Despite rising costs and financial market turmoil, high net worth individuals (HNWIs) and ultra-high net worth individuals (Ultra-HNWIs) last year spent considerable amounts of their wealth on ‘investments of passion’.

According to the 12th annual World Wealth Report by Merrill Lynch and Capgemini the investments of passion included tangible luxury items, such as fine art, luxury automobiles, private yachts, sports teams, jewelry, and intangible passion investments, such as “live the dream” experiential vacations.

The report also found that during the past year, wealthy individuals from emerging markets demonstrated significant influence in the global luxury marketplace.

“Even as financial market turmoil impacted the US during the second half of the year, luxury goods makers, high-end services providers, and auction houses all found ready clients in the emerging markets of the world – most notably, China, India, Russia and the Middle East – thereby sustaining their own growth,” said resident director of Merrill Lynch’s Global Wealth Management business in the Middle East Jonty Crosse.
While investments of passion remained healthy among HNWIs and Ultra-HNWIs, the report found that allocations varied significantly from region to region, and between mature and emerging economies. 

Further differences emerged among spending on tangible passion investments, such as art collections and intangible investments, like experiential travel.

Private jets, custom yachts, high-end automobiles and other luxury collectibles accounted for 16.2 per cent of passion investments among HNWIs as a whole, followed closely by fine art at 15.9 per cent. Jewelry held third place at 13.8 per cent and luxury/experiential travel ranked fourth at 13.5 per cent. 

These four categories – the most expensive of the passion investments examined in the report – together accounted for more than half of all luxury item expenditures among the HNW population.

Spending among HNWIs and Ultra-HNWIs in each of the four categories remained brisk last year, despite their rising costs.  The Forbes Cost of Living Extremely Well Index (CLEWI), which tracks the year-to-year cost of a basket of goods, increased 6.2 per cent from 2006 to 2007, more than twice the rate of inflation.

Despite hefty price increases, various luxury segments reported record sales figures in 2007, testifying to the unquenchable appetite of HNWIs and Ultra-HNWIs for luxury items.

Industry analysts state that the global art market and luxury industry tend to be latecomers to economic downturns, which may explain why they did not experience the impact of the financial market turmoil of 2007. 

However, history has shown that investments in fine art, private planes, luxury cars and other high-end collectibles tend to fair well during economic downturns. 

In fact, analysts suggest that new wealth and growing consumer demand in Asia, Eastern Europe, and the Middle East will continue to outweigh the pressures of the economic slump in Western Markets. – TradeArabia News Service