When it comes to purely commercial business and investment opportunities, the billionaires have clear ideas about where they see most potential in the next five years (irrespective of global challenges). From a sector perspective, they favor energy, possibly due to today’s supply constraints and the accelerating secular transition to renewables. At the same time though, they continue to favor technology and health-care businesses – some of which have fallen from grace in terms of public equity market valuations in 2022. Regionally, they are primarily looking to Asia-Pacific economies such as Southeast Asia and India, where economic growth remains robust. North America, with its huge domestic market and vibrant entrepreneurial culture, also remains a popular region. While still ahead of the rest of the world, mainland China lags these regions somewhat. Meanwhile, surprisingly few are drawn to Western Europe considering its position as one of the world’s major economic blocs.
Topic of the week
UBS has published the Billionaire Ambitions Report 2022
The total number of billionaires globally has slightly declined in a volatile environment. As of March 2022, when the data was compiled, there were 2,668 billionaires versus 2,755 in the previous year. In 2022, 360 saw their wealth dip below a USD one billion, while 273 reached that level. Total billionaire wealth slipped from USD 13.1 trillion in 2021 to USD 12.7 trillion in 2022. However, the total wealth and number of billionaires is likely to have fallen further since March 2022 due to declines in asset prices.
The two most populated sectors, finance and investments (392 billionaires), and technology (348 billionaires), experienced some of the highest rates of change. Fifty new billionaires were created in finance and investments, and 30 disappeared. Among the new billionaires were fintech disruptors, as well as private equity and hedge fund partners. There were 41 new tech billionaires while 57 disappeared. This fluctuation reflects the dynamism of a sector where barriers to entry are low, and innovation is perpetual.
Manufacturers also flourished amid extraordinary demand for durable goods, as well as the emergence of new electric vehicle and battery entrepreneurs. There were 338 manufacturing billionaires in 2022 worth a total USD 1.1 trillion, with 44 new joiners and 37 who disappeared.
The billionaire population in Asia Pacific was still the largest but the number of billionaires slipped to 1084, down 59 from the previous year. In terms of total wealth, Asia Pacific was the second largest region. Total wealth in this region was down nearly 10% to USD 4.2 trillion. India’s billionaire population flourished as it overtook the UK to become the fifth largest economy in 2022. As of March 2022, the country had 166 billionaires, up from 140 the previous year.
The United States, home to about a third of billionaires, was resilient with 735, up from 724 in 2021. Total wealth rose by nearly 7% to USD 4.7 trillion.
Wealth was flat across Western Europe at a total of USD 2.3 trillion, with the number of billionaires falling from 474 to 467 year on year. In Switzerland, the total number of billionaires remained steady, with their combined wealth rising by a quarter to USD 181.9 billion. Eastern Europe saw notable changes resulting from the war between Russia and Ukraine. The region’s number of billionaires dropped from 154 to 127, with total wealth dropping by over a third to USD 455 USD billion.
In the Middle East and Africa, overall wealth rose by 7.5% to USD 279.4 billion, although the number of billionaires fell from 91 in 2021 to 89 in 2022.
It’s December. People are making round-ups. Let’s have a look at the thoughts on family office industry.
Family Office Round-Up by Paul Westall, Cofounder of Agreus Group, in Forbes.
While many of us were able to finally enjoy a year free of coronavirus restrictions, news broke of a conflict in Eastern Europe at the beginning of the year and what followed was a trail of political instability, economic weakness and inflationary concern. Three things that are still plaguing Family Office decisions today.
As the impact of Biden’s leadership, Brexit and former lockdowns also began to fruition, world leaders clung to Family Offices as the pinnacle of recovery. Family Offices proved themselves to be the single most fluid group of investors, serving as the backbone of the global economy post-pandemic and supporting the causes that mattered most.
As a result, Greece, the UAE and Hong Kong joined a long list of nations in rolling out a red carpet to Family Offices with an array of tax incentives to match. Ultimately however the top spot sat with Singapore which overtook London and New York as the Family Office destination of choice.
