For affluent South Africans, the ability to create new wealth will come under pressure in 2024, which is why wealth managers are prioritising the long-term preservation of existing wealth to mitigate short-term volatility.
Looking at wealth trends for high-net-worth individuals (HNWIs), Citadel Director and Regional Head John Kennedy says 2024 is “quite a subdued period for new wealth creation in South Africa”, but even in this environment, there are substantial opportunities to solidify longer-term wealth management strategies.
Shifting wealth dynamics
Citadel is seeing a shift in wealth demographics with the rise in more wealthy entrepreneurs, women and millennials. Andrew Möller, CEO at Citadel: “Today’s clients don’t necessarily have the same priorities as their predecessors. We are, for instance, finding that millennials are more digitally driven, in demand of transparency and open to switching advisors.”
Kennedy adds that many of the most affluent people in society today are self-made entrepreneurs, and while they are experiencing pressures – a stagnant economy, infrastructure constraints, electricity shortages, a shrinking local stock exchange, a strained property sector, and other challenges in the market – many continue to maintain pockets of excellence in their industries and have hard-earned wealth they want to preserve for future generations.
In 2024, global wealth is expected to become more geographically unequal. African HNWIs are contending with slower economic growth and lower productivity than in regions like Asia or the United States. Henley & Partners’ Africa Wealth Report 2023 pegs the continent’s investable wealth at about $2.4 trillion in 2024, with the population of millionaires expected to increase by 42% over the next 10 years.
BRICS is a key cohort to watch. The total investable wealth currently held in the growing and increasingly powerful BRICS bloc amounts to $45 trillion, according to the inaugural BRICS Wealth Report by Henley & Partners released last month. While its millionaire population is expected to rise by 85% over the next 10 years, this may be strongly skewed by booming wealth in India and the United Arab Emirates, whereas South Africa’s millionaire population has dropped 20% since 2013 according to BRICS Country Wealth Data from Henley & Partners.
Kennedy comments: “When we look at the factors that impact HNWIs in South Africa, the theme that keeps coming through is that it is a wonderful country to live in, so they want to live here while securing their wealth globally. In 2024, more wealthy South Africans are likely to opt for a pragmatic approach tied to global financial independence.”
Defining wealth management
Kennedy, who is a wealth management expert with 30 years of experience in financial planning, believes the changing wealth dynamics in South Africa and globally necessitate professional wealth management.
“The risk to wealth is always some form of disruption or destruction in the financial markets. You must find the right steward with a custodial platform and deep insights who is able to manage and protect your wealth over time in the face of volatility, including new economic cycles, geopolitical upheaval and the accelerating technological disruptions.”
Factoring in volatility
“Volatility is a term that gets mentioned a lot in the financial world, but what it essentially refers to is turbulence – in prices, information and the intensity of that information.”
Within this context, South Africa makes up less than half a percent of all global financial markets and is characterised by a concentrated equities space. “We’re part of a global pond, so diversification remains important.”
Kennedy says most high-earning South Africans make their money in a particular sector, but to preserve it, they need to diversify their investments across industries and asset classes. “It’s important to put the money into a variety of asset classes that can protect it over the longer term, despite unforeseen events like the pandemic which reshaped industries and economic cycles. You can try to understand trends and tides, but you never know what is around the corner.”
Möller adds: “True wealth is always about intent, philosophy and strategies to execute long-term management. This requires economies of scale, depth of experience, a personalised approach, global footprint, clear grasp of the highly complex regulatory environment, and deep insights into the challenges faced by HNWIs.”
Kennedy says wealthy families that want to maintain their lifestyle “need to think not only of 2024 and 2025, but about also about 2030, 2040, 2050 and beyond”.
Kennedy believes it is important to always keep in mind two points on your time horizon when planning for wealth optimisation and preservation. “We always keep one eye on liquidity or cash flow for today and tomorrow, and another on where the money is made and where it should be secured.”
