Real estate was the only asset class to see a significant increase in HNWI asset allocation over Q2 2017 to Q1 2018. It increased in share by 2.8 percentage points to 16.8 per cent to become the third largest asset class after equities and cash. The inherent illiquidity of real estate may at least offer a partial explanation for the increase because it takes longer to buy and sell physical assets. Another explanation is the attraction HNWIs have for real estate assets.
Within the real estate category, residential real estate dominates at 51.6 per cent of the real estate category, followed by commercial real estate category (15.4 per cent) and land (12.8 per cent).
Residential real estate is a popular investment choice across all regions, but highest in Europe at 54.9 per cent. Both Asia- Pacific (excluding Japan) and Latin America HNWIs demonstrated the highest interest in commercial real estate allocation at 21.1 per cent.
A trend among global HNWIs over the age of 60 is higher allocation (63.7 per cent) in residential real estate versus 40.2 per cent for individuals under the age of 40. Accordingly, younger HNWIs are more attracted to commercial real estate than their older counterparts- 19.5 per cent versus 11.8 per cent.
HNWIs remain multi-banked
The positive environment, characterised by another year of record HNWI wealth and strong investment returns globally, has led to increased asset consolidation with primary wealth management firms, although HNW clients remain strongly multi-banked.
On average, clients engaged the services of 2.2 wealth management firms in 2018, compared to 2.6 in 2014, indicating that even though clients remain multi-banked, a consolidation trend exists.
HNW clients are multi-banked
for many reasons, but a primary driver is a desire for specialisation. For example, bank A may have industry- leading foreign exchange capabilities, bank B may be known for fixed income, while bank C may offer global access ( such as to US equities and real estate). HNWIs seek to favour from these capability specialisations across firms, by attaching themselves with multiple banks. Multi-banking also empowers HNWIs with negotiating leverage. For instance, by not giving bank A all their assets, the bank may be more willing to offer discounts. Multi-banking also provides HNWIs protection against insolvency in the event a firm were to go bankrupt.