Russian Family Offices lost 27% of their wealth due to the ongoing war in Ukraine and as a result, many found new homes within the likes of Dubai and Israel while in the UK, a flurry of Prime Ministers meant inflation reached over 10% for the second time. The nation also experienced the sharpest annual rise in food prices for more than 40 years.
It wasn’t all doom and gloom of course. We witnessed huge successes in the Family Office arena.
For instance, the Former Managing Director of Athos Service GmbH, the Family Office behind the world’s first COVID-vaccine, was able to generate so much wealth he set up his own Family Office. It offered the world of wealthy families a lesson in long-term incentive plans while Family Office CEO compensation jumped by more than 100%.
A billionaire founder also called Capitalism into question by giving away his entire company to make positive change while a record-number of billionaires were crowned. New York fell short once more as Beijing took the crown as Billionaire Capital.
The community also made every downfall an educational experience.
The Queen’s death offered a masterclass in succession planning while the return of Archegos-related headlines fueled Family Offices to strengthen their internal compliance policies. As a candidate-driven market also historically altered unemployment figures, Family Offices pledged a focus on retaining their critical employees in any way they could while Hong Kong’s demise as a Family Office destination of choice kick-started a global campaign to attract Family Offices.
While the political instability, economic weakness and inflationary concerns I opened with are still very much alive and well, Family Offices continue to translate these concerns into opportunities with new asset classes, new partnerships and a renewed focus on professionalizing their wealth and being better for the next generation. I expect this will continue long into 2023.
What’s Driving Family Offices More Toward Private Markets?
Lucia Waldner is CEO of Family Office atCC Trust Group, and former Head of Credit Suisse Research Institute has a nice piece in Forbes on family offices and private markets.
As investors anticipate a new set of opportunities and restraints in view of rising inflation and tightening financing conditions, confidence remains regarding the performance of private markets. As Morgan Stanley concludes in their recent investment outlook, private equity, venture capital, private credit, private real estate and infrastructure investments have historically overperformed public markets.
Looking to hedge against high inflation, private equity strategies are attractive in multiple regards. Amid this year’s declines in both stocks and bonds, family offices have been among investor groups increasing their exposure to private markets, including debt, equity and real estate.
A Wealth Of Experience
The background for this development is quite intuitive, as private market holdings are among the most common portfolio positions for family offices, which tend to have not only significant exposure but also vast experience in this sector. A recent global survey by Credit Suisse confirms that single-family offices have a track record as capital providers for entrepreneurs and report an average exposure of seven private-market deals per office over the past two years.
Due to their entrepreneurial background and their know-how in running and supervising companies, private debt and equity are an investment space in which family offices are considered “expert investors.” Their ability to commit for the long term, married with their extensive understanding of business operations, has made them preferred partners in this space.
The case is similar for real estate, where family office investors typically hold significant positions for long-term capital preservation reasons, often across geographically diverse property portfolios. In more sophisticated cases, holdings may span different real estate categories.
In-Demand Investors
As traditional lenders’ financing terms have become increasingly demanding, liquidity and capacity for long-term commitment have become more valuable. The correction in valuations earlier this year has further pressured many corporate borrowers, which are faced with mounting refinancing costs and short-term performance expectations.
In view of this environment, private debt and equity investors have an opportunity to step in and benefit from comparatively flexible terms, less volatility than public markets and possibly significant returns over the cycle. As a result, Morgan Stanley expects the private credit market to grow to $23 trillion for the first time.
I expect family offices to continue taking advantage of related opportunities, as they are not only sought-after investors but can adapt their investment strategies with ease when opportunities arise. This differs from other investors, such as formally governed and formally regulated foundations and pension funds.
Moving Toward ESG
Another interesting phenomenon is that the more influence the next generation of a family office has on investment strategy, the higher the allocation toward sustainable assets—be it listed or unlisted equities in green tech, smart mobility, etc. This means businesses that have integrated environmental, social and governance rules and policies into their operations will be significantly more attractive to private debt issuers than those that have not yet done so.
