Surveys

Next Generation UHNW Individuals Lean Towards Alternatives – Stonehage Fleming

Amisha Mehta, Assistant Editor, London, 21 December 2015

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Priorities for ultra-rich families are shifting towards growth assets, according to the international multi-family office.

The younger generation of ultra-high net worth families are far more bullish on alternatives than their parents, according to research from Stonehage Fleming.

In a questionnaire of 78 families and advisors representing £120 billion ($179 billion) in wealth, 43 per cent of those aged between 18 and 25 said they choose to hold alternatives and hedge funds, compared to just 26 per cent of their parents.

The research, which was conducted in October/November, highlighted real estate and agricultural land as the investment of choice for 78 per cent of respondents, followed by equities for 67 per cent. After a turbulent year, most notably led by fears of China's economic slowdown, emerging market equities appeared to have fallen from grace, having been the most favoured asset class in Stonehage Fleming's 2013 report.

Capital preservation was flagged among the top three concerns for 72 per cent of respondents and poor investment management the top issue for the next generation, with over 50 per cent citing this in their top three concerns versus only 21 per cent of core respondents.

“Families, having weathered the financial crisis, are now more focused on growing their wealth rather than just on preserving it. As families grow and the number of people these assets need to provide for increases, UHNW families are becoming more entrepreneurial and are increasingly willing to shoulder a greater degree of risk in order to access this elusive growth,” said Ian Marsh, partner, investment management at Stonehage Fleming.

“In addition to the principal assets of their family businesses, families are turning to alternatives, notably real estate, agricultural land and private equity, as well as publicly listed equities. Direct investments, potentially alongside other UHNWs, were also cited as having appeal, suggesting that family offices will compete in the space in the domain of sovereign wealth funds and institutions.”

With family business assets under the spotlight, family disputes and break ups were considered the principal risks to long-term wealth. Marsh said a lack of common mindset or shared values across generations are the most common reasons for UHNW families to "fail". He pointed out that family businesses are a significant part of the engine of growth for the real economy. Indeed, in the UK alone, there are 3 million family businesses, employing 9 million people and contributing 25 per cent of total GDP, according to a 2014 report by PwC.

Social capital – how the family uses its wealth and other assets for the good of society – was also held in high regard by respondents, with 82 per cent suggesting a link between preserving wealth and benefiting society. An encouraging 100 per cent of respondents were involved with philanthropy, with private foundations and direct giving the most common avenues taken here.

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