Across the global UHNW population as a whole, there has been a steady upward trend over the past five years in the share of individuals who have created their own wealth (the “self-made”). This reflects a range of factors, such as the flood of central bank liquidity into global capital markets; expanded opportunities for private enterprise in many emerging markets; new channels of wealth creation from accelerated digital adoption; and evolving societal trends shaped by the pandemic. This recent expansion of self-made wealth has been a feature across the ultra wealthy population as a whole, set against a modest decline in the proportion of solely inherited fortunes.
Topic of the week
Big news this week (apart from FTX meltdown) is the annual report, published by Altrata using Wealth-X data.
The first World Ultra Wealth Report published by Altrata provides in-depth analysis of the ultra high net worth (UHNW) population — an exclusive group of wealthy individuals located across the globe, each with net worth in excess of $30m.
The report explores the distribution of wealth among the global rich, and examines the considerable wealth enjoyed by the ultra wealthy demographic. It shines a spotlight on the characteristics of ultra wealthy women who account for a rise of sharing of wealth.
It shines a spotlight on the characteristics of ultra wealthy women who account for a rise of sharing of wealth. It also explores their philanthropic giving, and, using insights from RelSci (an Altrata company), for the first time, the report compares political donations among ultra wealthy men and women in the US.
The wealthy by tier
A breakdown of the HNW population by major wealth tier highlights the uneven nature of the distribution of global wealth, even among the world’s richest people. Almost 90% of all HNW individuals have a net worth of $1m-$5m. Unsurprisingly given their considerable number, the combined wealth of this group is the largest of the three major tiers, at $56.6trn (equivalent to a 42% share of global HNW wealth).
However, above the $5m threshold, the level of exclusivity rises quickly, as does average net worth. One in every 10 of the world’s millionaire population is classed as a VHNW individual, with personal wealth of $5m-$30m. The third major wealth tier comprises the much smaller cohort of UHNW individuals, each with private wealth in excess of $30m.
The uber-rich represent just 1.2 percent of the larger high-net-worth (HNW) population, which is composed of roughly 34.2 million individuals with net worths in excess of $1 million, yet accounts for 31 percent of this group’s total wealth.
As is the case with society in general, the uneven distribution of global wealth is evident among the UHNW population. The two lowest UHNW wealth tiers — $30m-$50m and $50m-$100m — account for almost 80% of the global ultra wealthy population but only around a third of its cumulative wealth, highlighting the trend of a large share of a cohort’s population falling within the lower wealth tiers.
Those individuals in the next three tiers, each with a net worth of $100m-$1bn, compose a fifth of the ultra wealthy population, whereas their share of UHNW wealth is twice as large (at around 40%). Right at the top of the ultra wealth pyramid, the billionaire class represents under 1% of the global UHNW population – yet it holds over a quarter of all ultra wealth
In the first half of 2022, the global ultra high net worth (UHNW) population fell by 6%, to 392,410 individuals.
This represents a sharp reversal from 2021 and the first downturn in UNHW numbers since 2018, as wealth portfolios were hit by shockwaves across the global economy, triggered by the war in Ukraine. Following historical highs in recent years, combined net worth fell by 11%, to $41.8trn.
Of particular note since the beginning of 2022 is the pace and scale of the shift in sentiment and policy in many large economies. At the turn of 2022, the general tone had been one of cautious optimism, anticipating a strengthening post-virus global recovery and further expansion of wealth portfolios, against a backdrop of rising confidence, released household savings, renewed investment, and with capital markets still flush with liquidity from the pandemic.
Largely ignored, however, were the fiscal and inflationary pressures that were building after the unprecedented intervention and supply-side disruption of the previous two years, which were then sharply increased by the fallout from Russia’s invasion of Ukraine. Global central banks are now having to rein in surging inflation, amid constrained global-supply capacity, reduced household purchasing power, faltering demand and deteriorating sentiment. It will be a bumpy road ahead.