Despite some volatility in the first quarter of this year, ESG-linked debt issuance reached a global high last year, and the market remains robust. Among the leading examples is American Express’ raise of $1 billion for its first ESG bond. Similarly, real estate investors ask for ESG qualities, with some additional pressing reasons. Under the assumption of continued inflationary pressures and rising energy costs, profitability in the sector will suffer, unless wide-ranging energy-efficiency measures are in place.
What Is Next?
Going forward, inflationary pressure seems likely to prevail for some time. Given policy-makers’ consensus that the global economy has entered a downturn, increasing exposure in private markets would be a natural step for most family office investors.
In view of the correction in corporate valuations and family offices’ appeal as knowledgeable, long-term strategic investors, this can be highly attractive for both sides. Nevertheless, the competition does not rest: According to the consulting firm McKinsey, private equity firms are likewise interested bidders and seem ready to outperform their 2021 record-setting $2 trillion performance.
How to succeed with a family business succession
John Gapper, associate editor and chief business commentator of the Financial Times, writes a column on family business succession.
The chief financial officer of Tyson Foods made a confession to investors last month. After running through its revenues, John Randal Tyson added a personal note: “I’m sure you’ve seen the news about the incident involving me. I’m embarrassed and I want to let you know that I take full responsibility for my actions.”
The news was that the 32-year-old son of Tyson’s chair, and great-grandson of its founder, had been charged with public intoxication and trespassing after a stranger found him asleep in her bed in Arkansas. Rather than firing him — the likely fate for any non-family member — the US company has asked its directors to review his behaviour.
“Don’t forget he’s been involved in this business essentially his whole life,” Tyson’s chief executive Donnie King responded when analysts asked why Tyson junior was in a job normally occupied by seasoned executives in their fifties. True, but that is usually the qualification to become a king or queen, rather than the finance director of a top 500 US public company.
Red Bull has handled its own succession more wisely, appointing three executives to succeed the founder Dietrich Mateschitz after his death in October, rather than his son. “I do not believe one should be both an employee and a shareholder of the same company,” wrote Mark Mateschitz, who inherited his father’s 49 per cent share in the Austrian energy drink maker.
This does not mean the scion will leave the others alone to run operations including Red Bull’s Formula One team. “I will . . . express myself in a way that makes sense to me and as I find necessary,” he said of becoming co-owner alongside the Yoovidhya family of Thailand. It is as powerful to hire and fire others as to do their jobs yourself.
Succession is the most emotionally taxing question facing entrepreneurs. As they get older, will they sell their businesses to outsiders or appoint one of their sons or daughters to be both heir and boss? The challenge is looming for many 20th-century founders: more than 1.5mn owners of small and medium-sized family companies in Germany are nearing retirement.
The struggle is evident at public companies that remain under family control, such as Fox Corporation and News Corp, both of them dominated by 91-year-old Rupert Murdoch. He has installed his son Lachlan as his probable successor after decades of familial manoeuvring, as faithfully caricatured in the HBO drama Succession.
Bernard Arnault also seems to favour a familial joust. His five children are now working at his luxury group LVMH and he has extended his mandatory retirement age to 80. This provides time for a face-off and invites the sort of speculation about who will succeed him that Lachlan Murdoch once described to me as “a pain in the ass”.
I can see why this kind of contest appeals to patriarchs: King Lear-like, they give their adult children an incentive to pledge loyalty and affection, and use them to reinforce their control. If you have embodied a company for many years, the idea of it being steered after your death by a hired hand with an MBA must be galling.
The benefits for the younger generation are less obvious. If several compete for advancement, it feels like a sure-fire way to ruin family gatherings. Even if there is only one child, the awkward question lingers: would this person have a chance were it not for their name? The answer is usually no.
This is not to deny that family control has some advantages. Family enterprises are often more profitable and have a longer-term focus than companies run by professional executives for many investors. Having someone in charge who instinctively loves the business and was raised to value its purpose can be a strength.
Nor is it absurd for family members who stand to inherit stakes in companies to get to know them from the inside. Whatever happens, John Tyson has been taught a hard lesson about how executives of public companies need to behave, and the discipline of investor scrutiny. It is healthier to be publicly shamed than to remain a gilded youth, waiting idly to inherit.
