Global Wealth and Family tiesimages.forbes.com/forbesinsights/StudyPDFs/SocGenFamWealth_English.pdf2 | Global Wealth and Family ties exeCutive summary The Global Wealth and Family

Global Wealth and Family tiesa WorldWide study oF hoW Fortunes are Founded, manaGed and passed on

in assoCiation With:

ContentsExecutive Summary........................................................................................................2

Key Findings.....................................................................................................................3

Introduction.....................................................................................................................4

Family Ties and Source of Wealth in Mature Versus Emerging Markets...............5

Family Ties and Management by Regions and Countries.........................................7

A Sense of Balance—Europe.........................................................................................9

All in the Family—India and the Middle East............................................................10

The Lone Wolves and Women—Russia and China..................................................12

The Old and the New—Latin America.......................................................................13

Confucian Values—East Asia.......................................................................................14

Dynamic Wealth Creation—North America.............................................................15

Family Ties by Industry.................................................................................................16

Spotlight on Technology: Tech Guys Are Different..................................................18

Managing and Investing...............................................................................................19

Appendix: Ultra-High Net Worth Individuals by Country.......................................20

Methodology.................................................................................................................32

Cover photo by ©Aurelien Chauvaud

2 | Global Wealth and Family ties

exeCutive summary

The Global Wealth and Family Ties report analyzes 1,253 of the world’s largest fortunes in 12 countries from the per-spective of family involvement in running the business. There are many different factors that determine whether family members are involved in running a business, includ-ing the life cycle of an economy and a particular business, social expectations and obligations, and the type of indus-try. Understanding them informs us about the current state of fortunes. The family’s role in wealth management also points to the future of wealth patterns, as the level of fam-ily involvement in the management of a business is strongly correlated to growth, industry and region of the world.

ReseaRch DefinitionsFor analysis purposes, the following definitions were used to categorize ultra-high net worth individuals studied for this report:

Source of Wealth• Self-made: Individuals who made their fortunes themselves.• Inherited: Individuals who inherited their fortune. • Inherited and Growing: Individuals who inherited

their fortune and continued to increase their fortune. They could be making money through their inherited company or a different one.

Family Involvement• Family fortune: At least one relative involved in a

notable way in the business.• Non-family: No relatives hold a significant role in the

individual’s business.

CopyriGht © 2012 ForbeS InSIghtS | 3

Key FindinGs

Roughly half of the biggest fortunes are run with family involvement and the other half without. Families are involved in 42% of the fortunes Forbes Insights analyzed for this report, while the rest (58%) are managed by individu-als. Involvement of family varies by region and industry.

Mature markets have more fortunes that are run with family involvement and have been inherited than emerging markets. But the difference is surpris-ingly small, proving that mature markets have a healthy entrepreneurial drive. Forty-six percent of fortunes in mature markets are run with family involvement, com-pared with 39% in emerging markets. Seventy-seven percent of fortunes are self-made in emerging markets ver-sus 65% in mature economies.

Family-managed fortunes are clustered in some regions of the world, and hardly exist in others. The highest per-centages of fortunes that are family run are in Hong Kong (75%), India (73%), France (64%) and the Middle East (62%). The lowest percentages of family-run fortunes are in countries such as Russia (19%), the U.K. (25%) and China (33%).

The technology sector worldwide is a game changer in terms of family involvement and how fortunes are founded and managed. It is a unique sector in that most of the billionaires are self-made and tend to be younger than their counterparts in other sectors. The real estate sector, on the other hand, lends itself to family man-agement worldwide.

Individually run fortunes tend to grow faster. Overall, among the fortunes analyzed for this study, the non-family-run fortunes performed better over a three-year period, gaining 9% in aggregate net worth, while family-run fortunes gained 4%. Over the last year (2010 to 2011), non-family-run fortunes also fared slightly bet-ter, gaining 26% in aggregate net worth, while family-run fortunes gained 25%.

Management of wealth varies significantly across the world, with families and individuals taking differ-ent approaches, from hedge funds (popular in the U.S.), to a very cautious approach in Asia, or the Russian pen-chant for investing in New York City real estate.


introduCtion

Blood is thicker than water, as the saying goes, but is busi-ness always a family affair?

When it comes to the world’s top fortunes ana-lyzed for this report, roughly half of them are managed with the help of family members. Family ties, or their absence, in the management and sharing of a fortune teach us about regional economic history and wealth generation trends, as well as cultural differences and social expectations.

Traditionally, the older the economy, the more for-tunes have been passed along through generations; for

example, 35% of German billionaires inherited their wealth, the highest per-centage among countries studied. On the other hand, in emerging mar-kets such as Russia or China, fortunes have been created over the last two decades, and individuals who origi-nated them tend to dominate the ranks of billionaires.