Women account for only 11% of the UHNW population, but this proportion is gradually rising.
UHNW women are, on average, far more likely to have inherited at least some of their wealth; and have a greater interest (or be working directly) in philanthropy. Asset allocation also differs between ultra wealthy women and men: real estate and luxury goods, which account for 13% of all assets among UHNW women, is three times greater than the allocation among their male counterparts. Wealthy women prefer collecting blue-chip art and high-end jewelry whereas men opt for luxury yachts and private jets. Ownership of a secondary residence worth more than $5 million is common among both sexes. The report also found that wealthy women have a greater interest in philanthropy. In the US, women in this exclusive demographic make larger political donations than their male counterparts. On average, female donors gave $134,100 between 2018 and 2021, while male donors gave $125,000.
China was the only major wealth market to see a rise in its UHNW population.
Ultra wealthy numbers in the world’s second-largest UNHW country rose by 2.3% over H1 2022. The US was one of three countries (the others being Japan and France) in the top ten to record a double-digit fall. North America, which is the world’s largest ultra-wealth region, saw a decline of almost 10 percent to 134,530 individuals. This was the most significant fall in any region and is at odds with the growth the country has experienced over the past two years. According to the report, the main hit to America’s rich came from a slump in capital markets that was spurred on by aggressive policy tightening by the Federal Reserve. Meanwhile, the Middle East and Africa saw a rise of 7.4% and now accounts for 5.5% of the global UHNW population. Latin America and the Caribbean also saw an increase in their ultra-wealthy population by 5.1%
UHNW cities
The top ten cities accounted for 18.5% of the global UHNW population in the first half of 2022. This share has followed a gradually rising trend over the past decade but, since the beginning of 2022, a number of leading UHNW cities have registered a sizeable fall in ultra wealthy numbers, bringing down slightly the share of the top ten. This was notably the case for Tokyo and several wealth centers in the US. On average, the UHNW population across the top ten cities declined by 8% in the first half of 2022, outpacing the 6% drop in the global ultra wealthy class.
The data reveals that Hong Kong slightly extended its lead over second place New York as the city with the highest UHNW population, although both recorded declines. In general, wealth portfolios in Asia’s largest financial center were slightly less exposed to the severe equity-market slump than were the ultra wealthy class in the US. The UHNW populations of Hong Kong and New York are approximately twice the size of that of third-ranked Los Angeles, underlining their prominence.
US cities dominate the ranking, while China and Germany do not feature. Reflecting its status as the world’s largest UHNW market, the US accounts for six of the top 10 cities (as well as four of the next five in the rankings), with two each in Europe and Asia. The world’s second- and third-largest UHNW markets, China and Germany, have no city representation; this is explained by their stock of private wealth being dispersed more evenly across domestic urban centers than is the case in most other leading UHNW markets.
London was the only top city to record an increase in its UHNW population. Despite a steadily weakening macroeconomic backdrop in the UK, UHNW holdings were underpinned by real-estate gains and other structural aspects of the economy that remain firmly geared towards preservation of ultra wealth. Outside of the top ten countries, Shanghai (19th) was the next highest-ranked city to see an expansion of its UHNW population over the first half of 2022.
Source of wealth
Across the global UHNW population as a whole, there has been a steady upward trend over the past five years in the share of individuals who have created their own wealth (the “self- made”). This reflects a range of factors, such as the flood of central bank liquidity into global capital markets; expanded opportunities for private enterprise in many emerging markets; new channels of wealth creation from accelerated digital adoption; and evolving societal trends shaped by the pandemic. This recent expansion of self-made wealth has been a feature across the ultra wealthy population as a whole, set against a modest decline in the proportion of solely inherited fortunes. However, stark differences persist between the two genders in terms of the prevalence of self-made wealth and the role of inheritance.
