One more Asian billionaire every other day: UBS study finds

According to a study by UBS and PwC a billionaire in Asia is created every other day. Total billionaires in Asia are 637 as compared to 563 in U.S. The study further says that a 17% surge in billionaire wealth is supported by new billionaires born in Asia as well as an uptick in growth in materials, industrial, financial and technology sectors.

The total billionaire wealth has increased from USD 5.1 trillion to USD 6 trillion in 2016.

Billionaires from United States owns 2.8 trillion USD, an increase of .4 trillion dollars. Combined wealth of Asian billionaires grew from 1.5 trillion dollars to 2 trillion USD. Combined total wealth of 342 European billionaires was 1.3 trillion USD.

The study also mentioned that if the current trend continued, it is likely that Asian billionaires would overtake U.S. billionaires in wealth in four years. The surge in billionaires’ population in Asia can be attributed to growth in China and India, which have 318 and 100 billionaires respectively.

The report further points to increasing role of networks in raising capital outside financial markets which is no surprise, given the increasing role of Asian businesses which feels comfortable going to family rather than capital markets for funds.

Europe, the report says, in 2016 was the story of multigenerational wealth preservation. The number of billionaires in Europe was 342, by the end of the year.

The business controlled by these billionaire employees 27.7 million people, which is roughly the size of U.K. workforce.

5 Most powerful economic nations of history

For the most part of the history, the most powerful economic powers were simply the countries that housed the most people and controlled the most land. Up until 300 years ago, economies across the world were mainly agricultural. Economic historian Ian Morris says that for the most part of the human history, civilization’s economic strength depended largely on when it experienced an agricultural revolution.   Until the industrial revolution upended everything, it would take a nation thousands of years to turn itself into an economic powerhouse.

Here is the list of 5 historically dominant economic civilizations, in chronological order.

Roman Empire

Rome, the distant descendant of first agricultural revolution, became dominant global empire in matters of centuries. It at its peak controlled 25 to 30% global production. As trade is vital for economic growth, the Romans were better at it during their height than anybody else. Historical evidence also suggest that they had very well developed financial system that made extensive use of credit and bank notes, hence enabling traders to forgo hauling precious metals across distances.

China under Song Dynasty

China under song dynasty controlled 25 to 30% of global output. Although agriculture reached china later than it did in modern day Middle East but Chinese made good use of the benefits of agricultural society.

Mughal Empire

One of the most magnificent and economically most powerful civilization, the world has ever seen is India’s Mughal empire. The English word Mogul is derived from the word ‘Mughal’. Even today the signs of their splendor can be seen in form Taj Mahal Agra, Badshahi Mosque,etc. According to late economic historian Angus Maddison, the per capita income of the mughal era india was likely about the same as in England or Britain at the time, but India’s aristocracy’s life style surpassed that of European elites.  Mughal era at it its peak produced one-fourth of global output.  

British civilization

Its aptitude of profiteering from its colonies made it the first global economic powerhouse which dominated the world without strictly controlling equally large percentage of population. Another advantage, Britain enjoyed came from huge technological boost of the industrial revolution. It, at its height, produced 21% of total global output out of which 6% came from its colonies.

American civilization

United States, for about past 140 years, is the largest economy, but its relative power is in decline. It is expected that China’s economy would overtake the United States, by 2018.

After the World War II, there was a brief period when United States, owing to destruction of other industrial economies, produced half of world total economic output.

Family offices: managing the fortune of wealthy dynasties

Family office is a private investment arm of wealth families. When family office manages the wealth of single family it is known as Single Family Office (SFO) and when it manages the wealth of many families it is called multi-family office. Family office manages every task related to the wealth of family from accounting to succession planning, investing and philanthropy management

Establishing SFO is very expensive. In order to justify cost your family need to have at least half a billion dollars. The wealthier a family is the more cost effective it is to have a SFO.

If a family doesn’t own enormous wealth to justify having SFO than a family can have Multi-Family Office (MFO). MFOs can provide services to those families whose net worth is in the range of 100 million dollars to 500 million dollars. MFOs are charged with the same responsibilities, as taken over by SFO. The difference lies in the number of families, served by the family office. SFO serve single family while multifamily offices serve a number of families.