A popular belief about multigenera-tional fortunes is that the first generation makes it, the second one spends it, the third one destroys it. But there are plenty of examples that are exceptions to the rule: Lakshmi Mittal, chairman and

CEO of ArcelorMittal and the richest man in India, and Bernard Arnault, chairman and CEO of LVMH and the richest man in France, are second generation. They both received money from their families and used that inheri-tance to create their own billion-dollar fortunes.

Still, most of the people who are joining and increas-ing the ranks of the billionaires are individuals, because they’re creating these fortunes from scratch. So they do tend to drive more of the wealth creation. Self-made billionaires have had the strongest growth over the last year (2010-11) at 24%, and 9% growth over three years (2008-11). In comparison, inherited fortunes grew 21% over the last year and 5% over three years. Inherited and

growing fortunes grew only 12% over the last year and 2% over three years.

A lot of the new individual fortunes are in technology, which is changing family roles in the management of for-tunes and shaping future ownership, as some technology billionaires claim they will not be passing their businesses to their children, interrupting the intergenerational wealth transfer. In addition, technology billionaires tend to be younger than those in other sectors, so it is yet to be seen how they will manage their wealth and whether they will pass it on to future generations.

Does this mean that family management is obsolete and the future lies in professional management? Or does a fam-ily’s cumulative experience and trust have lasting value?

Geneticists seem to believe that the making of an entrepreneur takes equal contributions of genetic and environmental factors. A recent Forbes magazine article1 described the findings of Scott Shane, a behavioral econ-omist and professor of entrepreneurial studies at Case Western Reserve University, who approaches the ques-tions of genetics and entrepreneurship by comparing identical and fraternal twins.

According to his findings, a person’s ability to recog-nize new opportunities is 45% inherited. A lust for novel experiences is 50% to 60% inherited. Openness to new challenges is 45% to 61% inherited.

Another scientist quoted in the Forbes article, George Church, a professor at Harvard University and pioneer in developing DNA-sequencing technology to read genetic codes, believes that everything is both genetic and envi-ronmental. “Take your favorite entrepreneur and put him in a bad environment, and he won’t do much,” he told Forbes magazine.

The future of entrepreneurship and fortune-build-ing is thus dependent on many factors addressed in this report—family generations, societal expectations, and the economic environments of regions and countries.

1 herper, matthew. “born or made?” p. 77 Forbes magazine, may 23, 2011.

Geneticists seem to believe that the making of

an entrepreneur takes equal contributions of genetic and

environmental factors.


▶

▶▶ ▶

77.5% self-made

4% inherited*

12% inherited & growing**

77.5%

4%

12%

6.5%

note: 6.5% (42 fortunes) not available

The life cycles of businesses—and billionaire fortunes as such—are a factor in whether a family becomes involved in the business. These family business life cycles, in turn, depend on the economic life cycles of particular countries or regions. For the purpose of this chapter, the 1,253 for-tunes have been divided into two groups—those in mature and in emerging markets.

In mature markets, family businesses tend to be in later stages of family life cycles—often third, fourth or even more remote generations from the founder. They usually exist in economies that have had free markets for many generations. These mature markets are France, Germany, Hong Kong, Singapore, the U.K. and the U.S.

The emerging markets, on the other hand, tend to have businesses and family businesses situated earlier in the life cycle of wealth creation. These are fortunes in Brazil, China, India, Mexico, the Middle East and Russia.

The analysis shows that in emerging markets more for-tunes (77.5%) are self-made than in mature markets, where 65% of fortunes are self-made. The trend is logical, consid-ering that countries like Russia freed themselves from the communist economy only two decades ago, and have no inherited fortunes.

But the mature markets are not trailing emerging mar-kets in wealth generation substantially, as in both types of markets more than half of fortunes are self-made, which means they have been built from scratch by the current generation of owners.

Of course, this classification in itself spans several gen-erations of entrepreneurs, as among the self-made are Mark Zuckerberg, who founded Facebook while in his twenties, and Xavier Niel, who founded France’s first Internet provider, WorldNet, back in 1993, and is now in his forties. There are also older self-made billionaires

Family ties and sourCe oF Wealth in mature versus emerGinG marKets

▶

▶

▶

65% self-made

18% inherited*

17% inherited & growing** 65%

18%

17%

souRces of wealth in matuRe maRkets: 590 foRtunes

(*) and (**) see definitions page 2

souRces of wealth in emeRGinG maRkets: 663 foRtunes


▶

▶

39% family in Business

61% no family in Business

39%

61%

familY inVolVement in Business in emeRGinG maRkets: 663 foRtunes

▶▶

46% family in Business

54% no family in Business

46%54%

familY inVolVement in Business in matuRe maRkets: 590 foRtunes

such as octogenarian Warren Buffett, considered America’s preeminent investment guru and founder of investment vehicle Berkshire Hathaway, and the ninety-something Karl Albrecht of Germany, the owner of discount super-market giant Aldi.

