richest cohorts of people. From "old money" European royalty and aristocrats, to North American industrial dynasties, to first generation Asian billionaires.
Of the $3.85 trillion total of UBS's invested assets, the regional breakdown is as follows:
North America 42%
Europe, Middle East & Africa 34%
Asia Pacific 17%
Latin America 7%
That really is a global spread.
But now let’s turn to the really interesting question of how they actually invest it.