Philanthropic causes
Whether influenced by global developments, personal motivations or local issues, UHNW philanthropic donors have a wide range of options in terms of charitable causes keen to accept their donations and involvement. However, there are a number of areas that consistently attract the largest shares, and this fairly stable pattern is reflected in the very similar listing of favored causes among UHNW men and women.
For both groups, education is the most popular field for benevolent donations, followed by arts and culture, social services, and healthcare and medical research. These four areas have been the main focus of ultra wealth giving for some time, but given climate-related developments and rapidly shifting policies in many countries, the environment, conservation and animals, which is currently the fifth-ranked category, will almost certainly attract an increasing share of donations in the years ahead.
Which asset classes offer a hedge against inflation?
Preqin had asked two asset managers and an its own analyst how they view the impact of inflation, and the types of assets that can provide a hedge for investors.
Yang Liang Chua, Head of Group Research and Analytics at ARA Asset Management
Aside from Japan and China, the rising inflation has led many central banks in Asia to tighten their monetary policies. APAC economies also shifted to a low gear, dragged down by deteriorating global demand, supply chain issues, rising recessionary fears, and tightening financial markets. APAC’s manufacturing PMI has been weakening, with only Indonesia bucking the trend. According to Morgan Stanley, inflation pressure in APAC should be peaking, given supply imbalances and that food price rises are reversing. Still, local market conditions may keep costs modestly elevated until 2023. According to Real Capital Analytics (RCA) data, the weak start in the real estate sector continues, with overall transaction value declining 8% year over year in the first half of 2022. Accommodation-related (hotel, apartment, and senior care homes) continue to show substantial gains.Theoretically, real estate is a good hedge against inflation. The relationship depends on the underlying economic conditions. In a growth cycle, rental rates should keep pace with inflation, supported by leasing demand. But this is not necessarily the case in a downturn. Overall, the total return offers a hedge in the longer term. A recent correlation study of Singapore office rent against inflation yields a positive correlation coefficient of 0.24 to 0.48. Rising rates, recessions, and slowing global demand should cap investment activity in Q3 and Q4 of 2022. Investors should focus on defensive sectors, such as healthcare and elderly care, apartments, education, and data centers.
Mike Pyke, Head of Institutional Capital, Asset Management at MA Asset Management
In this environment, inflation is a significant consideration for our institutional clients. The nature of inflation and its associated costs are causing many investors to pause their allocations across many sectors. We’re observing a shift in focus to asset classes that provide natural inflation hedges – particularly assets that have strong cash generation. Private credit strategies are well positioned, given that they lend on a spread over the cash rate and therefore directly benefit from higher base rates. This provides somewhat of an inflationary hedge, and we’re seeing significant demand for these assets. For example, real estate credit is attracting property investors who have traditionally focused on direct real estate. Asset-backed lending is also attractive in this environment and we’re currently observing reduced liquidity, which is driving strong return premiums. APAC has generally lagged inflationary pressures in the US and Europe. As a result, we’re observing strong demand for assets in APAC, driven by broader macro concerns in the US and Europe. Given China is currently off the table for many, Australia is becoming attractive given its strong forecast population and GDP growth and strong historical risk-adjusted returns. While there have been very few distressed opportunities in Australia in recent years, we expect some dislocation and we’re beginning to observe some signs of distress – particularly in the highly levered corporate debt market. We’re positioning ourselves to be opportunistic and expect there to be opportunities for well-capitalized investors who have multi-cycle experience. We believe investors with capabilities in distressed and special situations will be particularly well placed.
