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OPINION OF THE WEEK: UBS Billionaire Data Gives Lessons, Warnings

Tom Burroughes

2 January 2024

It can be dangerous to read too much into a set of figures taken from a particular year, but this week’s report by which shows that billionaires who inherited wealth in 2022-23 had more in total than first-generation wealth creators ought to be a wealth management wake-up call.

For years, we have been told about the multi-trillion-dollar transfer of wealth from Baby Boomers to their children. And by “children” this often means middle-aged people, not fresh-faced youngsters. The focus on this transfer of liquid and illiquid wealth explains why banks and other firms devote so much energy on cultivating family offices, setting up advisory teams on business transfer, talk about family dynamics, and the like. 

As the average age of advisors rises in countries such as the US (reaching the high 50s), the wealth transfer story also means that firms need to recruit more people of an age and background to engage with clients. Because if they don’t engage with NextGen clients, trillions of dollars and the equivalent could be lost. These new inheritors aren’t necessarily going to bank with the same firms as their parents. 

All this appears obvious. What is perhaps less obvious – and not fully addressed in the UBS report – is what this data says about the pace of entrepreneurship and wealth creation and why it appears to be losing its potency as a driver of billionaire wealth. I am guessing that some of this was caused in 2022 by global markets falling as higher central bank interest rates took effect. Liquidity events of the sort that mint new ultra-wealthy people were less evident. Initial public offerings and sales of companies were lower. In 2023, the downward trend continued in countries such as the US although matters may start to improve if it is thought that interest rate rises have peaked. There have been 146 IPOs on the US stock market in 2023. As of 30 November, the figure has fallen by 16.09 per cent from the number a year ago. In China, proceeds of IPOs slumped by more than 50 per cent year-on-year in the third quarter, to $12 billion.

However, there is still plenty of new wealth being created – a fact to celebrate amidst the often grim geopolitical news – but it's plain that some of the high growth we have seen in recent decades isn’t being sustained. There are many reasons for this, such as the tighter monetary conditions since 2022 to curb inflation, the rising tax burdens in certain countries to fill budget holes caused by ageing populations, the pandemic, political horse-trading, sheer inertia, and so on. While this isn’t explicitly mentioned by UBS, I suspect that the burden of regulation in many Western countries, for example, works against entrepreneurial vigour. In China, Beijing’s crackdown on certain sectors such as technology two years ago has dampened entrepreneurship. 

A longer term trend – most rich people are creators – appears to be intact, however. Some 84 of a total of 137 billionaires – 61 per cent – created their own wealth. One must hope this process remains firmly entrenched. 

There is also the simple fact that after a long period of wealth creation following the pro-market reforms of the 1980s, 1990s and Noughties, there are now more “trustafarians.” And that has implications for asset management. For example, a person who has taken risks to build a new firm might, paradoxically, shun risk over his or her private wealth, while an inheritor, who hasn’t been through the struggles of their parents, might be more adventurous. 

What the figures do suggest is that banks must ensure that they encourage today’s and tomorrow’s wealth creators. There’s only so much that can be done about the foolish policies that governments enact that hurt business, but banks can do what they can to nurture talent, provide financing solutions, leverage their networks, and put entrepreneurs in touch with mentors and holders of capital. If most of banks’ HNW and ultra-HNW clients are inheritors, banks will need to spend much time on ensuring that clients aren’t complacent and fall into foolish habits. Having a roster of wealth builders, who are hungry and ambitious, also benefits a bank’s culture. A bank reliant on inheritors can become fusty and entitled. 

As I said at the start, it is unwise to read too much into a single set of figures, and if market conditions change next year, so might the UBS data that comes out. But they are a sign of how much wealth is being transferred.