When compared by family involvement in business, mature markets show more involvement of families (in 46% of fortunes) than emerging markets, where only 39% of fortunes have family members involved in running a business. Again, the trend is intuitive, since fortunes

that have been passed down through generations, from original owners to descendants, are more prone to have family involvement.

What is worth noting is that the difference is not substantial, and even in emerging markets, where the for-tunes tend to be newer, close to half of all fortunes have some family involvement. This is due to cultural and societal expectations in several emerging markets, such as the Middle East and India, which will be discussed in other parts of this report.


Family ties and manaGement by reGions and Countries

among the fortunes analyzed for this report, more than half (58%) are run

without family involvement, while the remaining 42% have at least one fam-

ily member involved in running the business. there are significant variations

around the world when it comes to family ties and the management of fortunes.

in some parts of the world—such as india and the middle east—combining

family life and business life is a given. in europe the situation is more bal-

anced, with roughly half of the fortunes managed with families, and the other

half without. and then there are russia and China, where in most cases the

running of a business is not a family enterprise.

▶42% total Family

Fortunes ▶

58% total non-Family

Fortunes

foRtunes woRlDwiDe: familY Vs. inDiViDual manaGement


Germany

familY anD non-familY foRtunes in euRoPe

France

United Kingdom

▶ ▶

Family: 25% non-Family: 75%

Family: 64% non-Family: 36 % Family: 52% non-Family: 48 %

45% Family

55% non-family


europea sense oF balanCe

The more balanced management structure in Europe—where roughly half of the fortunes are managed by families and half are not—results from a long economic history that created many family fortunes, some dating back cen-turies, while also maintaining open, free-market-oriented economies, which foster an entrepreneurial spirit.

Bernard Arnault can be seen as a billionaire represent-ing both the maturity and the entrepreneurship of Western European markets; as straddling the balance in wealth cre-ation life cycles between the U.K. and Germany; and as a midpoint between a self-made entrepreneur and a billion-aire by inheritance.

Arnault inherited wealth from his father’s construc-tion business, but he used that capital in the fashion and retail industry to create the renowned and successful LVMH. Arnault is not technically self-made, as are many of the British billionaires, but he actively grew his own fortune with a new company in a completely different industry than his father’s. Even though he is classified as a billionaire by inheritance, he is younger than the typical German billionaire.

He also represents the family-oriented business culture in France, which has the highest percentage of family-run fortunes among Western European countries analyzed for this report (64%). Other French families who run fortunes include brothers Alain and Gerard Wertheimer—who control Chanel, co-founded by their grandfather—and Martin and Olivier Bouygues, who run an industrial group founded by their father.

It is due to such strong family ties in sharing wealth and the methodology of the Forbes billionaire list—where each individual has to be worth at least US$1 billion to qualify—that France’s representation on the billionaire list is relatively small. As wealth is diffused among relatives—as was the case with the Mulliez family, owners of the supermarket chain Auchan—they are no longer included on the list.

On one end of the spectrum in Western Europe are old-line British family fortunes, like that of Gerald

Cavendish Grosvenor, the country’s richest landowner, whose real estate empire had its origins in the 1600s. Germany is home to many fortunes started right after the end of World War II. One of the country’s richest men, Karl Albrecht, owner of discount supermarket giant Aldi, started by taking over his mother’s grocery store in 1946. German culture is imbued with typical “old money” secretiveness and discretion, as German billion-aires don’t flaunt their wealth, and are also very careful about protecting their privacy when it comes to events pertaining to their families, such as death or divorce, or giving out any information about their businesses they are not obliged to report.

Germany is at a very mature stage of the life cycle in wealth creation at this point, and holding quite steady. It continues to be home to the most billionaires in Western Europe. Germany used to be second in number of bil-lionaires to the U.S., but it keeps slipping, not because it’s losing billionaires, but because other countries are passing it by. Among countries that now have more billionaires than Germany are Russia, China, and India.

The U.K. is fairly mature in terms of its business life cycle, with a lot of old-time families in real estate and in retail. But it is also entrepreneurial in spirit, with new fortunes emerging more often than in other Western European countries and the highest percentage (75%) of individually managed fortunes.

Self-made mavericks in the U.K. include new-age vac-uum cleaner inventor James Dyson; high-school dropout Richard Desmond, who owns OK! magazine; record label tycoon Clive Calder; and J.K. Rowling, the author of the Harry Potter series, who came from humble beginnings.

