A report from Société Générale Private Banking shows the make-up of the world’s new wealthy and how they run their investments.
The establishment of financial infrastructures such as Foundations, focused on the legacy of the wealthy, suggest a growing political stability which itself attracts further capital and investment, the report authors noted.
In 75% of the markets studied, more than 40% of those polled run their own charitable foundation.
The survey noted that China was a “significant outlier” in this respect, as only 7% of UHNWIs have Foundations there.
However, as in other countries such as France, this is explained by the accepted and historical role of the state in providing for all citizens, and by other support networks available. Some religious influence is also possible.
Commenting on philanthropic trends among clients, Eric Barnett, CEO of SGPB Hambros, the UK-focused unit of Société Générale Private Banking, notes:
“There is a clear trend of clients seeking to create a legacy. They don’t necessarily wish to just ‘give’, however – they want to ensure that their legacy maintains its designated purpose.”
The young entrepreneurs surveyed tended to be fully engaged with their businesses.
In Russia and China, 93% and 85% of UHNWIs are directly in control of their companies. In Brazil and India, the figure is slightly lower – at 75% and 78% respectively.
In investment terms, the survey noted that the world’s ultra rich are still feeling the effect of the recent recession.
They have reduced their risk exposure in financial portfolios, and are now most concerned about inflation. Many are refocusing their portfolios towards emerging markets, which can offer annual GDP growth of upwards of 7%.
Daniel Truchi, Global CEO of Société Générale Private Banking, agreed that clients are more risk averse, highly aware of volatility and demanding more transparency in product offerings.
He also confirms the age differential between clients in old and new markets, and the differing demands when managing mature or new wealth.
Truchi notes “with some concern” the large and growing gap between the wealth of the UHNW sector and the rest of the population in many countries. UHNW client funds make up 38%, or €32.1bn, of the bank’s total €84.2bn assets under management.
One of SGPB’s most celebrated clients was the UK-based Indian steel magnate Lakshmi Mittal. “He was the first of our clients we helped move from being a local to a global business force,” Truchi says. “He had the vision, but he needed bank backing to help him achieve it. And it is not just private bank services, but all services within the wider group.”
Barnett explains that the UK, and specifically London as “a huge starting point for many relationships”, attracts three types of clients. One is the UK self-made high net worth individual.
Another is those who are non-domicile in the UK, but who have paid the relevant government levies to operate from the UK. There are an estimated 10,000 non-doms in the country.
The third category encompasses those resident elsewhere, who are attracted to London for its global financial expertise.
The growth and composition of this group is typically linked to political developments elsewhere – most recently the Arab Spring uprisings across the Middle East and North Africa, and money fleeing Greece as the political and economic crisis grows.
Barnett outlines three types of relationship with UHNWIs. The first is where the bank can deal with the principal directly.
The second is dealing with the client’s family office, which will stipulate certain investment criteria and performance requirements.
The third relationship is with multi-family offices, acting for a group of high net worth clients.
“The most interesting for us is the first. The second and third are more business-to-business and more institutional,” he says.
Family offices are growing fastest in Asia, centred around Singapore. While most clients express the importance of family to them, managing family wealth presents unique challenges, particularly with legacy and succession issues.
“Once a family has significant wealth, the problem becomes how to preserve it for future generations,” the Société Générale report noted.
“This is often a surprisingly difficult task, as it may require the family to tackle personal issues as much as they need to deal with investment and financial uncertainties.”