With similar profiles of risk, profitability, tax and administrative burdens, people behave roughly the same, despite differences in traditions, religions, and ways of living. Back in the mid-2000s, we noticed the similarity in decisions of wealthy people living in Russia, Latin America and the Middle East.
For example, the share of offshore wealthy people living in Africa is 75%, in the Middle East 70%, in Eastern Europe (primarily Russia) 65%, in Latin America 60%, in Asia (without Japan) 30%, in Western Europe 25%, in Japan 3%, and in North America (USA, Canada) 3%1.
Today, there is already an analyst on how those “who are a couple of millions” behave. And you find a lot of people you know in it. Wealthy people (who have $7-10 million or more) keep 60-70% of family assets outside financial institutions, and 30-40% – in banks and other financial institutions.
If you take for 100% of assets outside the banks, then 10% of them – cash in any form, 40% – shares and participation in the family business, 20% – land and real estate (including abroad), 30% – “alternative” investments, often associated with hobbies (jewelry, precious stones, gold in liquid form, art objects, cars, pets, etc.).
Now we will take for 100% of these same assets in banks or other financial intermediaries. Local banks usually hold 40% of such assets (to cover monthly expenses, to have a stock of liquidity at home, to benefit from high returns on the local market, to speculate in person, to have fun, to play, to relieve stress). And in offshore banks and other financial intermediaries – the remaining 60% of assets.
For wealthy people, there is an unpleasant trend – a consistent reduction in the level of loan interest. It’s come to the point where the negative real interest is considered the norm.
Another unpleasantness for the family states is the change in the very concept of financial intermediation. We are used to the fact that clients’ funds are taken by banks or other financial institutions in order to “grow” them, save them and get income. Today we have other ideas – clients are provided with the service of liquidity storage. On the contrary, clients themselves have to pay banks for the fact that their liquidity is in a safe place and is always ready to be used.
This makes it clear what will happen in the field of condition management. As the appetite for returns grows, investments shift towards the riskier ones. They carefully bend around regulated areas (for example, after the 2008-2009 crisis, the derivatives market turned out to be largely frozen, limited in growth).
So where are they shifting to? In the direction of “soap bubbles”, heated pieces of the financial market (for example, the US stock market). Towards financial innovations (for example, cryptocurrencies and financial assets based on them). Towards emerging markets, where risks and returns are higher, and other speculative strategies (e.g. Freeports). Towards alternative investments that serve the real economy, which is an area of super-fast technology growth.
Finally, the transition of the global economy to cyclical growth, to the medium-term weakening of the U.S. dollar against the euro and, on this basis, to the rise in prices of commodity assets there is an appetite for investments in gold, in goods (portfolios of oil, metals, etc. on derivatives markets), in real estate, that is, in more complex product segments (for example, the market for art objects, rare gems, etc.), as it was in the 2000s. In growing markets structured products based on investor optimism, which sells well, feel good.