UBS and PwC have launched the 2015 Billionaires Report, ‘Billionaires: Master architects of great wealth and lasting legacies’ examining the differences between billionaires’ wealth creation, preservation and philanthropic practices across the US, Europe and Asia.
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The survey of 1,300 billionaires analyzes data from the last 19 years (1995-2014) across the 14 largest billionaire markets, accounting for 75% of global billionaire wealth. Additionally, UBS and PwC conducted face-to-face interviews with more than 30 billionaires.
WEALTH CREATION
Shifting from Europe to the U.S. and Asia; self-made billionaires on the rise
In recent history, wealth creation has been the product of a few: the Billionaires Report found that 917 self-made billionaires have generated more than $3.6 trillion of wealth globally. Many started their journeys to becoming billionaires young, with 23% launching their first business venture before the age of 30 and a total of 68% did so before turning 40.
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By GlobalData"We currently live in an age of opportunity and accelerated wealth creation, similar to the Gilded Age of the late 19th and early 20th Centuries, when entrepreneurship in the U.S. and Europe drove the first wave of innovation in modern history," said Josef Stadler, Head Global Ultra High Net Worth, UBS. "But wealth generation is cyclical, and over the last few decades we have benefited from being on a strong arc of the cycle."
While members of the billionaire population typically exhibit similar character traits – namely, an appetite for clever risk-taking, an obsessive focus on business and a strong work ethic – they have built their wealth in different ways.
In the U.S., for example, the financial services sector was the top manufacturer of self-made billionaires (30%). The wealth per billionaire in the sector averages $4.5 billion.
By contrast, European (49.5%) and Asian (20%) self-made billionaires were largely created by the consumer industry in the last two decades. With an average wealth of $5.7 billion the European entrepreneurs are wealthier than the Asian ones ($3.2 billion) by far.
However, the self-made billionaire population in Asia is unique because wealth creation in the region is more recent than in other parts of the world. Asian billionaires are generally younger than billionaires elsewhere, having an average age of 57, which is 10 years junior to U.S. and European billionaires.
In addition, a significant proportion grew up in poverty (25%), compared to 8% in the U.S. and 6% in Europe. As a result of these factors, UBS and PwC anticipate Asia to be the center of new billionaire wealth creation going forward.
WEALTH PRESERVATION
Keep the business within the family, or cash out and move on?
More than two-thirds of global billionaires are over 60 years old and have more than one child, making the concepts of wealth preservation, wealth transfer and legacy top of mind. Wealth dilutes over time, especially as families grow, and as they age billionaires face the difficult decision of what to do with the businesses that made them wealthy: keep them or sell all or pieces of the enterprise.
"Billionaire wealth creation over the last two decades has been largely correlated to the financial markets, which have the ability to slow – or worse, turn – in an instant. Therefore, strategic planning is paramount to wealth preservation, whether it be via family offices, personal investing or any other means," said Michael Spellacy, Global Wealth Leader at PwC US.
The Billionaire Report found that most U.S. and European self-made billionaires choose to keep their businesses that built their wealth (60%), while one-third (30%) sell pieces of their business via an IPO or trade sale, while 10% cash out.
The majority of self-made billionaires that cash out become financial investors, investing on their own, seeking specific risk-return goals, and/or delegating investments to a family office or personal financial advisor. In Europe and Asia, billionaires are most likely to create a business dynasty, with 57% of European and 56% of Asian billionaire families, respectively, taking over the family business when the patriarch/founder retires. This scenario is far less likely in the U.S. (36%).
LEGACY AND PHILANTHROPY
Philanthropic giving on the rise, coalescing with legacy
Today’s billionaires have a growing interest in philanthropy, supporting education, health and humanitarian causes around the world. In particular, they tend to be focused on efforts that provide tangible, measurable results: knowing how many lives have been impacted by their donations, seeing improved health or living conditions, or financing of various causes through micro-lending.
In the U.S., "visible philanthropy," donated through institutions is popular. For example, more than 100 billionaires have joined Bill Gates’ "Giving Pledge," agreeing to donate more than 50% of their wealth, since its inception. UBS and PwC expect that the Giving Pledge and individual contributions will increase philanthropy in all forms over the next two decades.
