Investing Lessons from the Ultra-Wealthy

In this article, we will take a macro view of the world’s wealth and asset composition.
According to The Wealth Report (2020 – 14th edition), published by Knight Frank as a Global Real Estate Consulting Company, America dominates the top spot for being the country with the most UHNWIs (individuals with a net worth of over US$ 30 million or more) in the world (Figure 1). The report also forecasted the highest growth of UHNWIs (ultra-high net worth individuals) in Asia driven by India, China, Vietnam, and Indonesia.

Figure 1 – UHNWIs (net worth exceeding US$ 30 million [ approx. JPY 3 Billion ])

Source: The Wealth Report (2020 – 14th edition), Knight Frank
From the asset allocation breakdown of these UHNWIs (Figure 2), we see real estate investments account for one-third of their total asset.
In the equity investments segment, we witnessed double-digit growth in the US, Germany, and Australian market and significant increase in the UK and Japanese market. This globally equity markets boom in 2019 contributed significantly to the increase in assets of the UHNWIs.
Although investment in gold and precious metals accounts for less than 3% of the total, investments in gold, a standard for safe assets, increased last year.

Figure 2 – Asset Allocation of the UHNWIs

Source: The Wealth Report (2020 – 14th edition), Knight Frank
The collectables in Figure 2 refer to whiskeys, antique cars, coins, artworks, wines, handbags, jewelry, colored diamonds, stamps, and watches. This asset class requires a relatively long time to see the rate of return and Knight Frank has provided us insights into the top 5 collectables comparing the value increase for the past year versus the past decade (Figure 3).

Figure 3 – Value Growth of Collectables (Past 1 year vs Past 10 years)

Source: The Wealth Report (2020 – 14th edition), Knight Frank
Whiskey fell 2.7 percent in the first half of the year due to an oversupply of whiskey from market leader Macallan. But whiskeys’ secondary market boomed in the second half of the year, with prices such as Scotch rising by 5% over the past year. There has been a high demand for whiskeys from the following distillers: Dalmore, Springbank, Ardbeg, Lagavulin, Bowmore, and Brora.
Over the past year, art prices centered on works by impressionist painters and contemporary artists, have risen by 5 percent. Milestone transactions include the sale of Invader’s Mosaic TK_119 (Sotheby’s expected sales price: JPY 10 million; Final sales price: JPY 120 million) and Banksy’s Devolved Parliament (Sotheby’s expected sales price: JPY 200 million; Final sales price: JPY 1.3 billion).
In the wine asset class, while Bordeaux and Burgundy prices fell, Champagne and Northern Italian wines rose by 6-8%. The relatively high growth rate of -8% contributed to an overall increase of 1% compared with the last year.
This time, we’ve taken a look at the UHNWIs and their asset allocation. Although real estate and listed company equity constitute a major portion of the asset allocation, the ownership of private equity and collectables are extremely interesting and material.
We’ve only scratched the surface this time, but we’ll be going into more detail on each asset class in the future.