In this series of articles on wealth creation and maintenance, we have hit on a few key findings of researchers and practitioners. The vast majority of family wealth stems from business ownership and not inheritance. Families who divide their wealth among members at each generation tend to lose their wealth. Families who centrally manage their wealth and employ professional management tend to do substantially better. Investments in the private markets – which are relatively inefficient – offer more competitive advantages and present better opportunities than investments in the publicly traded markets. In this final segment, we will touch upon a few key findings of a recent survey of European billionaire families conducted by Forbes and Societe Generale.
The survey found that over the course of one generation (25 years), roughly 22% of families who centrally managed their assets lost a substantial portion of their assets. During the same period, about 60% of families who managed their assets individually lost a substantial portion of their assets. Put another way, families who divided their assets were approximately three times as likely to lose substantial wealth than families who centrally managed their assets. While a result like this was expected, the magnitude of the difference is somewhat surprising.
Well-accepted research shows that about one-third of companies in the United States make it to the second generation. Only around 10% reach the third generation. If wealth were preserved during this movement away from the privately held business into the publicly traded markets, we would expect to see a greater portion of overall wealth being inherited. But, the numbers tell us that only about 5% of wealth in the U.S. is inherited. On the other hand, the wealthiest families of Europe hold two-thirds of their wealth in private companies and only one-third in publicly traded securities. When we then look at inherited wealth, approximately 85% of European wealth is in its third or older generation. One-third of European wealth is in its fifth or older generation. This is an astounding result.
The recent Forbes/Societe Generale survey of Europe’s billionaire families seems to bear out the beliefs practitioners have held for years.