But that need not involve successors being managers as well as owners. One study of Danish companies found that family successions produce worse results than the Red Bull approach of installing professionals to take over from the founder. As controlling investors, families retain plenty of power to influence companies anyway.
Some heirs have realised this: John Elkann, scion of the Agnelli family that controls Ferrari and Juventus, does not run them himself but oversees them through their boards and his family holding company. Marta Ortega Pérez, daughter of Inditex’s founder, became chair of Zara’s parent group last year, but the day-to-day responsibility lies with a chief executive.
It is only natural. After years of observing how businesses operate, many of the emerging generation must have noticed that being publicly responsible for everything has drawbacks. Becoming the successor does not require running the entire show.
The 2022 Family Office Software Roundup
Francois Botha writes in Forbes on Family Office software.
Over the last two years, we have become more reliable than ever before on technology to run our business operations and organise our daily lives.
This increased reliance has raised also expectations of what solutions can- and should be able to do. To amplify this, the next generation (yep, THEM that everyone in the family office industry has been talking about for years) has started stepping into their family offices, and it’s these next-gen owners and employees that want to up their game and have answers on-demand and at their fingertips.
The big question though is whether tech has kept up with the expectations. The short answer? Kind of. Let’s unpack why that is.
- Users’ expectations are created by day-to-day experiences delivered by large tech companies.
- Yet, small startups and scale-ups focussed on family offices don’t have the capacity to keep up with this idealistic notion of “what could be” and instead, need to focus on core features
- Overall most family office tech vendors are ambitious with good intentions but can sometimes be lacking in talent, track record and experience or even willing customers that can partner with them to raise the game.
All is not lost, however. Through strong client partnerships, it is possible for tech vendors to leverage their client relationships to fuel their development and fund their roadmap while delivering a great and valuable solution to a customer. But to make for smooth partnerships, there is a lot of expectation management needed from tech providers. Most family offices have never had to buy solutions and because of that, so they rely on the vendor to lead and provide relevant information about what their product can and can’t do.
In order for the buy and the sell side to understand what’s possible (and more importantly, what’s not), it’s crucial to start with a clear overview. Family office technology can be defined into three broad categories, roughly related to the tasks family offices need to be done, and all solutions fall into one or more of these:
- Data, Aggregation & Consolidation- connecting to various data sources, custodians and other solutions.
- Management, Collaboration & Operational – Making investments, running day-to-day operations, collaborating and getting actual work done.
- Reporting & Insights – Answering questions, measuring performance and gaining insights.
Most solutions choose to carve out their niche by providing their own unique take on what a product should look like and that could create confusion or solutions that are difficult to compare to others. Rather than a unique value proposition, this could actually have to opposite effect on potential customers, not knowing what box to place a solution in.
In particular, there are three interesting industry movements that have become more pronounced over the last year:
- Large players continue to grow: Even though there have been “old school or legacy” tech players active since the 70s and 80s with several thousand employees, we now see even new-breed companies nearing 1000 employees after a decade in operation.
- Last-movers emerging: As a counter to the idea of first-movers, last-movers are able to enter a market once there’s a clearer idea of best practices, customer needs and market opportunities.
- Consolidation play and eco-system investing: Several smaller tech companies have been merged or acquired but this activity also extends beyond the actual tech platforms with service companies seeing serious growth investments from PE funds.
All in all, these speak of an industry that’s still in high-growth mode. In Simple’s latest family office software and technology review, it’s easy to see the trajectory of this landscape. One where service providers are responding to the needs of family offices, but in some cases are even helping them identify their needs.
As within other spheres of the family office space, there are a number of niche products revolutionising specific operations, such as providers specialising in ESG data, cryptocurrency management and even real estate asset management, as covered previously.
