Private View Blog: Billionaire’s wealth surges as world suffers

The pandemic is having a devastating impact on poverty levels, but has proved a bonanza for the ultra-wealthy, who got richer in this year’s market upheavals and profited from the accelerated shift to digitalisation and growing demand for healthcare innovation.

Billionaires saw their fortunes surge to $10.2tn at the end of July, following the summer market rally. Their combined wealth has more than tripled over the past decade, and has exceeded the previous peak of $8.9tn reached at the end of 2017, according to the recent UBS/PwC Billionaires report.

There are 2,189 billionaires today, up from 969 in 2009. While US billionaires hold a third of total wealth ($3.608tn), Chinese tycoons grew fastest, their wealth rising 12 times to $1.68tn over the past decade, versus 2.7 times for the US ultra-wealthy.

But soaring wealth highlights rising inequality, increasingly calling into question the role of high profile billionaires. Covid-19 could reverse 30 years of progress made fighting global poverty, warns the International Monetary Fund (IMF). Ninety million people could be plunged into “extreme" poverty this year, falling below the $1.90 a day income threshold, while the crisis will cause “lasting damage” to people’s living standards across the world.

Ironically, even among the ultra-rich the pandemic has accelerated the divergence seen in 2018 and 2019. Innovators and disruptors, mainly found in the tech, healthcare as well as industrial sectors, are pulling ahead. Traditional billionaires, who operate in less dynamic sectors such as real estate, entertainment and financial services, are becoming less wealthy, according to the UBS/PwC report.

“When the storm passes, the new generation of billionaire innovators looks set to play a critical role in repairing the damage,” says the report. “Whether intentionally or not, this has the potential to help bridge financial, social and environmental deficits.”

When it comes to managing their wealth, billionaires “did well” during the crisis, because they had stayed “disciplined and focused” in their investment approach, explains Josef Stadler, head UHNW at UBS Global Wealth Management. They kept their asset allocation intact, rebalancing their portfolios when the stockmarket plunged in March and April, to then sell when it rebounded. “Billionaires are significant risk takers, and they take more and more calculated risk than others. Not everybody has the stomach or the appetite to do so.”

But given the magnitude of government support packages deployed to fight the pandemic, the remarkable accumulation of wealth in the hands of a small minority is ramping-up pressure to tax the rich and their heirs. The IMF anticipates that governments may need to consider raising progressive taxes on more affluent individuals, including increasing tax rates on higher income brackets, high-end property, capital gains and wealth.

“We are on the verge of a tax revolution ­– in global corporate tax, digital taxes and potentially a wealth tax in the US,” believes Mike O'Sullivan, author of ‘The Levelling’ and former CIO International Wealth Management at Credit Suisse.

Social or political unrest may increase as wealth inequality deepens, but this is very culturally dependent. “While in some countries, it is acceptable to be prominently rich, the issue is really whether there is an economic downturn which makes people more sensitive to wealth, and whether politicians can deal with this in a constructive way,” says Mr O’Sullivan.

 There is a risk that billionaires may be “singled out”, they are aware of this, and they will “contribute their fair share”, says UBS’ Mr Stadler.

More than half of billionaires expect new wealth taxes and increases in direct taxation, and are changing their approach to tax affairs, according to a survey of partners working with billionaires at PwC. The pandemic is also driving the great majority of them to accelerate succession planning, with most reviewing their business strategy too.

In a post-Covid world, which is going to be more indebted, more digital and less global, governments will adopt a mix of higher taxation, financial repression as well as moderately higher inflation, says the UBS/PwC report. While a higher taxation is a “headwind” to all billionaires’ fortunes, “it is unlikely governments will levy the super wealthy to balance budgets, as taxes on wealthy are often unpopular with the electorate and don’t raise significant amounts”. Stealth taxes such as financial repression – keeping interest rates on savings below inflation – are believed to be more effective, steadily repairing government finances.

The pandemic has proved to be a powerful catalyst for billionaires to reassess their role and values and re-think their own and their family's future, states Marcel Tschanz, head of banking advisory, PwC Switzerland. “Many have acknowledged the fragility of their achievements and are now laying more focus on securing long-term stability, sustainability and eventually leaving a legacy for their families, their enterprises and society.”

Their philanthropic efforts to tackle the pandemic may be an indication of this new mindset, with 209 of them publicly committing a total of $7.2bn between March to June 2020. This is “the greatest amount billionaires have given in a short space of time, ever”, according to the UBS/PwC report. While this may be just a fraction of their overall net worth, actual donations are likely to be much greater, “given a tendency towards discretion”.

Yet, while a small group of ultra-wealthy stand out as maximising their net impact across all activities, including philanthropy, their business and investments - billionaire-controlled companies generally do not fare well when measured on ESG factors. The 494 billionaire-controlled publicly listed companies scored by UBS in terms of sustainability achieved got 3.1 out of 10, as average score, compared with an average of 5.2 for the MSCI AC World Index stocks.

In this unprecedented healthcare emergency, which has caused the worst economic crisis since the Great Depression of the 1930s, where hundreds of millions of individuals are enduring job losses and shrunken incomes, bankruptcies are swelling and entire sectors of the economy are struggling, public opinion around billionaires is bound to polarise even more. Tycoons are certainly loved by their private bankers, but it remains to be seen whether in a post-Covid world, as business innovators using emerging technologies, they will be up to their role of “rebuilders”, and be able to drive efforts to repair the increasingly more dramatic environmental and social deficits.

Elisa Trovato is deputy editor of Professional Wealth Management. Follow her on Twitter  @elisa_trovato 

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