Inflationary shocks have reverberated around the world over the past three years, but the world’s rich have largely weathered them, private bankers and investment managers say.
Despite a prolonged period of higher spending – with headline annual inflation still at 3.5 percent in the United States and 2.4 percent in the euro zone after reaching multi-decade highs two years ago – the world’s billionaires and ultra-rich have become richer, according to the United States. Forbes media group.
Industry figures say the wealthy have protected their wealth from inflation by investing in the tech-driven stock boom, which has outpaced the rising cost of living, and making smart bets on capital- investment, debt and infrastructure which have generated strong returns.
“High net worth individuals and their families are sophisticated investors, like hedge funds, which have participated in the stock market rally,” explains Hannes Hofmann, global head of the family office group at Citi Private Bank.
“They have been hit by the cost of living crisis, but many of the large family offices that manage the wealth of the rich have invested wisely in stocks, bonds and private equity. »
The wealthy have continued to spend despite higher inflation on goods and services that are largely purchased or used by the wealthy relative to general consumer prices.
Forbes’ annual Cost of Living Extremely Well Index (CLEWI), which measures spending on things like opera tickets, exclusive college tuition and luxury cars, has risen more than prices consumption in the United States last year.
The CLEWI climbed 4.9 percent in 2023 – above the 3.4 percent rise in the U.S. CPI over the same period – following increases of 7 percent in 2022 and 10 percent, 1 percent in 2021.
Yet it has failed to stop the increase in total wealth among the world’s richest people. Forbes’ Global Billionaires Index, released in April, showed that the total wealth of the world’s richest people reached a record $14.2 billion in 2024, an increase of 14% from 12 .2 billion dollars recorded at the same time the previous year. .
The 400 richest people in the United States also saw their wealth increase significantly more than inflation in 2023, with the average net worth of Forbes’ 400 richest Americans increasing by 13%, to $11.3 billion. dollars, over one year.
“High-net-worth individuals are not very exposed to inflation because their portfolios are generally well diversified,” says Alessandro Caironi, head of banking, lending and investment solutions at Deutsche Bank Private Bank. “They hold investments such as public and private capital and real estate that protect them.”
Rebecca Gooch, global head of research at Deloitte Private, a division of the Big Four consultancy group, adds: “With inflation showing signs of moderation, it is no longer the number one worry of the wealthy. They are now more concerned about geopolitics [with wars in the Middle East and Ukraine] and global economic uncertainty.
Yet despite inflation slowing sharply from peaks of 9.1% in the US and 10.6% in the Eurozone in 2022, it remains a threat to investment portfolios.
“We are facing the final hurdle in the fight against inflation, particularly in the United States,” says Matthew Morgan, head of fixed income at Jupiter Asset Management. “The big question is how quickly the Fed will bring inflation under control.”
Morgan believes the US Federal Reserve will likely pave the way for a soft landing for America and the global economy, but adds that there are risks of collapse in the event of growing geopolitical instability.
“How temporary is the rise in inflation? asks John Stopford, head of multi-asset income at investment group Ninety One. “Is this a response to the pandemic? Or will there be a lasting impact?
For wealthy investors, despite the decline in the inflationary threat, there is still a need to diversify, underlines John Roe, head of multi-asset funds at Legal & General Investment Management.
“Inflation can lead people to mistakenly think that stock markets are doing better than they are. If inflation increases by 3 or 4 percent, then stocks must rise more than that, otherwise real capital appreciation is stable.
“Diversification is absolutely important,” agrees Mark Haefele, chief investment officer of UBS Global Wealth Management. “You need to diversify geographically and across asset classes.”
Still, investment managers and strategists remain convinced that the wealthy can continue to grow their wealth by purchasing assets in private markets that generate strong returns despite higher inflation. They also expect public stock markets to continue to rise as they reach new highs and increase portfolio values.
“The changing macroeconomic environment has created new investment opportunities,” says Charles Jewkes, head of global wealth at Aviva Investors. “Private markets can be attractive in an environment of higher interest rates and inflation. »
Grace Peters, global head of investment strategy at JPMorgan Private Bank, added: “We believe the recovery in US equity markets is sustainable, based on improving economic fundamentals globally. Over time, we believe US stocks should continue their upward trajectory to generate healthy returns.