But even for some British mavericks, traditional fam-ily ties have a pull. Surprisingly, despite his reputation as a business daredevil, Richard Branson, the founder of Virgin Group, is taking a traditional approach in terms of family management, with his daughter forgoing her medi-cal career to join the family business.


india and the middle eastall in the Family

India is among the countries with the highest percentages of family-run fortunes and a prime example of how social expectations shape the interaction of family and wealth. Indian business was all tied up in red tape until 1991, when economic liberalization unleashed the country’s entrepre-neurial energy and hundreds of first-generation businesses

sprung up. As sectors hitherto dominated by the state opened up, private capital took the plunge. Notable examples of these sectors include telecommunica-tions, aviation and insurance.

India is unique in the sense that its many newer, self-made fortunes cre-ated after 1991 also already have strong family ties, much the way older busi-nesses are run.

In India, maintaining strong family ties in all facets of life is a social expec-

tation, as is providing the best possible education for the children. These two strong social undercurrents combine to create the foundation for qualified family manage-ment for family fortunes. Family members are usually sent abroad for education and some work experience before

being inducted into the family business. This can even be true of first-generation businesses. Telecom entrepre-neur Sunil Mittal’s son Shravin now works with him. Jet Airways’ Naresh Goyal has both of his children in the company now. Mukesh Ambani took over as chair-man of Reliance Industries, after his father, the company’s founder, fell ill. Wipro founder Azim Premji’s Harvard-educated son is the chief strategy officer of the company, and seems to be in line to succeed him.

Indian families are well qualified for business, and entrepreneurial energies are high. Problems, though, may arise when it comes to passing on the baton to the next generation. A handful of business groups have begun to separate ownership from management.

One of the first business families to intro-duce professional management was Dabur India, one of the country’s largest consumer goods compa-nies. Started more than a hundred years ago, Dabur is now controlled by the fifth generation, but it has been retaining a non-family chief executive for a decade1.

1 according to “nature and nurture” by anuradha raghunathan, Forbes asia magazine, april 12, 2010.

Kuwaitindia lebanonFamily: 67% non-Family: 33 % Family: 100% non-Family: none Family: 73% non-Family: 27%

in india, maintaining strong family ties in all facets of life is a social expectation, as is providing the best possible education for the children.


With 62% of Middle Eastern fortunes run by families, the region has one of the highest ratios of family involvement in business worldwide. “This is related to Arab culture,” says Refaat K. Jaafar, business producer at TV channel Al Arabiya. “Unlike in the West, family members do not leave home until they marry. And even after marriage, families tend to be close together not only in proximity and socially but also in business. Family involvement in business is more correlated to culture than to business complexity or eco-nomic history.”

Wealth in Arab culture is typically inherited from older generations and not distributed horizontally among family members. Inherited wealth is usually divided evenly among all, typically male, family members. Irrespective of the business’s level of complexity and because of the trust that exists within families in the region, business owners tend to involve family members in the business. Middle Eastern families are close-knit and discreet. Divorce in the region is rare, and when one occurs in a family business, it is kept pri-vate, according to Jaafar.

▶

▶

▶▶

73% Family

27% non-family

62% Family

38% non-family

familY anD non-familY foRtunes in the miDDle east

familY anD non-familY foRtunes in inDia

saudi arabiaUaeFamily: 50% non-Family: 50 % Family: 50% non-Family: 50 %


China and Russia have created a lot of self-made billion-aires who run their fortunes individually. We have called them the lone wolves, since they have the highest rate of individual billionaires of all countries studied.

Although geographically China belongs in the East Asia region, its characteristics make it much more similar to Russia, which, like China, has abandoned the shackles of a communist economy for free markets (though, of course, China’s political system remains based on Communist Party rule). It is the similarities of the decades-long com-munist regimes and their influence on the mentality of people that is clearly reflected in the structure of the cur-rent fortunes.

In Russia, this trend may be attributed to the origins of the fortunes, following the collapse of the communist economy two decades ago. “These guys are in hard-core industries. It’s all natural resources that they got from the state. There was no place for family under such conditions,” says Tatiana Serafin, a wealth analyst and a consultant to the New York Stock Exchange.

Russia, which only a decade ago had just one billion-aire, is incredibly early in the wealth creation life cycle. It is clearly dominated by people who came of age dur-ing the privatization of the country, when a lot of them were able to grab assets on the cheap, and so is full of much younger, more swashbuckling entrepreneurs than in Western Europe. Often, when they took on partners in business, they chose friends, not brothers or sisters, says Serafin. For example, Vladimir Potanin and Mikhail Prokhorov built the large holding company Interros fol-lowing privatization in 1992. They split their partnership in 2007; later Prokhorov sold his share of Norilsk Nickel to fellow billionaire Oleg Deripaska. Old college friends Mikhail Fridman, German Khan and Alexei Kuzmichev founded Alfa Group, the biggest financial and industrial group in the country. Mikhail Fridman also heads the holding company AAR with Viktor Vekselberg, German Khan and Len Blavatnik—AAR co-owns the oil company TNK-BP with BP.

