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2004: Millionaires are back in style
Aline Sullivan IHT
Saturday, January 10, 2004
 
For nearly three years, they've been conspicuous by their absence: the Californians in shirt sleeves flouting the dress codes at stuffy East Coast establishments, the British investment bankers toasting their Christmas bonuses in Barbados, the Japanese executives scouring the racks at Hermès and Chanel.

Now, the millionaires are back, albeit in a far less ostentatious form. After a banner year for the Nasdaq, the link between technology entrepreneurs and serious wealth has been reforged - although today's highfliers are not as young as their 1990's forerunners. The banking boom on both sides of the Atlantic has created thousands of new millionaires following the latest bonus round. And even some sectors of the Japanese economy are looking up.

Clark Winter, chief global investment strategist at Citibank Private Bank in New York, expects the ranks of millionaires to swell this year as new money - from Continental Europe, commodity-rich developing markets and, potentially, Asian countries able to exploit opportunities in China - lifts millions of people from the ranks of the merely affluent to that of the high net worth.

That, according to Merrill Lynch/Cap Gemini Ernst Young's annual Global Wealth report, means that they've got at least $1 million in assets to invest, excluding personal real estate and collectibles.

The next global wealth report will be published in June, but early indications are that the number of millionaires and their assets will rise about 6 percent, said Alvi Abuas, global wealth expert at Cap Gemini Ernst Young in New York. "When we made that projection a year ago, people laughed and said it would never happen, because the economy looked so bleak," he said. "But we are seeing significant growth now, especially in the Asia-Pacific region, but also in North America."

Last year, the number of North American high-net-worth investors dropped 1.9 percent, and their wealth dropped 2.1 percent - the first declines recorded for the region in the seven years that the annual report has been published. This year, Alvi expects that proportion to reverse. Asia registered a 4.9 percent gain in millionaires last year and Europe a 3.9 percent gain.

Of course, some rich are always with us. These are the ones who "earn it the old-fashioned way," as Bruce Holley, a vice president at the Boston Consulting Group and one of the authors of the firm's annual Global Wealth Report, puts it. In other words, they stick with a small business or an executive position long enough to pile up some real money - generally between $1 million and $5 million.

Although the number of wealthy households worldwide has declined by 3.5 million, or almost 10 percent, since 1999, according to BCG data, the recent upturn in the stock markets has fostered a resurgence. That's great news even for investors who haven't quite cleared a million yet; BCG counts everyone with $250,000 or more in assets to invest among the wealthy because, as Holley puts it, most people who accumulate $250,000 eventually do become millionaires.

But you might never know it. The ways in which both these existing and aspiring millionaires earn, invest and spend their money are very different from the 1990's.

"The last three years have really made an impact," says Jim Hays, head of at Merrill Lynch's Private Banking Investment Group. "Their mood is better now, but there is much less bravado and a much greater appreciation of advice."

How are the new rich making their money? Some, notably in Australia, South Africa and Latin America, are exploiting the low dollar and improving global economy by selling and transporting commodities, such as steel, oil and precious metals. Others, particularly the new breed of Japanese entrepreneurs, are figuring out ways to make money in China, where labor is cheap and the demand for finished foreign products high.

Winter at Citibank points to the life sciences, ranging from biotech to pharmaceuticals as the among the likeliest arenas for growth, especially in the United States. "The expansion and consolidation that is going on in this space is very similar to the telecoms experience a few years back," he said.

Many will simply inherit. Holley at BCG points to a potentially enormous wealth transfer as people in their 50's and older - the faster growing age group in most developed countries - pass on their hitherto privately owned companies to their children who, in turn, may take them public, generating billions of dollars in new funds. The IPO market should start to revive this year, analysts say, with Europeans leading in the number of new issues now that companies have access to a single currency.

This new generation of millionaires will have to think especially hard about investing and diversifying their wealth. "If interest rates stay in their current global bands of between naught and, say, 5 percent, then people everywhere are going to have to think long and hard about how else to invest their money," said Bruce Weatherill, a partner at PricewaterhouseCoopers in London.

It probably won't be in stocks, at least not to the degree recorded in the 1990's when the U.S.-style equity culture was all the rage. Instead, Weatherill said he noticed that high-net-worth investors are beginning to pool their resources, to combine with like-minded people to make large private equity investments.

Indeed, co-investing, either with peers or with private bankers and other investment advisers, is one of the hottest trends in the high net worth individual market on both sides of the Atlantic. It's what Peter Scaturro, the head of Citibank Private Bank, likes to call "investing alongside Sandy" - Sandy, of course, being Sanford Weill, former chairman and chief executive of Citigroup, the financial services giant.

As for spending, it isn't happening at those stuffy clubs and restaurants, Barbados resorts or Parisian boutiques. "People everywhere are spending on what they need, rather than what they want," said Winter, who observes a new appreciation for local, traditional lifestyles, values and products, especially in Latin America, Southeast Asia and the Mediterranean region of Europe.

It sounds wonderful: more money, better taste. But will this change as the good times continue? Christopher Poch, managing director of private wealth at Salomon Smith Barney in New York, suspects that it might.

"People are feeling more secure about their jobs, about the economy and the stability of the value of heir homes and stock portfolios," he said. "They've been holding on to their breath - and wallets - for so long.

"But now, they are starting to look at their lives and think, 'Hey, things aren't as bad as I had thought.'"