According to research by PwC and UBS, billionaire wealth decreased by $300bn in 2015. However, total billionaire numbers are on the rise.
The report, Are billionaires feeling the pressure?, highlights that total billionaire wealth declined in 2015 by $300bn to $5.1 trn, with average billionaire wealth falling from $4bn to $3.7bn. The dip can be attributed to headwinds such as the transfer of assets within families, commodity price deflation and an appreciating US dollar.
APAC displayed the largest creation of billionaires – with a new billionaire being created every three days. There were 113 new APAC billionaires in 2015 – with a 7% increase of total billionaire numbers to 520. However, there were also 80 drop-offs from billionaire status.
Josef Stadler, Head Global Ultra High Net Worth at UBS Wealth Management, notes that “billionaire wealth is short-lived”, with only 44% of billionaires in 1995 remaining in the billionaire category in 2015.
Simon Smiles, Chief Investment Officer, UHNW at UBS Wealth Management, believes that billionaire performance in 2015 was merely a blip and that the headwinds of 2015 are likely to reverse in 2016:
“In 2015, the total return across commodities fell 24%. Already in 2016, year to date (YTD), they’ve risen by 13%. So that headwind is turning into a tailwind. The dollar went up 9% last year, therefore impacting non-dollar denominated assets. This year the dollar has depreciated almost 1% YTD”
The largest wealth transfer approaches
After 20 years of exceptional wealth creation, an unprecedented amount of wealth is due to be transferred to the next generation. The report estimates that a mere 500 people will transfer over $2.1 trn to their heirs over the next 20 years.
This event is especially significant for Asia’s young economies, as this will be the first ever handover of billionaire wealth, with 85% of billionaires in the region being first generation entrepreneurs.
Josef Stadler, Head Global Ultra High Net Worth at UBS Wealth Management, says that succession presents the “highest risk factor” for billionaires. This is pertinent as the majority of family wealth is typically eroded by the third generation.
Stadler adds that there is a particular risk amongst Asian families, as the next generation tend not to be willing to carry on their parents’ businesses.
Michael Spellacy, Partner, Global Wealth Leader at PwC US, says that Europe is the only region in which wealth succession is resilient beyond the third generation. He says that this is because there is a strong focus on business continuity in Europe, whereas in the US, entrepreneurs tend to sell off their businesses – leaving heirs with raw wealth which is easier to erode.
Stadler adds that, in particular, Switzerland and Germany act as a “role model for wealth transfer” – citing a significant amount of assets held in operating units, alongside a stable economic and political environment, and a lack of punitive inheritance tax measures.
The report finds that Europe has the greatest number of multigenerational billionaires and is leading in wealth preservation in comparison with other markets. Average European multigenerational wealth fell by 7% from $4.1bn to $3.5bn, this compares with a 16% dip in multigenerational wealth in the US and a 9% dip in APAC.
Transfer of wealth to the next generation poses a risk for private banks themselves. Stadler says that 98% of next generation clients fire their parents’ advisors. However, he notes that these clients tend to opt for another advisor within the same bank. Stadler adds that retention of UBS’ private clients through generations stands at 47%.
Private banks will also have to be mindful of how they service women. Spellacy, PwC, says that the majority of wealth is transferred from the patriarch to the matriarch, before it is passed onto the next generation. He says that the relationships between advisors and women can be completely different and that 70% of widows fire their financial advisors.