Billionaires: Master Architects Of Great Wealth And Lasting Legacies by PWC
Great Wealth – The Big Picture, A Century Of Experience
In the story of great wealth creation, this is certainly the case. At the beginning of the 20th Century, a small number of US and European entrepreneurs took advantage of new industrial technologies to drive forward some of that century’s greatest innovations. In the process they amassed great fortunes. Almost one hundred years later, the cycle is happening again, only this time it’s innovation in technology and finance, the economic rise of emerging markets, and inflating asset prices which have fuelled extraordinary wealth generation.
According to most historians the first ‘Gilded Age’ lasted from 1870-1910. In this period, a few businessmen built the organizations that industrialized innovations, bringing us for example the car, steel and electricity. Over the past 35 years, US entrepreneurs have taken advantage of new technologies to create the internet and its ecosystem. They have leveraged new opportunities in finance to launch hedge and private equity funds. Globally (and in Europe especially), the consumer industry has been a major driving force behind great wealth creation. Asia and other emerging market entrepreneurs have responded to globalization by building mega-cities, powered and connected by new infrastructures. Appreciation of asset prices over the last decades has driven billionaire wealth across the globe, whether through real estate or assets such as art and intellectual property.
The people pioneering such great economic change have benefited most. In the past 19 years alone (1995-2014), 917 self-made billionaires have created in excess of US$3.6 trillion of wealth. In emerging markets, there were relatively few billionaires before this period. Now the billionaire entrepreneur is an established phenomenon and China, for example, has created a significant share of the world’s self-made female billionaires.
We believe that, like economic growth, great wealth creation has cycles. Wealth creation tends to move in S-curves, rather than growing linearly. At the end of the first ‘Gilded Age’, economic depression, higher taxes and the emergence of large public companies suppressed the opportunities for creating great wealth. The ‘entrepreneurial age’ yielded to a ‘managerial economy’ phase which lasted 50 years (1930-1980). In this time, a few big, established companies dominated economies leaving little room for entrepreneurialism. Consequently, we believe that current growth in great wealth cannot be extrapolated out forever with any certainty. In our opinion, current extreme growth is likely to level off in the next 10-20 years, although Asia’s economic momentum may signal that the cycle lasts longer there than in the US.
Two developments that may hinder the growth of great wealth are slowing economic growth in emerging markets (especially in the BRIC countries) and the significant share (approximately two thirds) of the current generation of billionaires that is in the corridor of wealth transfer (i.e. are over 60 and approaching the time when it is prudent to plan their legacies). As our data shows (see chapter three), once wealth gets handed over to the next generation it tends to fragment and dissipate rapidly.
Beyond these factors, there are a number of others that may slow down the entrepreneurial era. Rising inequality concerns may spur punitive rises in wealth/inheritance taxes (which are under discussion in countries such as the US, Germany and Switzerland). Regulators in some regions are looking into reining in monopolistic market structures (e.g. the EU’s investigations into technology firms), echoing restrictions that helped to end the fi rst ‘Gilded Age’ (e.g. US Sherman Anti-Trust Act).
Centered mainly on the US and Asia
In just a short 35 years, the second ‘Gilded Age’ has turned the world’s billionaire population upside down. Until 1980, the overwhelming majority of billionaires lived in the US and Europe. What’s more, in 1996 only approximately 45% of US billionaires and 25% of European billionaires were self-made. In the last decade, the US and Asia have become the main centers of great wealth creation, with Europe faring less well. Many billionaires have crystallized their wealth by listing businesses they have created on stock exchanges, and then sold down their shares periodically to gain portfolio diversity.
Of the more than 1,300 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 our study period in 1995. Most of these new billionaires are based in the US, where 47% of the in-scope selfmade billionaire wealth was resident in 2014. But Asia’s entrepreneurs, too, have participated in this entrepreneurial explosion. Asia’s billionaires account for 36% of self-made billionaire wealth, pushing Europe into third place as a location for great wealth, with just 17% of the self-made billionaire population.
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