China has a uniquely high number of self-made women among the country’s richest, such as Zhang Xin of Beijing-based real estate developer SOHO, who runs her business with her husband, fellow media celebrity Pan Shiyi. Russell Flannery, senior editor and Shanghai bureau chief of Forbes magazine, attributes this phenomenon in part to Chinese communism, under which women were forced into equality with men. The resulting attitudes still hold true today.

China and russia the lone Wolves and Women

33.5% family

66.5% non-family

33.5%

66.5%

familY anD non-familY foRtunes in china

▶

▶

19% family

81% non-family

19%

81%

familY anD non-familY foRtunes in Russia

▶

▶


latin ameriCathe old and the neW

Latin America has some very old wealthy families, but because of recent economic growth, particularly in Brazil, many new fortunes are bubbling up. So the region con-tains both old and new fortunes. It can be viewed as a society in transition.

Both Mexico and Brazil have a large number of old family fortunes. The Safra family in Brazil—a bank-ing family with origins in the Middle East— is a classic example. Joseph Safra is a billionaire, his brother Moise used to be on the list, and a third brother, Edmund, passed away. Four of the Brazilian billionaires are members of the Moreira Salles family, another banking fortune. Generally, old family fortunes have more family members involved.

The more family members involved, the more diffuse a fortune becomes. So added together, a family might be worth more than a billion dollars, but this family division of assets among individuals causes the family to fall off the Forbes billionaire list. This trend will continue to increase the proportion of non-family businesses on the list.

Brazil has a greater number of entrepreneurial bil-lionaires than Mexico, partly due to a greater variety of industries. Brazil’s economy has diversified as it has grown, and the variety of billion-dollar industries reflects

this diversification. Since a middle class has emerged, busi-nesses have arisen to fulfill the specific needs of a middle class: Billionaire-making industries include healthcare, apartment buildings and natural cosmetics.

There are more family fortunes than entrepreneurs in Mexico. This is partly due to the fact that Mexico’s economy is not as dynamic and fast-growing as Brazil’s. It’s simply more difficult to do business there, let alone start a new billion-dollar company. However, there are still a significant proportion of individual billionaires in Mexico, such as Carlos Slim, one of the richest men in the world. Yet, even though Slim himself is self-made, he has involved his children in running the business—perhaps due to cultural and familial expectations.

The future will see a greater proportion of entrepre-neurs in both Brazil and Mexico. A lot of wealth in Brazil depends on the strength of the currency and the strength of the stock market. And Latin America is notorious for its volatile currency and exchange rates and volatile stock exchanges. Booms and busts seem to be part of the land-scape there. Five years from now there could even be far fewer billionaires in Brazil if things take a turn for the worse. But it’s been a good decade for Brazil.

49% family

51% non-family

49%51%

familY anD non-familY foRtunes in latin ameRica

▶▶

brazilmexicoFamily: 47% non-Family: 53% Family: 55% non-Family: 45%


Considering its Communist past, for analysis purposes we have grouped China with Russia. Both Hong Kong and Singapore have high rates of family involvement, espe-cially Hong Kong. This can be partially attributed to the high rate of real estate fortunes in these two countries, which were made a couple of generations ago, right after World War II. Real estate fortunes tend to be founded and managed by family members.

A unique characteristic of these two countries is the way they manage their wealth. Families don’t trust one banker with all their money and invest conservatively. “In most Asian countries there is a very strong sense of provid-ing for family members. You trust members of your family very highly, so they are the people you want to bring into the business,” says Justin Doebele, chief editorial advisor at Forbes Indonesia.

east asiaConFuCian values

39% family

61% non-family

39%

61%

familY anD non-familY foRtunes in east asia

▶

▶

hong KongsingaporeFamily: 75% non-Family: 25 % Family: 58% non-Family: 42 %


north ameriCa dynamiC Wealth Creation

One might think that the U.S., the “New World,” so to speak, would have the greatest percentage of individual fortunes, but in fact it has a lower percentage (58%) than Old World Britain (75%). But there are still a significant number of billionaires who work without their family in the U.S.: 239.

The U.S. does remain a nexus of innovation and entre-preneurship. A majority of businesses are run without family, and 69% of fortunes are self-made. Silicon Valley and the technology sector, which tend to involve younger entre-preneurs who can start a business without much capital, have a great deal to do with this. Over the last 15 years the cre-ation of new fortunes in the U.S. has accelerated: In 1997 only 55% of the members of the Forbes 400 were self- made.

Sometimes the rise in net worth of an individual is meteoric. It took Mark Zuckerberg, founder of Facebook, only four years to reach $1 billion in net worth; it took Eric Lefkofsky, founder of Groupon, a site that features daily deals on things to do or buy, only two and a half years to reach $1 billion in net worth. In comparison, John D. Rockefeller and automaker Henry Ford both had to work more than two decades to reach this level of wealth.

