Most Billionaires Are Self-Made, Nearly Half The World's Biggest Fortunes Are Family-Run - Forbes

Max Skjönsberg March 29, 2012

Most Billionaires Are Self-Made, Nearly Half The World's Biggest Fortunes Are Family-Run - Forbes

Seven out of ten of the world's billionaires have made their own fortunes, but more than 40 per cent directly involve their family in the management of their wealth, new research fromForbes shows.

In a new study launched in London yesterday, the publisher also said that the UK has the highest percentage of self-made billionaires in the world. More than eight out of ten of the UK’s billionaires in 2011 had created their fortunes from scratch, compared with seven out of ten in the US, which is traditionally more associated with success stories and has more billionaires than anyone else in Forbes’ database.

“In the UK, you have incredibly old money which goes back hundreds of years and money tied up in real estate and holdings throughout the world, but you also have many self-made billionaires like Richard Branson,” said Bruce Rogers, chief insights officer of Forbes Media, when presenting the new report made in conjunction with Societe Generale Private Banking.

The study, entitled Global Wealth & Family Ties, analyzed 1,200 of the world’s largest fortunes in 12 countries. The minimum net worth of the people in the study was $1 billion, with the exceptions of India ($370 million), China ($500 million) and Singapore ($210 million). The fortunes were sourced form Forbes’ database of billionaires.

The wealth management industry is interested in whether money is inherited or self-made because the origins of a fortune will often determine the risk profile of a client, investment objectives and other needs. 

Self-made but family-run wealth

The report also found that self-made fortunes have seen the highest growth in the last couple of years, with an increase of 24 per cent compared with 21 per cent for inherited wealth. Forbes distinguishes between passive heirs and those with personal involvement in their inherited fortunes. Fortunes in the latter category have grown by 12 per cent in 2010 and 2011.

While 70 per cent of the billionaires in Forbes’ database have self-made fortunes, the survey found that fewer billionaires (58 per cent) manage their wealth on an individual basis.

Family-managed fortunes are concentrated in some regions and hardly exist in others, especially in countries such as Russia with new wealth. In general, the break-up between family involvement and no family involvement is more equally distributed in developed countries than in the emerging markets. Forbes classifies no family involvement as when family members are not directly involved in the business that created the wealth, which means that they can still be involved in decision-making but still fall into the same category.

In terms of sectors, finance is the sector with most family involvement. Other prominent sectors with family involvement are construction, real estate, services and food and beverages. Sectors dominated by an individual approach are non-financial investments and technology.

Old and new wealth

Forbes also found that nearly 80 per cent of the billionaires in emerging markets collectively have created their own fortunes from scratch. The emerging economies Forbes looked at were Brazil, Russia, India, China, Mexico, the United Arab Emirates, Saudi Arabia, Kuwait and Lebanon. The corresponding figure for the mature markets collectively in the study (France, Germany, Hong Kong, Singapore, the UK and the US) was 65 per cent.

Rogers described France as a country with a very family-oriented business culture, which is corroborated by the fact that two-thirds of its fortunes are family-run.

Germany has the highest number of billionaires in Western Europe, but “it is probably the toughest place to get information; it is not a place where you flaunt your wealth, it is behind closed doors,” Rogers said.

In terms of investment, Rogers pointed out that Asian investors are very conservative and that the market lacks family offices. China has, however, a very competitive private banking sector, which is struggling to keep up with the pace of wealth creation. Rogers also said that wealthy individuals in Hong Kong and Singapore often hire several wealth managers and private banks to split up their wealth.

Billionaires in Russia, with virtually no family involvement, and India, with the highest percentage of family-run fortunes with nearly three-quarters, are beginning to diversify and spread their assets around the world. For example, many Russian billionaires buy property in New York and London.

Technology: a game-changer

Technology is in many ways changing the landscape of billionaires and ultra high net worth individuals around the world: “Technology is a key driver of wealth throughout the world, and the entrepreneurs there tend to be very young and single so they have not got the family connection yet,” Rogers said. “As technologists they are often engineers and their skills are very specific, so their brother-in-law or cousin does not necessarily have the same skills.”

The emergence of technology wealth is also having a strong impact on philanthropy, as technology executives give billions to charity and run their foundations in the same way as their firms: “Bill Gates seems to have an obligation personally for philanthropy, which is unique in the industry,” Rogers said.

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