China drives global billionaire wealth to new highs
Josef Stadler, UBS
Entrepreneurship and the growing emergence of China were the biggest drivers of global billionaire wealth in 2017, which has reached almost $9tn
Total billionaire wealth grew by $1.4tn, or 19 per cent, in 2017, the greatest yearly increase ever, reaching a record $8.9tn, according to the annual UBS/PwC Billionaires Insights report.
Strong financial market performance helped drive this growth, says Simon Smiles, chief investment officer for ultra high net worth at UBS Global Wealth Management, as did strong corporate fundamentals.
“The obvious question for this year is whether that wealth will continue to grow? We are seeing a lot more volatile markets, concerns over trade wars and interest rates in the US, but despite all of those we think the underlying drivers of billionaire wealth mean we will continue to see aggregate growth this year,” he says.
Although both the US and Europe saw healthy growth, China enjoyed an exceptional year, with the country's billionaires expanding their wealth by 39 per cent to reach $1.19tn. There are now 373 Chinese billionaires, up from 318 in 2016, and 97 per cent of those are self-made entrepreneurs.
The explosion in the number of Chinese billionaires has been a recent trend, as there were just 16 of them as recently as 2006. Much of this is down to the rapid expansion of the country’s e-commerce and technology businesses.
“In the past, we saw Silicon Valley being the innovators and Asia copying them,” says Josef Stadler, head ultra high net worth at UBS Global Wealth Management. “But what we see today is China stopping copying and innovating and disrupting on its own. They are leapfrogging entire industries.”
In the past, we saw Silicon Valley being the innovators and Asia copying them. But what we see today is China stopping copying and innovating and disrupting on its own
While the US continues to have the largest concentration of billionaire wealth, at $3.1tn, the growth rate of 12 per cent was lower than the global average, and UBS predicts that China will overtake the country within the next three to four years. Western Europe grew by 19 per cent to reach $1.9tn, though much of this can be put down to the 15 per cent appreciation of the euro against the dollar.
A major finding of the report is that entrepreneurship is driving billionaire wealth, and that it is their businesses that are performing for them, rather than their investments. A major reason for this is that entrepreneurs are active in the “Fourth Industrial Revolution”, blurring the lines between the material, digital and biological worlds. Billionaires have driven almost 80 per cent of the 40 main breakthrough innovations over the last 40 years, according to the report.
And the next generation are proving equally adept at disrupting the old world order, with the perception that the children of billionaires simply spend their parents’ money simply untrue, insists Mr Stadler.
“We are seeing the emergence of what we call entrepreneurial families,” he says. ”The next generation, instead of going to the beach and spending money, are looking to outdo their parents. And not necessarily within the same industry.”
This is especially true in emerging markets, explains Mr Stadler, where children would feel “ashamed” if they were not to become entrepreneurs themselves. “It is competition for success, to show their parents they are even better than them.”
Billionaires also harbour a deep desire to do good in the world and to have a positive impact. This goes beyond philanthropy, insists Mr Smiles, rather it is happening within their own businesses.
“Including ESG improvements is something that is happening in their core businesses, not just to make a better world, but also to drive the bottom line. They are making money, and they are having a positive impact.”
The difficulty for these individuals is finding a way to have the same level of positive impact when it comes to their investment portfolios, he says, as the financial sector does not currently have the range of truly impactful products to invest in.
“The traditional exclusion based products, which don’t invest in tobacco or firearms for example, haven’t changed the cost of capital for those companies. There is no meaningful impact on society.”
It is up to the financial industry to respond to this shortfall by providing new products and services, says Mr Smiles.
One way for billionaires to boost the impact they have on society would be by taking the similar approach to philanthropy as they do to business, says Mr Stadler.
“These people can be ruthless in cost-cutting in their own businesses, but in philanthropy it is totally different. They forgive mistakes, they want to keep control and nurture it. If they were to apply the same tactics as they did in their businesses, the impact would be so much more. Today, philanthropic activity is very fragmented.”
