2022 is proving to be a bear market for private wealth managers

After a year of exceptional growth in 2021, 2022 was always going to be a tough act to follow for private wealth managers. However, macroeconomic conditions and geopolitical tensions have conspired to create a near-perfect storm for private wealth managers. Client assets are on track to end the year down – the first decline since the aftermath of the global financial crisis.

GlobalData’s tracking of the top 50 international private wealth managers saw their cumulative client assets increase by 14.7% at the end of 2021. This was fueled by both rising equity markets and record net inflows. Following up these exceptionally good numbers with another year of exceptional growth was always going to be a challenge.

Supportive monetary policy, loose fiscal policy, and the reopening of key economies as the COVID-19 pandemic has been brought under control have all created a heady mix of growth conditions for investment portfolios in 2021.

2022 is shaping up to be an equally exceptional year, but this time for the wrong reasons. High inflation has spurred several rounds of sharp interest rate hikes for major central banks, with more expected by the end of the year. Continued lockdowns in China have dampened growth in Asia and contributed to inflation elsewhere in the world. Meanwhile, the Russian-Ukrainian conflict rattled markets and also fueled global price inflation. More directly, a number of major banks have had to cut customers or offices in Russia due to several rounds of sanctions.

The effects of these factors are only beginning to be felt on wealth managers. The 15 largest private wealth managers (representing $13.5 billion in client assets at the end of 2021) reporting semi-annual numbers are down 9%. That’s over $1 trillion in assets wiped off the books, even with modest net inflows mitigating that to some extent.

GlobalData does not expect the private wealth industry to end 2022 with so much decline as the steep declines in the stock market appear behind us. However, it seems certain that client assets will be down overall for the year. With lower asset values, revenues and profits are sure to fall, undermining the efforts of many private banks with expansive and expensive plans; namely expanding into the ultra-competitive (and increasingly expensive) Asia-Pacific market.

Dolores W. Simon