Keeping The Wealth In The Wealthy

A new report finds billionaires struggle to hang on to their wealth, and especially to keep it in the family.

With great wealth comes a burden of keeping it. Last year, the net worth of 1,400 billionaires worldwide that are being tracked in a study declined for the first time in a decade—to $5.1 trillion. And while 210 people rose to the rank of billionaire, 160 billionaires retreated to mere millionaire level.

Billionaires around the world are feeling the pressure of losing that comma in their net worth. According to a study just released by UBS and PricewaterhouseCoopers, about 70 percent of billion-dollar inheritances decline to the millionaire level in a single generation, and roughly 20 percent drop into millions by the end of the second generation.

The ultra-rich elite doesn’t need to panic—not just yet. Over the last two decades the wealth of billionaires has increased almost eightfold, from $0.7 trillion in 1995 to $5.4 trillion in 2014. The long bull run made it all the more unnerving to see the assets of the billionaires tracked in the study, who collectively account for 75% of global billionaire wealth, fall this past year.

“One year doesn’t make a trend, but two potentially could,” says John Mathews, head of ultra-high-net-worth clients at UBS Wealth Management Americas. Whereas it is difficult to predict the impact that Brexit and US elections will have on billionaires’ wealth this year, commodity price deflation and an appreciating US dollar represent significant headwinds.

Anyone who wants to be—and stay—a billionaire should also take a look at their passport. According to the report, 113 of the 210 new billionaires hail from Asia, where a new billionaire is created every three or four days. Chinese nationals are particularly in luck: 80 of them, average age 53, attained billionaire status last year. But the wheel of Fortune turns. In 2015, twice as many billionaires in Asia (80) fell back into millionaire obscurity than in Europe (44) or the US (36).

“While it may not be the best at creating great wealth, Europe has proved the best at keeping it,” the study’s authors conclude. With the greatest number of multigenerational billionaires (concentrated especially in Germany and Switzerland, but also Spain and Italy), the region’s “old” (meaning inherited) wealth remained broadly the same at $1.3 trillion in 2015—down just 3%. Their counterparts in the US and Asia saw “old” wealth fall by 6%. Most importantly, 54% of European fortunes have been handed down to no less than four generations, compared to only 33% in the United States and 15% in Asia.

UBS and PricewaterhouseCoopers estimate that about 500 people will leave more $2.1 trillion to their heirs in the next 20 years. Business risk and dilution are the greatest threat to these assets. Europe’s old legacies, suggests the report, should be a model of wealth preservation for new billionaires. The recipe? Priming the younger generations to manage the family businesses, and doing well by doing good through philanthropy and by delivering benefits to employees, customers and society at large. The best way to maintain wealth, the research suggests, is to share it widely.