Although the majority of the world’s billionaires have made their wealth in the past 20 years, this period of such extraordinary wealth generation may soon decelerate, notes UBS/PwC.

In their “Billionaires” research note published jointly by UBS and PwC, the analysts note two-thirds of the current generation of billionaires are in the process of wealth transfer.

Wealth generation: World is in a second “Gilded Age”

The UBS/PwC research note starts off with an anecdote on the first “Gilded Age’ which lasted from 1870-1910, wherein a few businessmen built organizations that industrialized innovations, bringing us the car, steel and electricity. However, over the past 35 years, U.S. entrepreneurs have taken advantage of new technologies to create the Internet and its ecosystem. Moreover, they have leveraged new opportunities in finance to launch hedge and private equity funds. Moreover, the economic rise of emerging markets and inflating asset prices have fuelled extraordinary wealth generation.

Events that shaped Wealth Generation

Touching upon ‘self-made billionaires’, the report notes they tend to launch their first ventures at a young age, although few attain billionaire status before their 40th birthday.

Self-made billionaires Wealth Generation

The report points out that of the over 1,300 global billionaires, with a combined wealth of US$5.4 trillion, 66% were self-made billionaires compared with just 43% in 1995:

Billionaire wealth growth in 19 years Wealth Generation

However, the UBS/PwC report argues that like economic growth, great wealth creation is also cyclical. The report notes wealth creation tends to move in S-curves, rather than growing linearly. The report notes 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 U.S.:

Wealth generation in cycles

Billionaires are in the corridor of wealth transfer

According to the UBS/PwC report, most billionaires are in the ‘corridor of wealth transfer’ when they have to make the crucial decision that will define their legacy. The report points out that almost two-thirds of them are over 60 years old, and their fortunes will quickly dilute without a sensible preservation strategy and governance:

Corridor of wealth transfer Wealth Generation

The report emphasizes that wealth preservation can’t be taken for granted:

Wealth preservation Wealth Generation

Using the concept of ‘generational algebra’, the report highlights the importance of strategic planning and long-term structuring for billionaires to protect their lifetime achievements:

Generational algebra Wealth Generation

The report points out that entrepreneurs have to make the difficult decision of whether to prioritize the interests of business or family:

Entrepreneur's fundamental decision

In the event the ‘cash out’ option is chosen, entrepreneurs tend to fall into three wealth management models, viz.: serial entrepreneur, portfolio investor or financial investor:

Three models after cash out Wealth Generation

The analysts at UBS/PwC anticipate an unprecedented wave of philanthropy in its many forms viz.: foundations, endowments, socially-focused investing, the arts and education. The report notes both the ‘Giving Pledge’ and individual contributions will drive an upsurge in philanthropy in its many nuances over the next 10-20 years:

Pledge of Wealth Generation

The report concludes by predicting three trends to emerge in the next 5 to 10 years. First, the self-made billionaires will continue to grow in number, probably peaking at about 70% of the billionaire population. Secondly, a dilution of billionaire wealth could happen as older billionaires transfer their assets to the next generation. Lastly, with Asia becoming the center of billionaire growth, the population will become more diverse culturally, with more female billionaires.

See full report below.