Comment: The affluent do better than the super wealthy
Sometimes it pays to not be in the upper echelons of wealth.
Rich lists like Forbes annual billionaire ranking and the Sunday Times Rich List in the U.K. might have shown big falls in the assets of the world’s wealthiest during the credit crisis, but the mere wealthy appear to have fared better.
Research by London-based consultancy Scorpio Partnership found that 41% of those with average wealth of $2 million actually made money during the crisis. Another 25% saw their wealth stay the same, meaning that only 34% saw their wealth fall.
Scorpio surveyed 1,500 individuals around the world and said it was the biggest sample group of its type ever taken.
Granted, the figures might have been a bit different if the survey was conducted before the upturn in global equity markets last March – the six-month period from the collapse of Lehman Brothers last September saw global wealth plummet at the fastest level since the Great Depression.
But the survey does suggest the wealthy might have weathered the financial and economic crisis better than the super-wealthy.
Scorpio’s survey doesn’t go into the comparison between the two subsets of the wealthy, but anecdotal evidence might offer some explanation on their differing performance.
Those with wealth between $500,000 and $2 million – sometimes referred to as the mass affluent – aren’t likely to have investments in hedge funds and private equity, where some of the biggest performance hits were taken during the darkest days of the credit crisis.
They wouldn’t have been offered them by financial advisers because they didn’t have the money to afford them.
But the super-wealthy did, and invested in alternatives with vigor during the boom years leading up to the crisis. Many were also sold structured products, which were hit particularly hard by the credit crisis.
Of course some made fortunes from alternatives, like hedge fund manager John Paulson and those lucky enough to have invested with him. But most lost millions.
That said, the super-wealthy invariably have exposure to riskier investments because they can afford to lose millions when things go wrong. There is a big cushion to fall back on.
For the mere wealthy losing more than 20% to 30% of their wealth can mean the difference from feeling comfortable to feeling financially put upon.
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