Wealth cycle turns - China ousts Germany with more billionaires

ATI Magazine April/May 2014 issue

ASIA is at the beginning of a 150-year cycle of wealth creation, led by China — the factory of the world which is now the factory of the world’s billionaires — according to Wealth X, a Singapore-based research firm dedicated to identifying and validating ultra high net worth (UHNW) individuals around the world . . .

SINGAPORE — China boasted 157 billionaires among some 10,657 ultra high net worth individuals, with a collective personal fortune of US$1,515 billion, in 2013. It has displaced Germany as having the largest population of billionaires in the world, second only to the United States, where wealth creation began more than a century ago.
As well as China, Asia enviable economic growth of the past decade has produced a healthy crop of billionaires and ultra high net worth individuals, says Mykolas Rambus,
co-founder of Wealth X. Asia had 44,500 UHNWs with a combined wealth of US$6,590 billion in 2013 — up from 42,895 UHNWs with US$6,250 billion in 2012.
Rambus told ATI that most Asian UHNWs, with personal fortunes of at least US$30 million each, reside in Japan (14,000), China (10,500), India (7,850) and Hong Kong (3,180).
He says that, on average, China's UHNWs are 10 years younger than their counterparts in the West. They are in their mid-‘50s, compared with the global average of mid-‘60s. "Typically, tycoons in Asia will work for more years in their prime of wealth creation," he says.
Historically, Rambus says there have been waves of wealth creation. "A major wave of wealth creation is happening in China right now,” he told ATI. "If you look at global wealth and where we are, we believe we are at the beginning of a 150 year wealth creation cycle for Asia. “The context for that is if you look at the US and UK industrial revolutions, initially they involved commodities and infrastructure. Eventually, this evolved to services, retail, and basically those sectors that focus on the emerging middle class.
"You have the same thing happening in Indonesia, the Philippines and China today," adds Rambus, who was an executive on Forbes magazine, publisher of the Forbes Rich List, until some three years ago, when he left New York for Singapore to set up Wealth X.
He says trade, to some degree commodities, manufacturing, property and infrastructure provided the first wave of wealth creation. "Now you are seeing successful businesses around the emerging middle class.
"It is a State-sponsored initiative to build a middle class.  Everyone recognises that (the middle-class) provided the growth engine in the US that was so successful (that) it makes a lot of sense for many other countries, including China, to emulate.  That said, you have a lot of individuals who have created substantial wealth in the Mainland."
Rambus says the next wave of wealth creation is Asia will come from new sectors, such as technology. He cites as an example the Chinese e-commerce portal Alibaba.com, which is currently valued at US$158 billion. "Valuation of companies like that and other technology companies gives you a sense that there is a second wave of wealth creation coming, and this is the front end of that," he says.
Another big trend is that super wealth used to be much more country-specific historically. In Asia, says Rambus, wealth was concentrated in Hong Kong or Beijing.
But greater cross-border mobility — through ease of travel, education and so forth — has internationalised the effect of wealth. "If the wealthy think about their $50 million, $100 million or $500 million net worth, they recognise that they cannot have all their eggs in one market. It is a necessity, then, for them to look at multi homes, not just for leisure’s sake but to diversify risk."
And in countries like China, there are constant concerns about how such wealth will be viewed in their home country. Increasingly, wealthy Chinese will have to abstain from conspicuous consumption, toeing Beijing's line on anti-consumption as part of its anti-corruption drive — if they are not to fall out of favour with the Government and the Communist Party of China.
Not surprisingly, these individuals will seek to have something of a global footprint.  The current real estate investment wave rippling through capital cities across the globe is an indication of the purchasing power of this group of individuals.
The push to invest in international cities,
especially London and New York, from Chinese buyers started in earnest just two years ago.
The Chinese alone are expected to have a capital pool of at least US$10 billion to invest in real estate this year. But aside from property, they will look for investments, usually in similar industries, through which they will build their wealth, or related industries which they understand and are comfortable with. Rambus believes the next phase of investment will be in companies. Private banks, which advise UHNW clients, are seeing that the biggest demand is for deals. "These individuals are looking for transactions in other markets as a hedge, and to continue their wealth creation," he says.
He adds that what these rich individuals don't recognise is competition between themselves. "One of the things our report shows is that competition is increasing, so there will be a lot more Chinese billionaires chasing the same townhouses, the same farms, plantations and other high quality deals.
"Chinese UHNWs follow macro economic trends, but they don't necessarily see where their competition is coming from. The number of other very wealthy individuals around the world is also growing fast."
In a publication, World Ultra Wealth Report 2013, sponsored by the Swiss global bank UBS, Wealth-X found that the total wealth of the world's UHNW population is equivalent to 40 per cent of world GDP.
It found that UHNW wealth increased by just under US$2 trillion — greater than the GDP of India — in the 12 months from 2012 to 2013. The average wealth of these individuals has risen to US$139.4 million.
Aside from investment, their wealth will become the mainstay of consumption of high-end goods and services. Growth in their ranks will give depth to the market sought by purveyors of branded goods and toys of the ultra rich (cars, boats, planes) and tailor-made "experiences" like trips to pristine Antarctica.
"In 2007-08, when there was a (global) downturn, high-end brands were doing just fine," he says. “Sales of $1,000 handbags collapsed, but sales of $12,000 handbags were not affected. Similarly, those who could afford to fly first class were still flying first class.
"The high end often contributes some of the best margins to the various brands. Many banks are shuttering proprietary banking, but setting up and expanding private banking. They see their future in wealth management — a much less risky business, offering predictable returns.”
Similarly, Rambus says, when donors offering $1,000 or $100,000 to non-profit institutions dry up during economic downturns, the UHNWs continue to write million-dollar cheques. These people are insulated from external economic shocks.    Wealth X provides specialised research for companies and groups, like non-profit and educational institutions. It employs 170 researchers, based in offices in 12 countries, including in Sydney and Mumbai. Information on the super-rich is mined through published information and Government filings, then verified by its researchers.
Rambus chose to base the business in Singapore, seeing it as the hub for private wealth throughout Asia, more-so than Hong Kong, which is China-focussed. Singapore is a great place to observe the Asia wealth story, he says. Still, Hong Kong is "critically important" to its information gathering.