New billionaires getting rich via inheritance rather than entrepreneurship in ‘great wealth transfer’

A new wave of billionaires acquired more wealth through inheritance than entrepreneurship during the last year as a “great wealth transfer” picks up steam, a new report by UBS found.

“After the surge in entrepreneurial activity witnessed over the past few decades, many business founders are now ageing and passing their wealth to the next generation,” the Billionaire Ambitions Report 2023, which was published overnight Thursday in the US, said.

Fifty-three heirs received a total of $US150.8 billion ($229b), which is higher than the $US140.7b brought in by 84 new self-made billionaires, the report shows. This is the first time this has been the case since the report was first published in 2015.

And this is only the beginning. In the next 20 to 30 years, wealth worth around $US5.2 trillion is expected to be passed from one generation to another.

“The great wealth transfer is gaining significant momentum,” Benjamin Cavalli, head of UBS global wealth management strategic clients, told reporters in a briefing on Wednesday.

Overall billionaire wealth is recovering, with the number of billionaires being up by 7 per cent in the 12 months to early April of 2023, the UBS analysis showed. Some 2544 people were billionaires at the end of this period. Billionaire wealth rose by 9 per cent in this time and ended at around $US12t in nominal terms.

Generational differences

The transfer of wealth may however not be smooth sailing, a corresponding survey of UBS billionaire clients found as there are generational differences in opinion regarding wealth and legacy.

Sixty-eight percent of those surveyed said “that they aim to continue and grow what their forebears achieved” when it comes to questions around assets and businesses, for example, and 60 per cent said they wanted future generations to also benefit from the accumulated wealth.

“But they also have ideas and ambitions of their own — they appear conscious of the fact that they may need to reshape and reposition their wealth if they want to continue the family legacy,” the report said.

Technological changed and advances are part of this, as is the impact of global crises like the COVID-19 pandemic, climate change and wars around the world.

“More than ever families need to discover common values and purpose,” Cavalli said. These joint values then need to be “enshrined” into succession planning, he added.

Some of the generational differences include variations in risk appetite for example, the report said.

The first generation, those who created the wealth, prefer debt and fixed-income investing, which UBS said may be linked to the elevated interest rates. Later generations of the ultra-wealthy however appear to favor investing in private equity, despite and interest rate related repricing of assets.

Generational differences are also clear when it comes to philanthropy, with first generation billionaires being more likely to say having an impact is a key goal for them while their successors appear hesitant to give away money they did not earn themselves.

“However, there is a trend towards impact investing or managing businesses in ways that address environmental and social issues for both commercial and altruistic ends. This survey finding may reflect a shift among heirs away from classic grant-giving philanthropy and toward delivering sustainable outcomes across all activities,” the report explained.

Cavalli also noted that there is a “strong entrepreneurial theme” among heirs, who are increasingly stepping away from previous family businesses and forging their own paths.

The data shows that 57 per cent of heirs surveyed do not work in the family business, with 43 per cent getting involved at the C-suite level.

CNBC