But while the newest wealth is generated in technology in companies based in Silicon Valley, there is something to say for family and traditional industries as well. There were 18 families on the Forbes 400 list in 2011 with mul-tiple members, which means that each member had a net worth of at least $1 billion. They were led by six members of the Walton family, who were together worth $93 bil-lion. The Waltons are heirs to a fortune based on discount store chain Walmart.

42% family

58% non-family

42%

58%

familY anD non-familY foRtunes in noRth ameRica

▶

▶

it took mark Zuckerberg, founder of Facebook, only four years

to reach $1 billion in net worth. in comparison, John d. rockefeller

and automaker henry Ford both had to work more than two decades to reach this

level of wealth.


Family ties by industry seCtors

While it’s the family relationships, the origins of how par-ticular businesses were set up, how many generations they span, and where they are located that determines family involvement, the type of industry they are in plays a role as well.

Among the industries with the most family involve-ment are finance, construction, real estate, services, and food and beverages. Among the lone wolf industries, where fortunes tend to be managed individually, are tech-nology and investment.

Real estate is a fairly capital-intensive sector, where many entrepreneurs either borrow money from a relative or buy properties with relatives, so many real estate for-tunes have their origins in families. Know-how is often passed on from generation to generation. Among the world’s best-known real estate fortunes is that of Donald Trump, who has exponentially grown a real estate busi-ness he inherited from his father, and is now working with three of his children, Don, Ivanka and Eric, whom he has himself groomed in business since they were quite young. “They report to me and we discuss our developments mutually, and they’ve shown an innate talent for what they are doing,” says Trump. “I think I’ve been a good example for them to follow, and they are not only passionate about their work but intelligent in their dealings.”

Here is how Trump explains why real estate lends itself to family management: “Each situation is different, but in general a focus is required that keeps a strong family even stronger. The bond is there, and most people who are successful in real estate are passionate about what they do. That’s key for success. That passion can extend itself to family very readily. When this enthusiasm is in evidence, it’s an example to family members and can be contagious in the best way possible. Real estate also provides a num-ber of creative outlets so that individual talents can be recognized and developed. The family is a great nurturing ground for talent and success.”

Trump himself was nurtured in business by his father, Fred, a real estate tycoon: “I went to construction sites with him as a child, and listened to him negotiating. He told me to ‘know everything you can about what you’re doing,’ and his thoroughness was made very clear to me. He also loved what he was doing and that was apparent. He worked every day because he wanted to. He also had

• Family • non-family

finance

construction

sports

service

food & Beverage

Real estate

automotive

Diversified

metals & mining

healthcare

investments

Fashion & Retail

Gaming

manufacturing

technology

telecom

logistics

media

energy

64%

64%

61%

57%

53%

50%

49%

48%

47%

43%

42%

41%

36%

34%

29%

28%

25%

24%

19%

36%

36%

39%

43%

47%

50%

51%

52%

53%

57%

58%

59%

64%

66%

71%

72%

75%

76%

81%

inDustRY BReakDowns BY familY Vs. non-familY


a four-step formula for success: Get in, get it done, get it done right, and get out. He didn’t waste time.”

On the other hand, a sector like investment very much depends on the individual who is running the show that creates the success, and not family nurturing. It would be very rare to have four or five family members who are really good investors, and therefore running an investment business is more of an individual enterprise.

The business of technology seems to unite people with the same skills and mindsets, often friends or colleagues rather than relatives. “With technology companies the ini-tial capital investment in many cases is very low,” says S.D. Shibulal, co-founder and chief executive of Indian soft-ware giant Infosys. “So most of them are built with sweat equity. In the very beginning at least, it’s more idea based. So the investment is more brain and more teamwork [than capital].” (See Spotlight on Technology: Tech Guys Are Different, page 18.)

In some cases, the family role in fortunes in certain industries may also be related to regional characteristics. In the case of diversified fortunes, the relatively high ratio of family management may be because it took several genera-tions to piece together vast conglomerates.

More traditional industries can sometimes get a boost when geopolitical developments propel them into new markets. For example, the fall of the Soviet bloc opened up huge new markets for Western European companies. German fortunes derived from retail that benefited from this new opening included Aldi, the discount supermar-ket chain founded by Karl Albrecht, one of the richest men in Germany, and his late brother Theo. The French bil-lionaire, Bernard Arnault, best known for his running of LVMH, also holds a significant stake in Carrefour, which has expanded into Eastern Europe.

“most people who are successful in real estate are passionate about what they

do. that’s key for success. that passion can extend itself to

family very readily. When this enthusiasm is in evidence, it’s

an example to family members and can be contagious in the

best way possible.”

DonalD trump billionaire real estate Developer


spotliGht on teChnoloGy teCh Guys are diFFerent

the technology sector is transforming how business is done around the world in terms of management, family involve-ment and philanthropy.