Links to consider
- David Bonderman’s Family Office Is Opening Up to World’s Rich
- Private-Equity Firms Push Blockchain-Based Funds Despite Crypto Collapse
- Investors See Shift in Europe’s Fortunes
- DACH Private Capital Breakdown
- Peter Thiel’s Money Manager Hunts ‘Next PayPal’ for His Own Firm
- Christine Benz and Jeff Ptak talk with Wes Gray of Alpha Architect about the challenges of active investing
- Rick Ferri talks estate planning with Ryan Barrett and Mike Piper
- Michael Kitces and Carl Richards talk about the opportunity and limits of advisor automation
- Succession Planning Then and Now With David Grau Sr.
- 15 Funds That Have Destroyed the Most Wealth Over the Past Decade
Infographics
Quotes
Books that caught our attention this week
Warren Buffett: Investor and Entrepreneur
by Todd A. Finkle
Finkle―a Buffett family friend―shares his perspective on Buffett’s early life and business ventures. The book traces the entrepreneurial paths that shaped Buffett’s career, from selling gum door-to-door during childhood to forming Berkshire Hathaway and developing it into a global conglomerate through the imaginative deployment of financial instruments and creative deal making. Finkle considers Buffett’s investment methodology, management strategy, and personal philosophy on building a rewarding life in terms of entrepreneurship. He also zeros in on Buffett’s longtime business partner, Charlie Munger, and his contributions to Berkshire’s success. Finkle draws key lessons from Buffett’s mistakes as well as his successes, using these failures to explore the ways behavioral biases can affect investors and how to overcome them.
Billionaire Wilderness: The Ultra-Wealthy and the Remaking of the American West
by Justin Farrell
Billionaire Wilderness takes you inside the exclusive world of the ultra-wealthy, showing how today’s richest people are using the natural environment to solve the existential dilemmas they face. Justin Farrell spent five years in Teton County, Wyoming, the richest county in the United States, and a community where income inequality is the worst in the nation. He conducted hundreds of in-depth interviews, gaining unprecedented access to tech CEOs, Wall Street financiers, and other prominent figures in business and politics. He also talked with the rural poor who live among the ultra-wealthy and often work for them. The result is a penetrating account of the far-reaching consequences of the massive accrual of wealth and a troubling portrait of a changing American West where romanticizing rural poverty and conserving nature can be lucrative, socially as well as financially.
Photos
What do you do when you are one of the richest people on this planet with billions of dollars at your disposal? Obviously, you might end up frivolously spending to fulfil all your desires without having to think twice, right? Well, at least that’s the case for Sheikh Hamad bin Hamdan al Nahyan, also known as Sheikh Hamad. Sheikh Hamad is obsessed with cars. He spent a lifetime amassing hundreds of rare and quirky automotive creations, including some that hold world records.
Sheikh Hamad’s bizarre collection is also home to the world’s biggest SUV. Called the Dhabiyan, it’s a 10.8 metre-long, 2.5m-wide and 3m-tall, 10-wheeled automotive behemoth that was hacked together from several different commercial vehicles and a military truck. It looks like it’s straight out of Mad Max, but it’s no work of fiction. It’s so massive in size that it makes a Ford F-150 look like a toy car. It weighs a whopping 21 tonnes. The Dhabiyan is based on the US Oshkosh M1075 military truck and is equipped with the truck’s original 15.2-litre Caterpillar diesel engine that produces 600hp – which is needed to power this beast. The cost of production is confidential, but it wasn’t cheap.
The Dhabiyan purports to be a “desert ship.” It’s tempting — and may well be intentional — to see the vast vehicle in those terms: as a 21st-century descendant of the dhows and mighty caravans that crossed the world throughout the history and mythology of the Arabic-speaking world. History and myth are both vital elements of noble identity, and The Rainbow Sheikh is clearly crafting his own.
The general online reaction to the unveiling of this gigantic SUV has been mixed. While some find the Dhabiyan’s size impressive, others describe it as a useless eccentricity, with bad front visibility because of its exceptionally long body, and poor suspension.
You can even check out the Dhabiyan at the Sheikh Hamad Bin Hamdan Al Nahyan’s Instagram page, where he has been regularly putting new pics and details of his latest possession. The massive SUV is currently displayed at the Emirates National Auto Museum in Abu Dhabi.
