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Billionaires face up to life's changes

Wednesday, February 24, 2016 - 05:50

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As Asian billionaire families grow in size and complexity, succession planning and the engagement of the second generation have become increasingly important, explains Mr Poon.

IN our latest UBS Billionaires Insights 2015 report entitled "The Changing Face of Billionaires", we undertook a global survey of 1,300 of the world's wealthiest people. They are based in 14 largest billionaire markets that account for three-quarters of the world's total billionaire wealth. We found a number of interesting trends.

Over the last two decades, global gross domestic product (GDP) has more than doubled from US$30 trillion to over US$77 trillion, but the total wealth of the billionaires in our study has increased eight-fold, from US$0.7 trillion to US$5.4 trillion.

It has been 20 years since our first survey and, since then, the wealth of the average billionaire has risen from US$2.9 billion to US$11 billion.

One key survey finding was a noticeable increase in the number of female billionaires. Their number has increased six-fold since our survey began, compared to a five-fold increase in the number of male billionaires.

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Within Europe and the United States, female billionaires have mostly inherited their wealth (93 per cent have done so in Europe, compared to 81 per cent in the US). However, almost a fifth of US female billionaires are self-made, compared with just 7 per cent in Europe.

Asia's fast-growing economies have led to a small but increasing number of female entrepreneurs who have created billion-dollar legacies.

Over the past 10 years, Asia's female billionaires have grown by a factor of 8.3, from just three in 2005 to 25 in 2014, versus a factor of 2.7 in Europe and 1.7 in the US.

Female billionaires in Asia make up almost one-fifth of the global female billionaire population and generally are younger than their global counterparts. By contrast, in Europe and America, females are mostly multi-generational billionaires (93 per cent Europe, 81 per cent US); however, they are also playing much-stronger roles than previous generations within their families.

In this study, the three leading sectors where these women billionaires have made their wealth from are real estate, industrials and health. We expect this rapid growth in female wealth and entrepreneurship to continue. Many female billionaires have inherited fortunes from their fathers as well, and followed in the footsteps of the region's pioneering entrepreneurs. There are a number of factors for the emergence of female billionaires beyond the matter of inheritance. Nowadays, there is greater gender equality in business, and better education and training for women.

The big picture for billionaires over 20 years is a volatile one, characterised by business fluctuations and human mortality.

During the last two decades, 1,221 new billionaires have emerged and now appear on our list. Less than half of the billionaires surveyed in 1995 made the list in 2014. The majority of those names absent have passed on. With over two-thirds of today's billionaires over 60, key decisions about wealth transfer have to be made.

Over three-quarters of current billionaires have two or more children. To avoid wealth dilution as the next generation and subsequent generations grow larger, a clear wealth preservation strategy is required to ensure the creation of lasting legacies.

Asia's billionaires make up 36 per cent of self-made billionaire wealth, overtaking Europe for the first time and second only to the US. As Asian billionaire families grow in size and complexity, succession planning and the engagement of the second generation have become increasingly important. When complex assets and businesses are at stake, it is important that business families engage their young generation early. This would facilitate a systematic process and create a framework that allows for continuity beyond the third generation.

To start the family succession planning process, one would usually begin by identifying shared values and a common vision for the future, both for the family and the business. Next, one would examine the various areas where family members could be engaged in the family's enterprise and create transparency on roles and responsibilities. One would also need to examine the ownership of assets and groom the young generation to be responsible owners in future. The final step is putting the principles into practice to ensure fairness and transparency in decision-making.

To facilitate a smooth family business succession, many business families are collaborating with professional family office set-ups. We find that when properly resourced, a family office becomes an important aid to navigate the challenges of creating and preserving family wealth.

  • The writer is head, UHNW SEA, UBS Wealth Management
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