Just like the industry itself, many of the technology entrepre-neurs are young. they include Facebook founder mark Zuck-erberg; yoshikazu tanaka, founder of Gree, Japan’s answer to Facebook; and sergey brin, founder of Google. many of them are still single and in their twenties or thirties.

but it is not simply because of the youth of the current inter-net billionaires that so few of them are running their ventures with families. their firms were often started with friends who shared technological savvy rather than with relatives, which explains why few of them are family-run. a shared obsession with motherboards was what drew bill Gates and paul allen together to start microsoft.

When it comes to professionalism versus family management, technology often trumps the influence of geography and so-cietal expectations. it is simply the way of the new. even with india’s strong family traditions, technology entrepreneurs are different. While overall 73% of businesses analyzed for this report in india are family-run, only half of indian technology companies are run with the assistance of family members.

among the non-family-managed technology companies in india is bangalore-based infosys, a software giant that was founded by seven colleagues in 1981. s.d. shibulal, a co-founder and the current chief executive of infosys, believes that there are pros and cons to involving family in manage-ment: “Family-owned and -managed businesses have the continuity of leadership, there’s a stronger control of the com-pany itself. then people feel loyal or accountable to the cor-poration, because of the family heritage. but at the same time the negatives are [that family involvement] can lead to lack of transparency, lack of productivity and also conflict of interest.

“the founders of infosys took a very early decision that none of the family will be involved, and that’s how we run the com-pany,” says shibulal. in fact, infosys is transitioning from be-ing led by professionals who are founders to professionals who are non-founders, as the first non-founder was recently named as the company’s chairman.

it is also in technology where the future of philanthropy and the wealth of future generations are being rewritten, as tech-

nology billionaires are leaving billions to charity and not their children. it’s not just the quantity of money but also the ap-proach of technology executives to running their foundations that is different. lewis d. solomon, a professor at George Washington University and the author of tech billionaires: reshaping philanthropy in a Quest for a better World, writes about how american technology billionaires are funding causes they personally believe in and run their foundations much the same way they ran their companies, which enables them to maximize social returns. “bill Gates’s foundation has spurred changes in how philanthropy operates, particularly among the older mega foundations,” he writes1.

although the global center of the technology industry, in terms of innovation in business and philanthropy, is in the U.s., what is true about the technology business in america is true about technology globally, says wealth analyst serafin. this also includes similarities in charitable giving.

technology billionaires outside the U.s. have also given bil-lions to charity and created their own foundations. they in-clude azim premji, head of tech titan Wipro, who started the azim premji Foundation in 2001, with an initial endowment of Wipro shares worth $125 million. in 2010, in keeping with his avowed intent of giving away a chunk of his fortune, he do-nated shares worth $2 billion to a trust that will go to the foun-dation to help public schools in india’s heartland, the largest ever donation by an indian billionaire.

Founders of the giant German software company sap were among the leaders in philanthropy by technology companies in europe. in 1998 sap co-founder hasso plattner donated 2.1 million sap shares, then worth $1.5 billion, to establish the hasso plattner Foerderstiftung (foundation), which supports the sciences, historical preservation and projects in south af-rica focusing on underprivileged children and teenagers. Co-founders dietmar hopp and Klaus tschira also donated big chunks of their sap fortunes to their charitable foundations.

it remains to be seen whether the progressive attitudes to business, management and philanthropy practiced in the technology sector will spread to other industries.

1 Solomon, Lewis D. Tech Billionaires: Reshaping Philanthropy in a Quest for a Bet-ter World (2008), Transaction Publishers.


manaGinG and investinG

The ways of managing, investing and spending fortunes vary across the world, mostly depending on the maturity of financial institutions and markets, but also on tradition and geopolitical situation.

Among the countries with the most sophisticated financial asset management institutions is the U.S. Ultra-high net worth individuals have access to thousands of hedge funds, which can use complex and risky strategies involving, for example, leverage, short selling or deriva-tives. But this pursuit of high returns doesn’t always end well, as was the case when investment manager Bernard Madoff turned out to be running a Ponzi scheme, and defrauding investors out of billions. Among his victims was the charitable trust of real estate and media billionaire Mortimer Zuckerman.

Perhaps Madoff could not have been so successful for such a long time in Asia. According to an East Asia-based wealth analyst, wealthy investors in Asia pursue a very careful strategy. In many cases they don’t yet have fam-ily offices, tasked with managing their assets. They may be using the chief financial officer of their company, or they have a private banker. But they never give their private bankers all their money. Most families will have three or four private bankers, and the money they give to the pri-vate bankers is considered a kind of safety money, which they put it in very conservative investments. There is sus-picion about anything too fancy.