The rise in popularity of family offices against the alternatives can be attributed to a number of reasons. The triggering event of this rise was global meltdown in 2008. Wealthy families, heirs of wealthy dynasties, watched, helplessly, their fortunes being destroyed by the meltdown. The families felt cheated by asset managers, wealth managers and others large institutions for losing their fortune without going themselves into bankruptcy. Banks, for instance, were saved from bankruptcy during the crisis. Families who were invested in large funds and other big institutions watched their entire fortune being wiped away without being able to take out their investments owing to, for example, gates in case of hedge funds.

Feeling cheated, these wealthy families now wanted to take control of their wealth. In order to take control of their wealth they created another type of financial institution, Family office. The impact of rise of these institutions was felt by many in the industry of asset management. As their competitors, family offices invest in much different way than did the alternative institutions. Take for instance the time horizon considered in case of investments. As investors, they have far longer time frames than private equity houses or venture capitalists. Often the long range investment means that there is no exit strategy planned at the time of investment by FO.

Benefits from family office accrue to both parties, one owning the family office and the other receiving investment form these family investment’s arms.

The benefits accrued to wealthy families far outnumber than the benefits to the investees. These include control of wealth, flexibility in investing, and privacy.

The major benefit is control over your family wealth, has been discussed in preceding paragraphs.

The family office helps not only to take complete control of your wealth management but also provides flexibility in investing. The choice of investments can vary widely from real estate investments to investment in start-ups. The increased tolerance for risk taking, when the returns justify, is the edge over other institutions. Now families can invest in those areas where there is more return.

Another benefit to the families is privacy. The privacy afforded by Family Offices can’t be provided by conventional wealth management institutions.

The benefits to the investee firms and companies include the long time period of investment, and the increased risk tolerance.

Owning to long time period investments by family offices, they are given preference by nascent companies over private equity houses.

"With a family office you don't have a time horizon. We like the long-term focus. It's great to have an investor who doesn't view going public as an exit opportunity, but rather a chance to buy more stock," said Pere Valles, Chief Executive of Spanish electoraltechnology company Scytl.

The increased risk tolerance means much more to start ups than to other types of investee entities. The increased trend in investing in technology related companies has added another dimension to the investment.  Generally technology companies don’t have tangible assets, to use them as pledge for arranging loan from bank. Many Family offices are betting on technology, stepping in where venture capital and banks are reluctant to tread.

Another benefit is that those who successfully receive old wealth, for their start-up, need not spend their time searching for new investors hence finding more time to focus on their business.

Related links
Single family office
Multi-family office
Blommber's family office report
Hedge funds close the gate

Survival of family firms

List of Hundred oldest companies have been published. You can view it here. Many of the companies in the list are more than 3 centuries old. The oldest firm is more than 1300 years old and it is from Japan. Family-run firms contribute up to 90 percent of the world's economy. Many countries' economies are highly dependent on family businesses, including Germany, the U.K. and Singapore. Leading student of capitalism always mentioned that with the advent of industrial capitalism family firms will disappear. For much of the previous century they proved right but now many family firms are defying their predictions.

This trend can be seen in number of family firms among fortune 500 companies. Family companies in fortune 500 companies have risen from 15% in 2005 to 19% this year. This trends show the rising importance of family firms. This rise can be largely attributed to rise of emerging economies. In emerging economies the institution of family is still strong. For example in India there is joint family system which successfully survived many centuries. Same is the case in many Arabian countries where dynasties are not only ruling in the business world but also in the political world. In Europe same trend can be witnessed as nearly 40% of listed companies are controlled by families.

Unlike the past now family firms groom their successors to manage effectively. They put them in tough and long series of experiment. Young one has to work from most humble position to the highest position available in the family firms.  This reduces the chances of management falling in wrong hands.

Like old money landlord families, before the advent of industrial capitalism, many of the family firms today transferred the family values which help them keep the family wealth in family hands. Inter-cousin marriage, which is common in many emerging economies, helps transfer the shared values to next generation. Another factor which let the family companies survive is the availability of entire consulting industry to plan succession and tackle the inheritance problems.  

Now the family firms are not only taking care of family fortune but also families’ human capital as well. Rich and old money families educate their young ones in best business institutions. Competition among family members further keeps the family members pressurized to perform the best.

According to wealth reports the largest transfer of wealth from one generation to another is going to happen in coming years. The control of huge fortunes may transfer hands. Many people will become millionaire without working their way to riches. This can bring back the old aristocratic age when people advanced in their lives on the basis of heredity status, rather than hard work and merit.