The Wealth Report: Covid-19 update

As the editor of an annual magazine you are, to a certain extent, always a hostage to fortune. 

At the best of times, the several weeks or often longer it takes to print and distribute a high-quality publication are generally a little nerve-wracking - will events render your carefully crafted articles out of date before they even hit people’s doormats?

Of course, you do what you can to create content with a message that will resonate regardless, but when your clients are hungry for forecasts and immediate actionable insight you can’t future proof everything.

You certainly can’t prepare for a black swan event like the Covid-19 outbreak, which not only sweeps away the assumptions behind many of your predictions, but also forces you to cancel most of the events designed to help promote the magazine to press and clients.

And so it was with the 2020 edition of The Wealth Report, which I edit. Barely had we held the global launch in London on 4 March than most of the world seemed to be in lockdown. 

Since then, a lot of my colleagues have been asking the question: “Is the report still relevant to my clients?”

My answer is a resounding yes, and I’ll explain why below. And while I’m at it I thought it would be interesting to talk to some of my colleagues from around Knight Frank’s global research team who have also recently published reports to get their thoughts. As ever, they are thought provoking and full of insight. You can find links to their thoughts at the end of this post.

The big theme

It’s no comfort that the overarching theme of this year’s report – wellness and wellbeing – couldn’t have been more prescient, and so too were my interviews with the investor Jim Mellon and his partner the economist Andrew Scott that kick off the publication. 

In them we discuss longevity – living longer and healthier lives – including what that means for the role of older people in society; how they contribute and how they are treated. In the face of a virus that this cohort of the population is particularly vulnerable to, that question seems more pertinent than ever and is one that governments will need to address in readiness for future pandemics.

Certainty is uncertainty

At the beginning of her article looking at future wealth trends my colleague Flora Harley said: “the only certainty seems to be more uncertainty”. 

One of the key trends she outlined that was driving this uncertainty was the changing relationship between the world’s three main trading blocks, the US, China and Europe. So dysfunctional had the relationship become that one of our contributors, the geopolitical analyst Ian Bremmer, claimed: “we are entering the depths of a geopolitical recession.”

With a so far largely uncoordinated global response to the pandemic, that recession looks set to only deepen unless some inspired political leadership suddenly emerges.

Flora also unveiled our new Global Wealth Sizing model, which predicted strong growth in the number of high-net-worth individuals around the world over the next five years, with the biggest climbs in Asia.

We’ll certainly be revising our forecasts, but as the global financial crisis (GFC) showed wealth creation recovers faster than you might expect. As economists grapple with the impact of this somewhat different crisis, we’ll keep you updated as to how things might pan out over the coming years.

One obvious potential outcome is that Western economies will try to “re-shore” more of their manufacturing capacity to ensure they are less vulnerable to the supply chain stress that has left supermarket shelves bare. Untangling decades of globalisation, however, will be easier said than done.

Financial transparency

Another timely article was our eight-page investigation examining how the veil of secrecy cloaking much of the world’s wealth has gradually been lifted and what impact that was having on our clients in terms of financial transparency and the taxation of their money.

“The 2008 financial crisis was a powerful catalyst. Suddenly, governments found themselves strapped for cash and facing a populace newly angry about wealth inequality,” wrote the author.

If we replace the 2008 financial crisis with the Covid-19 pandemic and wealth inequality with health inequality, we can see the next chapter of the article already writing itself. If the fortunes of the wealthy were already under close scrutiny, a potential populist response to the outbreak will only sharpen the focus.

Because of the political and economic uncertainty that Flora highlighted, our Attitudes Survey of private bankers and wealth advisors revealed that 80% of them were already planning to change their clients’ investment strategies. 

Investment strategies

The damage inflicted on the world’s stock markets and the cost of the bailout package, will only supercharge that process. Will property and other tangible assets like the objects – think art and classic cars - tracked by our Luxury Investment Index, rise to the fore again? At the moment cash is king, but if all this new QE creates inflationary pressure that could quickly change.

In terms of property investment, The Wealth Report, in the shape of my colleague Dr Lee Elliot, was already warning occupiers, investors, developers and landlords that real estate was being rapidly repurposed because of a growing focus on occupational wellbeing and social responsibility.

With the workplace for millions of people now being their living room or kitchen tables, and large chunks of an already-under-pressure retail sector staring into the abyss, Lee’s clarion call for change is even more on the money.

Many of the disruptors shaping future investment trends that Lee mentioned fall under the banner of ESG – environmental, social and governance criteria. 

Doing good

In his exploration of the emergence of ESG as the defining investment trend of 2019 – the year capitalism got cuddly, wrote the Financial Times - our Global Head of Research Liam Bailey pondered what would happen if the global economy slowed and businesses worried more about staying afloat that doing good.

Well, the answer to that question is going to be answered more quickly than we could ever have anticipated. My feeling is that, given many of them will be on the end of government Covid-19 bailouts, companies will come under even more pressure to deliver purpose as well as profit. Realistic? Time will tell.   

The work of wealthy philanthropists like the Dane Anders Holch Povlsen that we applauded in the report will become ever more vital in the aftermath of the pandemic, but as with the GFC it’s been again shown that only governments and central banks have the firepower to deal with the really big crises facing the world, albeit many would argue that these are of their own making in the first place. 

And, finally, returning to our theme of wellness and wellbeing, our new City Wellbeing Index ranked the efforts of urban hubs across the world trying to retain and attract the best talent by positioning themselves as healthier places to work and live. 

Given that cities have been the epicentres for the spread of Covid-19, these efforts will require new emphasis as their inhabitants reassess whether working from home in less populated areas might be more desirable. 

So while the latest edition of The Wealth Report would undoubtedly look different if it was published with the benefit of a few months of hindsight, its key themes and the questions it poses remain largely valid and in some cases even more so.