Sam Monfared, VP Research Insights at Preqin
Fear of inflation has taken over the markets in recent months, but alternative assets have always been considered strong tools to hedge against inflation and rate hikes. Inflation and higher interest rates will affect the cost of debt for private equity funds, as they rely on it to enhance their returns. Inflation also impacts valuations. The higher the inflation and rates, the lower the multiples to incorporate the risks associated with higher rates. On the other hand, private debt (direct lending) is not as affected as much by inflation. When rates increase, long-duration assets such as fixed-rate corporate bonds are impacted negatively and show higher sensitivity to interest rates. Direct lending, a key private debt strategy, involves lending capital to borrowers using mostly floating rate structures. Lenders earn the rate offered on a floating rate benchmark plus the credit margin, which protects returns against higher inflation and rising rates. Based on our research, the only asset class that shows no significant positive sensitivity to CPI movements is infrastructure. It is important to point out that, overall, research results based on various reliable studies seem inconclusive when it comes to infrastructure. Practically, and in theory, the revenues generated through infrastructure investments are generally adjusted for inflation over time, but are subject to regulatory rules and restrictions. Therefore, these investments can still partially hedge against inflation in the long run.
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Alasdair Graham from Wealth Briefing had published a great article “LNG – A Growth Driver For Three Groups Of Single Family Offices”
Growing inflation, rising interest rates, the war in Ukraine, the constricted gas supply in Europe, have all served to dampen economic prospects. However there is a sector that is dong remarkably well, in spite of or even because of these negative headwinds, and that is the transport of liquefied natural gas (LNG), where record charter rates prevail. Moreover, it’s clear that some of the beneficiaries of these soaring rates are family-owned companies which have been very astute and entrepreneurial in investing in LNG assets in recent years and now they and the family offices which often sit behind them, are reaping profits at record levels.
There are three different groups of family offices which will benefit from the LNG tanker rates spike. A resource such as the Highworth Family Offices Database with its detailed profiles of 2,000 single family offices globally can be used to identify those whose assets under management are being boosted by the inclusion of LNG assets in their portfolios.
Family offices controlling gas production assets
The first group are those which directly or indirectly hold private ownership of producing gas wells. The Highworth Family Offices Database shows that there are 39 single family offices in the US in this position. Many of them will be shipping gas to Europe and Asia. Whether their hydrocarbon assets are listed or private, they will be enjoying record net income gains over the past six months which the FT reported on 5 November to be “the sector’s most profitable six months on record.”
Sovereign family offices in gas-rich Gulf countries
The second group is the “sovereign” family offices belonging to members of the ruling families of the major gas exporters in the Gulf, particularly those with small populations and therefore high concentrations of UHNW individuals. These include Qatar, where there are five sovereign family offices profiled on the Highworth Database, or Oman, where there are three sovereign family offices, or Abu Dhabi, which also has three family offices owned by a member of the ruling family.
Family offices with LNG tanker assets
The third group are more difficult to identify as LNG beneficiaries. These are the family offices which directly or indirectly are substantial investors in LNG tankers. However, the search filters on the Highworth Family Offices Database can be used to identify these family offices.
There are 13 in total, four in the US, three in Norway, two each respectively in Singapore and the UK, and one each in Finland, Greece, and Monaco. They are the beneficiaries of an extraordinary boom in LNG tanker charter rates.
The boom in rates is driven both by heightened demand for gas from sources other than Russia and secondly by the scarcity of availability of LNG tankers. This has led to charter rates per day reaching record highs for transport of gas cargoes from the US gulf coast to NE Asia and to Northest Europe.
Family office beneficiaries from the surge in LNG tanker charter rates
The Highworth Family Offices Database identifies these 13:
• Hoegh Capital Partners, the family office of the Norwegian Hoegh family in the UK. The family owns the shipping company Leif Hoegh & Co, a major player in LNG carriers, and LNG import terminals. Hoegh LNG is owned in a 50/50 joint venture between Leif Hoegh & Co and Morgan Stanley Infrastructure Funds, which in turn owns 46 per cent of Hoegh LNG Partners LP, listed in New York. Hoegh LNG’s stock price in September 2020 was $4.55; a year later on 15 September, 2021 it had risen to $9.23; by 4 November 2022 the stock price had climbed to $21.55 and a market cap of $511 million, a near-fivefold gain in 26 months.
