The “Great Wealth Transfer” is in full swing, as more than $100 trillion is expected to be transferred from older generations to their heirs by 2048, according to Cerulli Associates.
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As the baton of wealth is passed on to younger generations, the heirs of wealthy families are taking a more active role in the impact they seek to create in the world, using the traditionally monolithic family office for more innovative, value-based investments.
The a large transfer of wealth is in full swing as more than $100 trillion is projected to be passed down from older generations to their heirs by 2048 in the United States, according to Dec. report from research and consulting firm Cerulli Associates.
“There is a great transfer of wealth between generations, but the preferences of baby boomers are sharply different from those of … millennials,” said Nirbhai Handa, chief executive of global migration platform Multipolitan. CNBC Do it.
“Now you have this younger generation that really believes that profit and progress should go hand in hand,” Handa said.
A sea change
Millennials (ages 27 to 42) and Gen Xers (ages 43 to 58) are expected to be the biggest beneficiaries of the wealth transfer and are expected to inherit about $85 trillion between 2024 to 2048. according to the report.
Generation Z and younger generations (ages 27 and younger) are expected to inherit over $15 trillion.
In particular, most of the wealth transfer will come from high net worth (HNW) and ultra high net worth (UNHW) families, which together make up about 2 percent of all households, according to the report. These families are expected to contribute over 50% of transfers, or about $62 trillion.
Compared to baby boomers and older generations, “(younger generations) are less motivated by money, if I generalize, and much more (motivated by) contributing to society,” said Martin Roll, INSEAD Distinguished Fellow and family business and family office expert for McKinsey and Company. “They’re looking out the front window (and asking), ‘What’s next here?’ What are the big questions of our time?’
Gen Xers and millennials are concerned about societal impact — topics like climate change, diversity, health and wellness, and protection from geopolitical conflict are top of mind, Handa said.
“I think the sustainability and the whole ESG narrative is extremely robust (among the younger generations),” the Multipolitan executive added. “So they may not be interested in investing in fossil fuels or oil and gas, but they are very interested in investing in a company like Oatly … or Beyond Meat,” Handa said.
Family offices have become centers of innovation.
Nirbhai Handa
CEO, Multipolitan
This change in investment attitudes on the part of the younger generations is due to necessity, Handa said.
“People see wars, (they) see the impact of climate change … there is a lack of drinking water in many parts of the world,” he explained. “As a result, this generation has become more determined to focus on things that align with their personal values.”
“The challenges are real … yes, we talked about climate in the 1960s and 1970s, then you would find it in American newspapers, but it was a little more abstract. Now it’s real. Storms are coming, flooding is happening, hurricanes are more frequent … that’s evidence (and) they’re seeing it,” Rolle said.
“Innovation Centers”
Another big change can be seen in how some family offices are managed.
“The whole idea of family offices is less rigid than it was…Family offices have become centers of innovation,” Handa said. Growing up in the age of digitalization, younger generations of wealthy families are investing more in technology and startups.
They seek to discover and invest in technologies that can be “leveraged for impact,” Rolle said. “For example, investing in climate technology, edtech, food processing, water treatment, natural resources, renewable energy.”
Also, younger generations are more active in how they invest through their family offices.
“Thirty years ago, family offices were basically the equity stakes in the company that the family owned through the family office, and they would be tied to real estate, some broader public equities and (generally, it would be) a passive portfolio,” said Roll.
Today, however, more and more family offices are being made direct investments in private companies, which is not traditional, Rolle added.
“The parents were what I call monolithic – they ran one business, but the younger people coming in might not be interested in chemicals, which is the core business, so they’re starting to diversify (through) the family office,” said Roll.
Why is the great transfer of wealth happening now?
While it is true that wealth has always changed hands, the significance of our generation’s Great Wealth Transfer can be explained by looking back to the third wave of the Industrial Revolution.
“It was really this industrialization of the Western world that happened in the 1950s and 1960s, ultimately, with the rise of America after World War II and Europe — a lot of wealth was created,” Rolle said.
Since that postwar “boom,” there have been about 40 years of “extraordinary economic activity” that led to the creation of new industries, large enterprises and ultimately the rise of the middle class in the U.S. and Europe, Rolle said.
“So jobs were created … Everyone got a car, people got a house … so you got very big changes that allowed for this kind of wealth creation,” Rolle told CNBC Make It.
It was this older generation that really built “the world and the wealth after World War II,” and “that wealth, including business stakes, is now being passed down to Generation X, but also to, of course, younger people,” Rouleau said. .
Connecting the old with the new
All in all, after trillions of dollars change hands, what does it mean for the world?
“This massive change in money means that the way things were done in the past is not necessarily how things will be done in the future,” Handa said.
“This age is about vitality, vitality and commitment. It’s about democratization, it’s about aspiration, it’s about accessibility,” Handa said. “Investment preferences are changing and legacy institutions must adapt to the new world.”
Ultimately, as younger generations inherit the wealth, Rolle said, “I think you’re going to see the money (do) a good job. They will be reinvested in the economy … in technology and I think in some of the great challenges of our time: climate, gender issues, minorities, villages, poor people and basic (education).”
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2024-12-22 23:31:32