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Hedging Millionaires Buy Jets, Art, Bling, Give Less to Charity

World Wealth Report
The World Wealth Report 2010, Page 21, figure 10, shows distribution of "passion" investments by millionaires around the globe. As millionaires' assets rebounded in 2009, they allocated more money to tangibles such as art, jets and gems. Source: Capgemini-Merril Lynch Wealth Management via Bloomberg Lynch & Co. Courtesy: Capgemini-Merril Lynch Wealth Management via Bloomberg

As millionaires’ assets rebounded in 2009, they put more money in tangibles such as art, jets and gems, according to a report released this week by Capgemini SA and Merrill Lynch & Co.

“It was such a severe crisis, the investor psyche has really shifted,” said Ileana van der Linde, the Capgemini principal who managed the research, in a phone interview. “They don’t fully trust the financial markets and regulatory bodies. That’s why we are seeing a trend toward putting money into tangible assets like art and gold.”

Almost 30 percent of the world’s millionaires withdrew their assets or left wealth-management firms in 2008, when the Standard & Poor’s 500 Index dropped 38 percent, according to an earlier survey by Capgemini and Merrill. The index has gained 22 percent in the past 12 months.

Six “passion” investments listed in the “World Wealth Report” typically account for about a third of a millionaire’s total holdings, Van der Linde said: luxury collectibles such as yachts, jets and high-end cars; art; jewelry, gems and watches; other collectibles such as wine and coins; sports investments, including teams and race horses; and a “miscellaneous” category comprising club memberships, musical instruments and other items.

Most individuals with assets ranging from $1 million to $5 million, excluding primary residences, had 30 percent in luxury collectibles in 2009, up from 27 percent in 2008.

‘I Have Arrived’

“These are status symbols you can overtly show,” Van der Linde said. “They say, ‘I have arrived.’”

For those with more than $30 million in investments, art was the largest of the six passions, the report said.

More investors began adding art, coins, wine and antiques to their portfolios. Investors in India, China and the Middle East tend to hold art and other tangible assets as an inflation hedge, the report said.

“In emerging economies, art has been part of the overall investment portfolio for a while,” said Van der Linde. “Now you are starting to see the same trend in the mature markets.”

The annual wealth survey covered 71 countries and drew on interviews with 1,200 wealth managers who serve 150,000 clients. There were many regional differences in spending trends.

American and Japanese millionaires spent the most on luxury collectibles. Europeans and Latin Americans put more emphasis on art. The rich in the Middle East and Asia focused on jewelry, gems and watches, according to the study.

Giving Less

Philanthropy was another area where the wealthy have become more focused and cautious in the aftermath of the financial crisis, Van der Linde said. In the U.S., total charitable contributions fell 3.6 percent in 2009 to $303.75 billion from $315.08 billion in 2008, according to Giving USA Foundation.

With less to give, donors are being more selective in their philanthropic activity.

“It’s not just blanketing several charities and hoping for the best,” said Van der Linde. “They are now looking to wealth management firms for advice on how to make philanthropy part of their investment planning.”

The U.S. had 2.87 million millionaires, topping Japan and more than triple third-ranked Germany with 861,500, the report said. The number of millionaires in China soared 31 percent to 477,400, keeping the country ahead of the U.K. with 448,100.

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