The rich are different, we are told. So what does a typical billionaire look like? Is he or she a 30-something Californian in chinos and trainers or a third-generation East Coast sophisticate? Maybe a European industrial magnate or an Asian shipping tycoon?
Some real-life billionaires fit these descriptions, but the billionaire profile is changing significantly.
To find out how the dynamics of the ultra-wealthy are evolving, UBS commissioned PwC to study the large global markets that account for 75% of all wealth. We looked at data for over 1,300 billionaires in 14 countries to see what has been happening since 1995.
The study busts some myths. For instance, the study found that 90% of self-made billionaires have a college degree—indicating that Bill Gates dropping out of Harvard before founding Microsoft was a career move that would-be tycoons may not want to emulate.
The study also found that half of the billionaires have worked for a big company. Moreover, most of them have taken on partners while on their road to riches.
Over the last 20 years, global GDP has more than doubled, from less than $28 trillion to over $77 trillion. Billionaires have significantly increased their wealth in that time, adding $4.7 trillion in the markets we looked at.
Self-made entrepreneurs make up two-thirds of billionaires, up from well under half in 1995, and they’ve accumulated an even larger share of the wealth accumulated by billionaires—75%, or $3.6 trillion.
The geographic composition of the billionaire cohort is also changing. For most of the 20th century, billionaires were almost exclusively an American and European club. The last 20 years have seen a major shift, with Asian billionaires now accounting for more than a third of the entrepreneurial billionaires.
This is no surprise given the unprecedented growth rates we have seen in many Asian countries. And given that Asia and other emerging markets will continue to grow faster than the global average, that trend should continue. Indeed, in the first three months of this year, we saw almost one billionaire a week being created in China.
The U.S. accounts for around half of the new entrepreneurial billionaires. But technology is not the main source of this wealth, as you might think from all the media attention given to Silicon Valley and figures such as Gates and Facebook founder Mark Zuckerberg.
The financial services sector is actually number one in billionaire creation, followed by technology and consumer industries. Given the U.S. contains by far the largest pool of wealth globally, this is no surprise. America’s global leadership in both technology and financial services also means we shouldn’t expect U.S. dominance of billionaire status to change anytime soon.
In Europe, half of all billionaire wealth has come from consumer industries, with no other sector accounting for more than 10%. Interestingly, it is the only region where the health-care sector appears in the top four, perhaps reflecting the aging of the continent.
In Asia, the massive impact of urbanization can be clearly seen, as the top three sectors are materials, consumer services and real estate. These sectors could change, however, as mass consumer markets arise across Asia.
Perhaps the single-most important issue for billionaires is what they will do with their wealth. Two-thirds of the billionaires we looked at are over 60. Ninety percent of them keep 30% to 60% of their businesses, and only 10% sell them off completely—a clear sign that family business and legacies go hand in hand.
We can also see clear regional differences in how intergenerational transfer will happen. Wealthy families in Asia and Europe are much more dynastic, with close to 60% of the next generation involved in the business, compared to less than a quarter in the U.S.
The study indicated emotional enrichment is more important than financial enrichment for many families, with U.S. billionaires the leaders in giving a majority of their wealth away. Fifteen percent of U.S. billionaires have done this, compared to less than 3% in Europe and 1% in Asia.
Billionaires face two great challenges today, one personal and one external. First, they want to ensure their legacy reflects their personal goals through the effective use and transfer of their wealth. This has profound implications for how wealth managers create value for their clients.
Second, over the last decade, billionaire wealth has become closely correlated to financial market performance. If we are living in a time of inflated assets driven by central bank liquidity, any reversal would have significant impact on billionaire wealth.
If these trends continue, billionaires will create great wealth earlier in their careers and more of them will be self-made. A higher proportion will be from Asia and other developing markets and a higher proportion will be women.
There will also be a massive transfer of wealth over the next two decades, and we will see the emergence of a new wave of successful multigenerational family businesses arising from today’s self-made billionaires. Billionaires are here to stay, but as a group, they are changing.
John Mathews is head of private wealth management at UBS.
