Global financial assets declined in 2022, eroding wealth management margins, a study shows. But there is light at the end of the tunnel.

Last year, global financial assets contracted for the first time in over a decade, but the good news is that it will be a short-lived phenomenon, with Boston Consulting Group (BCG) forecasting a 5 percent increase to $267 trillion this year.

Sharp Downturn

After nearly 15 years of continuous growth, global financial assets made up of cash, bank deposits, bonds, stocks, mutual funds, and pensions fell 3.5 percent to $255 trillion last year, according to BCG's «Global Wealth Report 2023». The downturn was in strong contrast to the year before in which assets grew more than 10 percent, in one of the best markets in more than a decade.

Reasons for the decline in financial wealth are many. There was rising inflation, forcing central banks to end an extended period of historically loose monetary policy by jacking up interest rates, resulting in poor equities performance. On top of that geopolitical uncertainty was added to the mix when Russia invaded Ukraine.

That hit North America and Western Europe particularly hard where assets shrank by 8.1 and 2.8 percent, respectively.

Despite the decline in financial assets, total net wealth rose slightly by 0.3 percent to $459 trillion.

Fewer Super Wealthy Swiss

The net wealth of the Swiss increased 2.5 percent to almost $5.4 trillion last year, composed of $3.4 trillion of financial and $3 trillion of tangible assets, with liabilities of just under $1.1 trillion. Over 40 percent of the country's financial assets are invested in pension funds and life insurance policies.

In terms of net wealth, Switzerland ranks 14th in the world, led by the US ($144 trillion), China ($76 trillion), and Japan ($24 trillion). There were 740 super-rich people in Switzerland, those worth over $100 million, three percent fewer than last year. Together, they own 21 percent of total financial assets. There are over 580,000 people in Switzerland with financial assets of more than one million dollars, about 60,000 more than in Germany.

Rising Hong Kong

Switzerland continues to be regarded as an extremely attractive financial center, with its traditional strength in wealth management. It has vast experience and an enormous volume of assets under management, and remains the leading booking center for cross-border investors from the European Union and the Middle East, with continued growth in the latter expected to provide a strong boost.

Although Switzerland remains a highly attractive location for wealth management and financial services, it will be overtaken by Hong Kong as the world's leading booking center by the end of 2025, according to BCG. It achieved the highest growth rate in assets under management among major booking centers over the past five years, averaging annual growth of 13 percent.

Strong Growth in the Gulf States

But Hong Kong faces stiff competition from Singapore, which is increasingly benefiting from its growing reputation as a safe-haven with close ties to the West, and increasingly perceived as a gateway to the Asia-Pacific region.

The United Arab Emirates (UAE) also established itself as a booking center in recent years, offering an attractive playing field for banks and investors. In 2022, assets under management in the UAE grew faster than any other booking center, attracting assets from all regions, including Asia-Pacific, Africa, and Russia in particular.

Taking New Initiatives

The study also shows that asset managers' profitability is under pressure. Globally, asset managers' pre-tax profit margins fell by an average of 2.3 basis points in 2022. The declines were particularly pronounced in Asia Pacific (down 5.5 basis points) and North America (down 3.1 basis points), while providers in Western Europe (up 2.5 basis points) and Latin America (up 0.3 basis points) saw increases.

According to BCG, the margin increase in Europe and Latin America is primarily a result of improved revenue to average customer business volume (RoBCV) and higher interest rates. Benefiting from high interest rates is not a long-term solution, however, and asset managers need to take new initiatives on both the revenue and cost side.