Billionaires face headwinds as ‘the greatest transfer of wealth in human history’ looms

“Are billionaires feeling the pressure” ask UBS and PwC in their annual look at the wealth health of the richest fraction of the 1%. Yes, the report suggests, they are. And change is afoot: “We are about to witness the greatest transfer of wealth in human history”, say researchers, as around 460 of the world’s billionaires gear up to transfer US$2.1tr –  the equivalent of India’s entire GDP – to their heirs over the next 20 years.

2015 saw a pause as total billionaire wealth fell by US$300bn to $5.1tr. “Headwinds” such as the transfer of assets within families, commodity price deflation and an appreciating US dollar, impacted the growth of billionaire wealth. Average billionaire wealth dropped from $4.0bn to $3.7bn, and the US added only five net new billionaires in 2015. In contrast, Asia produced one billionaire every three days, with China alone accounting for over half of the 113 additions.

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Europe has the greatest number of multigenerational billionaires at 182 (54%), and they have proven to be the most resilient at preserving their fortunes. The US has 175 (33%) multi-generational billionaires and APAC has 76 (15%).

UBS notes that the huge looming transfer of wealth, as ageing billionaires die off, will be the first ever handover of billionaire wealth for most of Asia’s young economies, where over 85% of billionaires are first-generation.

For the first time in a decade, the average wealth of self-made US billionaires surpassed the average wealth of US billionaires with inherited fortunes (US$4.5bn vs US$4.3bn).

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Here’s a quick summary of findings from the UBS/PwC Billionaires Report 2016

  • A US$2.1 trillion inheritance

    The past 20 years of exceptional wealth creation will soon be followed by the largest-ever wealth transfer. UBS and PwC estimate that less than 500 people (460 of the billionaires in the markets covered by researchers) will hand over US$2.1tr, a figure equivalent to India’s GDP, to their heirs in the next 20 years. For most of Asia’s young economies, where over 85% of billionaires are first generation, this will be the first-ever handover of billionaire wealth.

  • The Gilded Age pauses

    After more than 20 years of unprecedented wealth creation, the Second Gilded Age has stalled. The transfer of assets within families, commodity price deflation and an appreciating US dollar have emerged as significant headwinds. In 2015, 210 fortunes broke through the billion-dollar wealth ceiling and 160 billionaires dropped off, leading to a net increase in the billionaire population of 50 to 1,397. Yet their total wealth fell from $5.4 tr to $5.1tr. Average wealth fell from $4bn in 2014 to $3.7bn in 2015. It is still too early to tell if 2015 signals a pause in the Gilded Age or something more.

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  • Old legacies’ lessons for new billionaires

    Of the billionaire fortunes that have fallen below the billion dollar mark since 1995, 90% were not preserved beyond the first and second generations. At a time of economic headwinds and imminent wealth transfer, Europe’s old legacies are a model for new billionaires to avoid this fate. Germany and Switzerland, in particular, are the countries with the greatest share of ‘old’ wealth. Asia’s family- orientated billionaires may wish to adapt the European model of wealth preservation to their own needs.

  • New philanthropic models

    In the first half of the 20th century, entrepreneurial families such as the Carnegies and Rockefellers funded significant advances in areas such as education and health. By doing so, they displayed many traits associated with billionaires – chiefly business focused and smart risk-takers – to drive success. After over three decades of this new Gilded Age, billionaire philanthropy is growing all over the world. New philanthropic models are emerging (loans, guarantees, contracts, impact investing etc.) and the millennial generation is putting philanthropy at the heart of their family values. In spite of this the current Gilded Age may not match its predecessor’s record.

Josef Stadler, Head Global Ultra High Net Worth, UBS: “The findings of this report help us stay ahead of the issues that matter to better advise our clients, which include over half the world’s billionaires and three out of every five billionaires in Asia. Even as China’s growth moderates, it is the bright spot for great wealth growth.

“Led by a tech sector on the rise, China minted 80 new billionaires in 2015 and Asia overall created a new billionaire nearly every three days. Meanwhile Europe’s billionaires stood out for maintaining and passing wealth down to their heirs.

“This is something that regions like Asia, where many more billionaires are first generation, can learn a lot from, especially as we head into the greatest period of wealth transfer we’ve ever seen. Just as Asian billionaires can gain from the experience of wealth transfer in Europe, there’s much that Europe can learn from the rapid billionaire growth in Asia.”

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Michael Spellacy, Global Wealth Leader at PwC US: “As the shockwaves from regulatory upheaval in the EU continue to trigger global currency fluctuations, strategic planning becomes even more crucial for wealth preservation. Those who control assets face tough investment questions.

“Encouragingly, this year’s report shows that Europe’s billionaires were the most resilient with many of the 60 individuals from Europe inheriting their fortunes in 2015 for the first time.

“The US, which boasts the biggest collection of billionaires by region, sets the trend. Total US billionaire wealth fell, but ‘new money’ fared better than old, falling by just 4%, from an average of USD 4.7bn per individual to USD 4.5bn.”

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Download the full report at ubs.com/billionaires