Simon Mellon, the globetrotting financial insider leading up our new “family office” project, says the super-rich are switching to low risk. (We will be sharing Simon’s insights into wealth protection, asset management and risk with Notes readers for the foreseeable future.)

On Wednesday, Capgemini and Merrill Lynch Wealth Management released the 2009 edition of their long-running World Wealth Report. The report’s findings are not easy to swallow. But they won’t come as a big surprise to Notes faithful.

It reveals that the population of “High Net Wealth Individuals” (defined as people with $1m or more to invest) fell nearly 15% in 2008. This drop is unprecedented. The biggest falls were seen amongst the “Ultra High Net Worth Individuals” (defined as those with more than $30m to invest), who saw more than 24% of their net wealth wiped out.

The report blames these heavy losses on investors’ preference for more aggressive financial investments. This supports my belief that high-wealth individuals and families need to take a conservative and long term approach to their investment portfolios and only allocate a small percentage of their overall wealth to high-risk assets. (You wouldn’t bet a third of your salary on a horse race… so why bet it on the stock market?)

According to the report, High Net Worth Individuals (HWNI) “are expected to remain fairly conservative investors in the short term, with capital preservation being a priority over the pursuit of high returns. Looking toward 2010, though, the profile of HNWI portfolios is likely to shift as economic conditions improve, instigating a tentative return to equities and alternative investments as HNWIs regain their appetite for risk.”

The report echoes the changes to portfolio structures I’ve been suggesting and reduction of risk I’ve been recommending for the “burnt fingers brigade.” But the level of riskier asset classes HWNIs are invested in is still higher than I would like to see at the moment, especially equities.

Equities exposure has been reduced (from 33% to 25%), while fixed income securities have become a slightly larger part of the overall financial assets of the group (27% to 29%).

Cash, however, is clearly king in these volatile times: 21% of holdings were in cash equivalents at the end of 2008, up a whopping 7% from the 2006 pre-crisis levels. Real estate holdings have also increased from 14% to 18%, perhaps reflecting an increased optimism that prices have started to bottom out. Personally, I think the jury is still out on this.

Maybe I’m just a stale bear. But I believe the continuing high levels of investor fear right now means a slow and difficult recovery for the financial markets. And I for one will be treading carefully through the minefield of 2009.