How to make billions and keep it

A new report sheds new light on the story of great wealth – how it’s created, preserved and how it breeds philanthropy.

The UBS/PwC 2015 Billionaire Report, found that the past 35 years have been a period of extraordinary wealth creation by billionaires, with only the ‘Gilded Age’ at the beginning of the 20th Century bearing any comparison.

Then fortunes were created from industrial innovation, in sectors such as steel, cars and electricity – 917 self-made billionaires amassed fortunes of more than US$3.6 trillion.

“Now they are being made from the consumer industry, technology and financial
innovation in the US and Europe, as well as consumer products, globalisation, industrialization and infrastructure booms in Asia and other emerging markets,” it said.

The survey of 1,300 billionaires analysed data from the last 19 years across the 14 largest billionaire markets, accounting for 75% of global billionaire wealth.

Of the billionaires in-scope globally, with wealth of US$ 5.4 trillion (up by US$ 4.7 trillion from US$0.7 trillion in 1995), 66% were self-made billionaires, compared with just 43% at the beginning of the study period in 1995.

“Distinct personality traits allow creators of great wealth to thrive,” the research paper said. It identified three key personality traits of billionaires:

  • An appetite for clever risk taking
  • Business focus
  • Determination

“But while some highly visible entrepreneurs excel in risk taking and starting up businesses, they are often less good at running and scaling a business which explains why they often team up with strong partners. Others are able to both build and sell as they observe a niche that is not covered and fill it,” the paper said.

Billionaires tend to have had the benefits of experience and education. Almost half of self-made billionaires worked in a large company before making their breakthrough, while 82% have a college degree

And while self-made billionaires tend to launch their first ventures at a young age – few attain billionaire status before their 40th birthdays.

More than a fifth (23%) launched their first venture before the age of 30, while over two thirds (68%) launched their first venture before reaching 40.

A legacy

As this generation of self-made billionaires ages, they have to decide what their
legacies will be.

Almost two thirds of billionaires are over 60 years old and have to choose how to preserve
their achievements and to transfer their wealth effectively either to future family generations, to philanthropic causes or some combination of the two, the report said.

Without a clear and sensible governance and strategy, wealth can swiftly dilute over generations, through death, divorce and taxes.

Planning and structuring for the long term are critical, and some billionaires are setting up sophisticated structures (i.e. family offices) with the characteristics of private equity to safeguard their legacies.

“Increasingly, large billionaire families are held together through meticulously drafted charters dealing with critical governance issues,” the report said.

Philanthropy

Hundreds of billionaires have pledged their wealth to philanthropic causes.

“We expect an unprecedented wave of philanthropy in its many forms – foundations, endowments, socially-focused investing, the arts and education.

“Following the first big wave of US philanthropy at end of first Gilded Age’(Carnegie, Rockefeller), this can already be seen in the US with the most visible example being Bill Gates’ Giving Pledge, where more than 100 billionaires have pledged more than 50% of their wealth to philanthropic causes,” the report said.

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How to make billions and keep it