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The “Great Wealth Transfer” is in full swing, as more than $100 trillion is expected to be transferred from older generations to their heirs through 2048, according to Cerulli Associates.
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As the baton of wealth is passed down to younger generations, the heirs of wealthy families are taking a more active role in the impact they seek to create on the world through the use of traditionally monolithic economics. family office for more innovative and value-based investments.
He great wealth transfer is in full swing, as more than $100 trillion is projected to be passed down from older generations to their heirs through 2048 in the United States, according to a December report. report by the research and consulting firm Cerulli Associates.
“There is a lot of intergenerational wealth transfer, but the preferences of baby boomers are markedly different from the preferences of… millennials,” said Nirbhay Handa, chief executive of global migration platform Multipolitan. CNBC does it.
“Now we have this younger generation that really believes that profit and progress should go hand in hand,” Handa said.
A radical change
Millennials (ages 27 to 42) and Generation
Generation Z and younger generations (age 27 and younger) are expected to inherit more than $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 represent about 2% of all households, according to the report. These families are expected to contribute more than 50% of the transfers, or about $62 billion.
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, distinguished fellow at INSEAD and family business and family office. McKinsey and Company expert. “They look out the front window (and ask), ‘What awaits us here? What are the big questions of our time?'”
Generation
“I think sustainability and the whole ESG narrative is extremely strong (among younger generations),” the Multipolitan CEO 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.
Nirbhay Handa
CEO, Multipolitan
This shift in younger generations’ investment attitudes came about out of necessity, Handa said.
“People are seeing wars, they are seeing the impact of climate change… there is a lack of drinking water in many parts of the world,” he explained. “As a result of this, this generation has become more determined to focus on things that are aligned with their personal values.”
“The challenges are real…yes, we talked about the climate in the ’60s and ’70s, you’ll find it in American newspapers then, but it was a little more abstract. Now, it’s real. Storms are coming, floods. It’s happening, hurricanes are more frequent… it’s proof (and) they see it,” Roll said.
‘Innovation centers’
Another important change can be seen in how some family offices they are executed.
“The whole idea of family offices is less rigid than it used to be…Family offices have become centers of innovation,” Handa said. Having grown up in the era 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 an “impact lever,” Roll said. “For example, investing in climate technology, educational technology, food treatment, water treatment, natural resources, renewable energy.”
In addition, younger generations are more active when it comes to investing through their family offices.
“30 years ago, family offices were primarily equity stakes in the company that the family owns through the family office, and would be tied to real estate, some broader public equities, and (generally a) passive portfolio.” Rollo said.
Today, however, family offices are increasingly doing straight investments in private companies, which is not traditional, Roll added.
“Parents used to be what I call monolithic: they had one business, but the young people coming in may not be interested in chemicals, which is the core business, so they start to diversify (through) the family office,” Roll said. .
Why is the great transfer of wealth happening now?
While it is true that wealth has always changed hands, the importance of our generation’s Great Wealth Transfer can be explained if we look at the third wave of the industrial revolution.
“It was really the industrialization of the Western world, in particular, that took place in the ’50s and ’60s, and ultimately with the rise of the United States after World War II and of Europe, a lot of wealth was created,” Roll said.
Out of this postwar “boom” emerged some 40 years of “exceptional economic activity,” leading to the creation of new industries, large businesses and, ultimately, the rise of the middle class in the United States and Europe, Roll said. .
“So, jobs were created… Everybody got a car, people got a house… so a lot of big changes happened that allowed for that kind of wealth creation,” Roll 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 holdings, is now being passed on to Generation X, but also, of course, to the younger generation.” “, said. Roll.
Uniting the old with the new
Overall, as trillions of dollars change hands, what does this mean for the world?
“This massive shift in money means that the way things were done in the past is not necessarily how they will be done in the future,” Handa said.
“This era is about vitality, vitality and commitment. It is about democratization, about aspiration, about accessibility,” Handa said. “Investment preferences are changing and legacy institutions must adapt to the new world.”
Ultimately, as younger generations inherit wealth, Roll said: “I think we’ll see money (do) a good job. It 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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