Scions of the world’s billionaire dynasties are more independent and more risk tolerant than their parents, a new study has found.
Analysis reveals a number of clear divides. Firstly, billionaires who have inherited family wealth are more likely to favour investment allocation to private equity than their more conservative wealth-generating parents.
They are also more likely to pursue a career outside the family business, signalling a desire to distinguish themselves in some way from their inherited legacy.
Secondly, there is also a divide between the attitudes of these next-gen UHNWs and their self-made counterparts. This is reflected in their investment preferences, with first-gens more likely to favour traditionally more stable asset classes with a view towards preserving the wealth they have created.
The shifting global billionaire population
The global billionaire population rose by 7 per cent in the 12 months running up to April 2023, rising from 2,376 to 2,544. Yet the global billionaire community is still smaller than its post-pandemic peak in 2021, when there were 2,686.
Fifty-three UHNWs attained ‘billionaire status’ in 2023, inheriting a total of $150.8 billion from their families. This compared to 84 first-generation billionaires, who gained a total $140.7 billion.
The amount of wealth inherited by billionaires has risen modestly since 2021, when 56 new billionaires together received $144.3 billion. However, over the past two years, there has been a steep drop in the number of new self-made billionaires. More than 360 were created in 2021, generating $782.4 billion from their business activities.
The report explains: ‘Subdued initial public offering (IPO) markets through 2022 and early 2023 contrasted with higher-than-normal levels of activity in 2020 and 2021, limiting the opportunities for entrepreneurs to monetise the value of their businesses.’
Next-gen billionaires have an increased appetite for risk
Of the 79 billionaires polled, a majority said that one of their main legacy objectives was to enable future generations to benefit from their wealth (65 per cent for first-generation wealth creators and 60 per cent for all other generations).
The UBS report also noted a different attitude to risk among newer generations inheriting wealth compared to their wealth-creating parents.
While first-gen business people were more ‘drawn to debt and fixed income investments’, suggesting a greater bias towards conserving the wealth they had created, their heirs expressed a greater appetite for investments in private equity.
The report notes: ‘Successor generations favoured private equity, despite repricing of some private asset valuations for a higher-rate environment. With an arguably longer investment horizon, more than half (59 per cent) are looking to raise direct private equity investments and almost as many (55 per cent) are looking to invest more in private equity funds.’
Understanding ‘fresh views’ around business and philanthropy held by the next generation of billionaires
The study also reveals an inter-generational shift in motivations towards wealth.
Analysing the 53 inherited-wealth billionaires in the study, UBS found that more than half globally were choosing to pursue careers outside for their family businesses (although in the Europe, Middle East, and Africa region, just over half were continuing with their family’s legacy). In the Asia-Pacific region, two-thirds of billionaires were stepping away from their family’s legacy.
‘Our analysis shows more than half of today’s 53 heirs choosing to step away – opting for careers more suited to their own ambitions, skills and circumstances,’ the report reads. ‘Among them, there’s a strong entrepreneurial theme, although a few have also become philanthropists’.
Advisers must understand these independent risk-takers
With more than 1,000 billionaires expected to give over $5 trillion cumulatively to their children over the next two to three decades, it is important for UHNW advisers to understand the ‘fresh views about business, investment and philanthropy’ held by the rising generation, Benjamin Cavalli, UBS’s head of global wealth management strategic clients, wrote in the report.
Cavalli explained: ‘Many are redirecting the large pools of private wealth they control to new business opportunities arising from the times we live in. Others are stepping away from their families’ businesses, choosing careers more suited to their individual ambitions and talents.’