Real estate and agricultural land remain the most popular investments for ultra-high net worth families, says new research by international family office Stonehage Fleming – although the family business remains their central asset.
Four Pillars of Capital for the Twenty First Century found that 78% of families would hold real estate and agricultural land and 67% said they would hold equities as a long-term strategy.
Stonehage Fleming partner in investment management Ian Marsh said: “Despite prices going up quite rapidly, it’s the fact that it’s a defined asset class, agricultural land is not growing and properties are not being built especially at the pace to meet the demand so it’s a supply and demand and historically something wealthy families have always had.”
Emerging market equities, on the otherhand, have fallen from grace having two years ago been the most favoured asset class.
The report noted that families need to focus on four areas of capital to preserve and grow their wealth: financial, intellectual, social and cultural.
Despite 72% of next-generation respondents listing capital preservation as one of their top three concerns, the report showed that 43% were bullish on alternatives and hedge funds, compared to just 26% of their parents.
Marsh says that witnessing the collapse of the financial market in early adulthood could have been the previous cause of their faltering confidence. Marsh said: “The financial crisis was still on the people’s mind, as they saw huge destructions of wealth. We are two years further from then and people have seen the market and economy stabilise.”
“People now feel that inflation is going to be prevalent whether it’s in the next couple of years or in the next 10 years, therefore as family grow in size they need more growth to provide the same sort of wealth and income they had before,” he added.
Financial capital was ranked the most important aspect of family wealth among UHNW individuals and their advisers, the report found; however, it added that other areas can be crucial to ensuring the long-term prosperity of the family.
Despite the importance placed on financial capital, family disputes and breakup were regarded the biggest risk to long-term wealth.
“Our experience of managing family wealth is that those UHNWs who only focus on financial capital, and do not develop a holistic long-term strategy that encompasses the other pillars of capital, will struggle to break from the mold of “clogs-to-clogs in three generations,” Marsh said.
“What struck us, however, was how important cultural capital was to our respondents – a heartening response given that a lack of common mindset or shared values bridging the generations are the most common reasons for UHNW families to ‘fail’.”
The research found was that 57% of the next generations had anxiety about not having enough income and 50% cited poor investment management as their top issue.
All participants surveyed were involved in philanthropy and regarded higher taxes as acceptable, as long as they were not a disincentive to wealth creation.
A total of 78 families with a combined wealth of £120 billion took part in this report with 30 doing face-to-face detailed interviews and the rest with a 14-item questionnaire.