Billionaire-controlled wealth companies have dropped globally for the first time in 15 years, according to the 2019 UBS and PwC Billionaires Report. Asena Değirmenci takes a closer look at the findings.
In the five-year period leading to 2018, global billionaire wealth reached a total of $8.5trn, $2.2trn higher than five years earlier.
Approximately 589 individuals became first-time billionaires during this period, increasing the billionaire population by 38.9% to 2,101.
Despite a strong five years in billionaire wealth, however, wealth creation halted in 2018, resulting in equity markets around the world suffering their worst correction since the 2008 financial crisis.
Billionaire wealth dipped by 4.3% globally, equivalent to $388bn, in 2018, following five years of growth during which it grew by 34.5%. A strong US dollar, trade friction, fears of lower economic growth and financial market volatility all played a factor in the 2018 billionaire wealth drop. After five years of growth, overall billionaire wealth saw a decrease of $8.5trn.
UBS Global Wealth Management’s head of UHNW, Josef Stadler, says: “The billionaire boom of the past five years has now undergone a natural correction. The stronger dollar, combined with greater uncertainty in equity markets amidst a tough geopolitical environment, has created the conditions for this dip.”
Despite the pause in wealth creation over the past year, Stadler does not see this dip as an overall trend. He explains a couple of the main reasons the dip occurred in the first place, and why billionaires are losing money.
Stadler says: “Overall, the trend will remain positive. However, there are two main reasons for the fall in billionaire wealth in 2018. Firstly, equity markets around the world suffered their worst correction since the 2008 financial crisis, which affected all investors. Secondly, the translation effect of a strong dollar, which climbed 4.3% over the period, adversely impacted wealth denominated in most other currencies. For example, the Chinese yuan depreciated by around 6% against the US dollar.”
In 2018, the number of billionaires fell by 2.6% or 57 – with the majority of those dropping out of the list coming from China and India. Political tensions between the US and China in 2018 also challenged the market and created trade friction, resulting in fears of lowering economic growth.
Economic activity is now shifting towards Asia, where the region’s billionaires saw one of the largest dips, following five years of significant growth, in which their wealth almost quadrupled.
Over the last five years, China’s entrepreneurs have become the world’s second-largest billionaire group, overtaking Russia. Wealth grew from 202.6% to reach $982.4bn, but in the last year China was particularly affected as billionaire wealth fell the most in the Asia-Pacific region.
Chinese billionares’ net worth dropped by 12.3% in 2018, with the number of billionaires falling by 48 to 325. Around 6% deflation of renminbi against the US dollar accounted for half of the decline, as currency markets feared the repercussions of deglobalisation.
According to the UBS/PwC Billionaires Report 2019, 103 people’s wealth dipped below $1bn, while only 56 made the threshold.
In contrast, US wealth increased slightly in 2018, with 33 new millionaires added during the 12 months. In the last five years, almost a third of the growth in billionaire wealth can be credited to the help of tech billionaires, and more than half of that growth can be attributed to tech billionaires in the US.
US tech billionaires saw their wealth increase by 3.4% ($1.3trn), more than any other sector. This finding is hardly surprising given that tech net wealth grew by 91.4% – nearly doubling in five years – through software, internet and electronic equipment entrepreneurs.
By the end of 2018, there were approximately 89 US tech billionaires – up from 70 in 2017. Ten of the top 20 tech billionaires hail from the US, with four coming from China.
Even though the past year has faced slow growth, billionaire wealth is over a third higher (34.5%) than five years earlier, equating to an increase of $2.2trn.
Stadler says: “It’s clear that billionaire businesses continue to thrive. Billionaires are creating and steering businesses that consistently outperform equity markets.
“This business acumen has also translated into their philanthropy, as billionaires seek new ways to engineer far-reaching environmental and social change. This ‘billionaire effect’ is alive and well across the world – and shows little sign of slowing.”
In terms of whether or not there was anything surprising about the findings, this year was the first time that UBS and PwC looked at the performance of billionaire-controlled companies, and Stadler notes some key findings that he found particularly interesting.
He says: “We have found that they have consistently outperformed the global benchmark over the past 15 years, delivering almost double the returns of the MSCI AC World Index. We also found that billionaire-controlled companies, both public and private, delivered a return on equity of more than 16% over the 10 years to the end of 2018, again beating the MSCI AC World Index, which averaged slightly over 11%.”
The report also mentions that a small subset of billionaire businesses target growth in capital value rather than profitability. Moreover, billionaire businesses continue to be more profitable than non-billionaire-controlled ones.
The Billionaire Effect
The billionaire effect has been largely evident during the five years to the end of 2018. Despite the overall dip in wealth, the Billionaires Report 2019 reveals that billionaire businesses are continuing to thrive.
The billionaire effect can be attributed to smart risk-taking on the part of billionaires, and their long-term strategies that shift between performance and management incentives.
When it comes to taking risks, billionaire entrepreneurs are confident and have an optimistic approach. The report also notes that they share three personality traits: being determined, being smart risk-takers and being business-focused.
Findings from the report reveal that billionaire companies listed on equity markets returned almost twice the average market performance over the 15 years to the end of 2018. They also outperformed the global benchmark by 8.7%.
PwC Switzerland partner and Swiss head wealth management Marcel Tschanz says: “First the EU action plan for Sustainable Finance, then the UN Sustainable Development Goals (SDGs) have shown the world how individuals and institutions are expected to foster sustainability.
“The broad public, however, is just catching up with our self-made entrepreneurs, who in the past years have transformed, innovated and become more strategic in their ways of doing good.”
“Even if all the billionaires donated their total aggregated wealth of $8.5trn, they would not bridge the SDGs’ yearly funding gap, estimated at $7trn. Billionaires have taken up their responsibilities, and a growing number of them are active in tackling world epidemic issues. It is up to all of us now to follow the billionaires’ leadership role and raise the power of technology and push for change.”
Despite the findings from the Billionaires Report 2019, which communicates the wealth dip in the past year, billionaire entrepreneurs are less worried than one may assume.
Stadler says: “Billionaires won’t be unduly concerned by one dip in the context of exceptional wealth growth over the past five years. They are focused on the future success of their business rather than short-term fluctuations in wealth.”
Another quality of billionaire businesses is that they are known to be highly innovative and resilient towards failures and roadblocks. These entrepreneurs typically pursue long-term strategies that result in market outperformance and successful enterprises.
Despite billionaire entrepreneurs being pragmatic about operating in all economic and market circumstances, escalating trade friction and an aging economic cycle are creating a future that is turning out to be less than certain.
Turning to what is being done to safeguard growth in billionaire wealth, Stadler notes: “One of the inevitable challenges of the level of risk-taking by billionaire entrepreneurs is that, naturally, there are losers just as there are winners.
“But billionaires are highly resilient. They are focused on long-term success rather than short-term fluctuations in wealth. Their constant focus on their business, determination and boldness means that they are well positioned to capture new opportunities going forward.”
Whether or not this trend is likely to be ongoing, billionaire activity continues to grow, especially following the accumulation of wealth over the past 30-40 years.
Stadler concludes: “This year’s dip needs to be seen in the context of the wider trend we have seen over the past 15 years – namely, exceptional wealth growth. Even if we see a few years of slowing growth, there has been a huge structural shift over the period in terms of the scale and geography of wealth. We don’t expect this to reverse anytime soon.”
What can be concluded from the UBS and PwC report is that the billionaire effect will continue to generate increasing levels of billionaire activity – despite entrepreneurs experiencing a period of slowing growth.