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Russian HNWIs Do Not Think About Wealth Transfer - UBS/Campden Survey

Ilya Timofeyev, 27 May 2010

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Russian entrepreneurs are in jeopardy of seeing their fortunes eroded by the next generation unless they give serious thought to succession and wealth transfer, the survey by UBS and Campden Research reveals.

According to the research, the drive that these entrepreneurs have demonstrated to build up successful businesses in the post-communist era is substantial and the crucial role they have played in moulding Russia’s corporate landscape is set to continue. However, history has taught them not to plan for the long term, the report continues.

The 25 respondents to the study are all worth over $50 million, with over half valuing their wealth at $100-500 million.

“As the first study of its kind, initially we faced some scepticism from the entrepreneurs we approached. However, once we had explained the concept, I was pleasantly surprised by how openly the respondents discussed their business and personal wealth,” said Marco Naumann, co-author of the report and managing director of a multi-family office.

Although next generation members of Russian families are educated both in Russia and abroad, 56 per cent of respondents do not currently involve family members in their businesses, the research showed. Furthermore, 72 per cent admitted that family members did not have a stake currently nor would be entitled to do so in the future.

Evidence that Russian businesspeople are serial entrepreneurs with little appetite for building legacies was confirmed by the survey with just 32 per cent of respondents saying they would incentivise their children to become involved in the family business.

However, there could be a couple of explanations for the lack of next generation involvement. Many are simply too young, while 80 per cent are being educated both in Russia and abroad where they are learning new languages and values that will stand them in good stead for the future – whether or not they return to run the family business or oversee the family wealth.

Growing up in a climate characterised by corruption, bureaucracy and a volatile economy, the respondents, who all own business interests with revenues over $100 million, are still busy building their wealth as they lead Russia into a new decade.

In common with the rest of Europe, these entrepreneurs suffer from the effects of recession and the financial crisis, and have been forced to refocus their efforts from pursuing high-risk, high-return opportunities to ensuring their core businesses survive, says the report.

The above factors combined together mean that first generation entrepreneurs have had little time to think about succession and the transfer of their wealth. For example, in terms of wealth management services, just 28 per cent of respondents to the survey said they used them frequently, while 20 per cent admitted they had never heard of the term “family office”.

Respondents are still in wealth creation mode, although 84 per cent said they are currently developing long-term personal wealth plans and 64 per cent have segregated their business and personal assets.

As regards to asset allocation, Russians are parochial but have high-risk/high-return expectations of their onshore wealth. Real estate and equities are the overwhelming asset classes of choice but respondents showed a limited understanding of international financial markets and instruments. More than 84 per cent of respondents split their wealth between onshore and offshore jurisdictions, but the latter are primarily used for protection rather than tax optimisation reasons.

Respondents further highlighted a difference in competency between local and international banks. While the latter offer access to international markets, Russians are very focused on personal relationships and confidentiality. International banks must therefore do more to gain their trust.

“This unique report highlights the determination, skill and business savvy that Russia’s business elite possesses and points to the future challenges they will inevitably face. This transition cannot happen overnight, but I hope this report will trigger debate amongst other Russian entrepreneurs about the complex issues inherent in transferring their wealth to the next generation and successfully managing wealth for the long term,” commented Dominic Samuelson, co-author of the report and managing director of Campden Wealth.

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