Billionaires increased their wealth eightfold over the past 20 years. How they achieved this performance, why they worry about losing their wealth again and why their concerns are well founded are issues UBS and PwC answered in a new study.
1. More Billionaires, Faster Wealth
An extraordinary amount of wealth has been created over the past two decades, UBS and PwC conclude in their study «Billionaires Insights», published today. In numbers: Today, there are 1,347 billionaires, compared with 255 in 1995. They hold an average $11 billion, compared with $2.9 billion 20 years ago.
The growth factor for the average estate of a billionaire amounts to 3.8 over the past two decades, compared with a factor of 2.5 for global gross domestic product and the MSCI World Index. Total billionaire wealth increased to $5.4 trillion from $600 billion.
2. Number of Women Among Billionaires Is Rising
Women were the ones pushing growth among billionaires. Today they make up 11 percent of the total. The number of female billionaires rose by the factor of 6.6, compared with the male equivalent of 5.2. The reason is Asia: Ten years ago, there were three Asian female billionaires, now there are 25. And the average wealth of female billionaires today is higher than that of the male colleagues.
Half of Asia's female billionaires are entrepreneurs. Most of Europe's and North America's female billionaires inherited their money.
3. Obsessive and Tenacious
Billionaires on average tend to be smart. The take risks only when their chances for success are substantial. They also are obsessive and tenacious. Characteristics such aren't always passed on to the next generation.
4. Gained and Lost Again
The saying «the first generation builds a company, the second makes it a success and third ruins it again» doesn't hold anymore. More than half of the billionaires of 1995 have dropped out of the club – 163 of the 289.
The reasons for the failures are: First, children of billionaire dynasties are different from their fathers and grandfathers. They tend to take risks they don't understand at the wrong time and with too much borrowed capital. Second, death and taxation. Depending on the country of residence of billionaires, heirs are liable to pay substantial inheritance taxes. Third, dilution of wealth through succession.
5. The Billionaires' Industries
Long-time billionaires derived their wealth from the consumer industry, technology and financial services industry. European billionaires tend to be industrial tycoons, their Asian brethren make their money in real estate and Americans are technology entrepreneurs and finance managers.
6. Management, not Sentiment
The preservation and increase of wealth demands management skills. Companies become more important than families, at the latest in the third generation. This makes is the more important to have «family governance» rules and principals, with strict guidelines about who is able to pull strings in the company.
7. Danger From Outside
The majority of billionaires see the biggest danger for their wealth coming from the outside, with taxation and regulation. The latter is particularly important for the technology and finance sectors. Stiffer tax rules as stipulated by the G20 and OECD are already weighing on the billionaires.
8. How to Remain Billionaire
Billionaires and their heirs need to choose a strategy to preserve wealth or even increase it. There are three options: Continue with your family business. Complement your family business with further businesses or investments. Or turn into a financial investor.
The findings of the study are clear: the first option is the preferred choice of 69 percent of billionaires.