• Seatankers Management, the family office and master-investment company of Norwegian-born, Cypriot citizen resident in UK, John Fredriksen. Fredriksen has two LNG tanker assets, Flex LNG and Avance Gas Holdings. Both are listed. He controls 46.5 per cent of Flex, the share price of which has gained 62 per cent between 1 November 2021 and 4 November 2022, valuing his holding at $793 million. He also controls 59.7 per cent of Avance, the share price of which has grown 76 per cent over the past year, valuing his stake currently at $2.93 billion.
• WAK Family Office acts for Anders Wilhelmsen of Norway, and the Wilhelmsens have a second family office in Aweco AS. Through Awilco AS the family owns 38.6 per cent of Euronext listed Awilco LNG, which owns two LNG carriers. The stock price of Awilco has grown by 77 per cent over the past year to 4 November 2022.
• Aii Corporation of Finland, the family office of Pekka Viljakainen, an investor in LNGtainer.
• Anholt Services of the US, the family office of the late Axel Karlshoej; in 2004 his legacy master company Teekay Shipping moved into the LNG transportation market by acquiring the Spanish Naviera F Tapias for $1 billion.
• AT Capital of Singapore, the family office of Arvind Tika; the family office holds a minority stake in a Kazakh rail company moving LNG from Kazakhstan to China.
• Blue Spruce Capital of the USA, which holds 63 per cent of Freeport LNG, the export capacity of which amounts to about 33 per cent of US LNG export capacity;
• Ceres Monaco, the family office of Peter Livanos, who controls 41 per cent of Gaslog Ltd, owner of 34 LNG carriers;
• Entrepreneurial Spirit Holding, the family office of George Economou, the owner of TMS Cardiff Gas, which runs a fleet of five LNG carriers;
• Golden Alpha Pte Ltd of Singapore, a private investment company controlled by the Sohmen family which owns BW LNG, the operator of a fleet of 34 LNG carriers and FSRUs (Floating Storage Regasification Unit);
• Hunt Investment Group of the US, the family office of Ray Hunt, which is developing LNG operations in the Yemen and Peru; and
• Umoe Gruppen of Norway, the family office of Jens Ulltveit-Moe, who owns a fleet of six LNG tankers.
Is it likely that the family offices which are the beneficiaries of heightened gas prices and the LNG tanker boom will recycle profits into the capital markets to diversify risk? From the thirteen single family offices surveyed here, there will be thirteen different answers.
Links to consider
- The Secrets of Stealth Wealth
- The Trend Among The Wealthy To Buy Low-Priced Unique Gifts
- Forming Funds And Making Deals: A 360-Degree View
- How advisors drive results: Latest insights
- What Separates the Best RIAs From the Rest: Schwab
- Manias and Mimesis: Applying René Girard’s Mimetic Theory to Financial Bubbles
- Daniel Crosby talks with Kurt Brown, CEO and CIO, of TownSquare Capital
- Was Jack Welch the Greatest C.E.O. of His Day—or the Worst?
- Behavioral Responses to Wealth Taxes: Evidence from Switzerland
- Lies, Damn Lies and Performance Benchmarks: An Injunction for Trustees
- Sorry Doesn’t Cut It, or Does It? Insights from Stock Market Responses to Corporate Apologies
- The effects of personality and IQ on portfolio outcomes
Infographics
Quotes
Books that caught our attention this week
Butler to the World: The Book the Oligarchs Don’t Want You to Read – How Britain Helps the World’s Worst People Launder Money, Commit Crimes, and Get Away with Anything
by Oliver Bullough
The Suez Crisis of 1956 was the nadir of Britain’s twentieth century, the moment when the once-superpower was bullied into retreat. “Great Britain has lost an empire and not yet found a role,” said Dean Acherson, a former US secretary of state. Acheson’s line has entered into the canon of great quotations: but it was wrong. Britain had already found a role. The leaders of the world just hadn’t noticed it yet. Butler to the World reveals how Britain came to assume its role as the center of the offshore economy. Written polemically, but studded with witty references to the butlers of popular fiction, it demonstrates how so many elements of modern Britain have been put at the service of the world’s oligarchs.
Publisher: St. Martin’s Press (June 14, 2022)
Language: English
Hardcover: 288 pages
The Everyday Practice of Valuation and Investment: Political Imaginaries of Shareholder Value
by Horacio Ortiz
The financial industry derives its legitimacy through the claim that it acts in the interest of shareholders. A vast international network of funds, banks, insurance companies, brokerages, rating agencies, and regulatory agencies defends its status by asserting that market mechanisms determine a company’s true value and therefore enriching shareholders contributes to the socially optimal allocation of capital. Is this how stock prices are determined in practice? What does stock valuation reveal about the supposed efficiency of markets and what it means to act on behalf of shareholders? Horacio Ortiz provides a critical analysis of the social institutions and practices that produce and regulate stock pricing and valuation. He examines how financial professionals evaluate and invest in listed companies, unraveling the contradictory definitions of financial value that shape their behavior. Ortiz demonstrates how ideologically laden notions of investing skill and efficient markets are central to the everyday practices of financial valuation, as well as how they function to justify the broader system. He scrutinizes the technical aspects of valuation and investment, their place in social relations within and among companies, and their relation to state regulation in order to demystify how the financial industry presents prices as truths that the rest of society must accept.
Publisher: Columbia University Press (23 Nov. 2021)
Language: English
Hardcover: 328 pages
Money and Empire: Charles P. Kindleberger and the Dollar System
by Perry Merhling
Charles Kindleberger ranks as one of the twentieth century’s best known and most influential international economists. This book traces the evolution of his thinking in the context of a ‘key-currency’ approach to the rise of the dollar system, here revealed as the indispensable framework for global economic development since World War II. Unlike most of his colleagues, Kindleberger was deeply interested in history, and his economics brimmed with real people and institutional details. His research at the New York Fed and BIS during the Great Depression, his wartime intelligence work, and his role in administering the Marshall Plan gave him deep insight into how the international financial system really operated. A biography of both the dollar and a man, this book is also the story of the development of ideas about how money works. It throws revealing light on the underlying economic forces and political obstacles shaping our globalized world.
Publisher: Cambridge University Press; New edition (October 27, 2022)
Language: English
Hardcover: 310 pages
Photos
Coral Caye, Francis Ford Coppola’s dreamy resort in southern Belize, has hit the market for a $2.2 million
The self-sustaining private island is set up with a main house, two rustic cottages and a dock. And the best part? It’s positioned behind the Belize Barrier Reef, so its surrounding turquoise-blue waters serve as an incredibly scenic home base for swimming, snorkeling, kayaking or paddleboarding. With all these welcomed distractions, it’s hard to imagine anyone would want to give the isle. But one legendary filmmaker’s loss could be your gain—for a cool $2.2 million.
For the past six years, the director and his family have been leasing the two-and-a-half-acre island, currently owned by Los Angeles-based lawyer Terry Tao. Tao was said to have bought the enclave 10 years ago, which is when he put up the main house. Coppola later had the two cottages built, in addition to a large pier that stretches out over the water. And the filmmaker-turned-hotelier’s collection of Coppola’s Hideaways manages the hospitality experience at Coral Caye.
“He had everyone from his close friends to movie stars and writers to Saudi princes come to the island,” Corcoran agent Peter McLean tells the listing site. Now, you can make Coral Caye your own tropical getaway. Altogether, the property can host up to 10 guests.
“Coral Caye has been a joyous retreat for me and my family,” Tao told. “The tranquil ocean and the warm sunshine were a sanctuary for us all and a deep breath of life in this fast-moving world.”