The private banking business in China right now is extremely competitive, because there’s so much wealth creation and because people historically don’t have a lot of experience handling their own money. “It’s really not so much the investment service, but it revolves around cul-tural things—the relationship between one person and

another person supersedes almost everything else,” com-ments Flannery, the Forbes Shanghai bureau chief and senior editor.

Indian billionaires have begun to diversify the man-agement of their assets. Business families have set up family offices that oversee the management of their wealth. Azim Premji has PremjiInvest, a private equity fund with assets exceeding $1 billion. Narayana Murthy of Infosys has set up Catamaran, a venture capital fund that he funded by selling a portion of his shares. Big groups like the Birlas also have set up private equity arms that invest in smaller new ventures.

Russian billionaires have been spreading their wealth around the world as well. Real estate attorney Edward Mermelstein, founder of Mermelstein & Associates, often helps foreign clients with luxury real estate transactions in the U.S. According to Mermelstein’s analyses, roughly $80 billion has left Russia in the last year, and about 5% to 10% of that, or between $4 billion and $10 billion, has ended up in the U.S. He believes that most of that wealth has gone into real estate.

Recently Russian billionaire Dmitri Rybolovlev announced that he was buying an $88 million penthouse in Manhattan for his 22-year-old daughter Ekaterina1. “Most of them [the billionaires] have been coming into the market looking at U.S. acquisitions as more of a diversifi-cation, not necessarily looking at significant returns,” says Mermelstein. A luxurious apartment in Manhattan can be viewed as an asset whose value is not likely to decline.

1 Kroll, Luisa. “Billionaire’s Daughter Pays Record Sum For NYC Pad,” 12/19/2011, Forbes.


familY in Business Family involvement = 46.7% of brazilian billionaires

• Growth for billionaires with families in business since 2008: -10.5%

• Growth for billionaires with families in business since 2010: 17.8%

Without family involvement = 53.3%

• Growth for billionaires who run their business without family involvement since 2008: 139%


souRce of wealth Self-made

• percentage that are self-made = 50%

• Growth rate for the self-made since 2008: 112.7%


Inherited

• percentage that are inherited = 26.7%

• Growth rate for inherited since 2008: -4.9%

• Growth rate for inherited since 2010: 5.5%

Inherited and growing

• percentage that are inherited and growing = 23.3%

• Growth rate since 2008: -3.3%

• Growth rate since 2010: 29.6%

brazil (n=30)

Appendix

ultra-hiGh net Worth individuals by Country


familY in Business Family involvement = 33.5% of Chinese fortunes

• Growth for fortunes with families in business since 2008: 157.6%

• Growth for fortunes with families in business since 2010: 7.5%


• Growth for fortunes run without family involvement since 2008: 134.2%

• Growth for fortunes run without family involvement since 2010: 1%


• percentage that are self-made = 82.8%



Inherited

• percentage that are inherited = 1%




• percentage that are inherited and growing = 6%



42 fortunes not available

China (n=400)


familY in Business Family involvement = 64% of French billionaires



Without family involvement = 36%





• Growth rate for the self-made since 2008: -19.5%


Inherited



• Growth rate for inherited since 2010: 7%




• Growth rate since 2010: 37%

France(n=14)


familY in Business Family involvement = 52% of german billionaires




• Growth for billionaires who run their business without family involvement since 2008: -1%

• Growth for billionaires who run their business without family involvement since 2010: 60.8%





Inherited








Germany(n=52)


familY in Business Family involvement = 75% of hong Kong fortunes

• Growth for fortunes with families in business since 2008: -8%

• Growth for fortunes with families in business since 2010: 23%


• Growth for fortunes run without family involvement since 2008: -8.6%

• Growth for fortunes run without family involvement since 2010: 14.5%



• Growth rate for the self-made since 2008: -9%


Inherited








hong Kong(n=40)


familY in Business Family involvement = 73% of Indian fortunes

• Growth since 2008 for fortunes with families in business: 24.4%

• Growth since 2010 for fortunes with families in business: -21.1%


• Growth since 2008 for fortunes run without family involvement: 98.5%

• Growth since 2010 for fortunes run without family involvement: -18.2%



• Growth rate for the self-made since 2008: 61%


Inherited








india(n=100)


familY in Business Family involvement = 55% of mexican billionaires

• Growth since 2008 for billionaires with families in business: 29.8%

• Growth since 2010 for billionaires with families in business: 34%


• Growth since 2008 for billionaires who run their business without family involvement: 21.65%






Inherited


• Growth rate for inherited from 2008: 105.6%

• Growth rate for inherited from 2010: 18.1%





mexico(n=11)


familY in Business Family involvement = 62% of middle east billionaires

• Growth since 2008 for billionaires with families in business: -33.5%



• Growth since 2008 for billionaires who run their business without family involvement: -3.6%






Inherited








middle east(n=21)


familY in Business Family involvement = 19% of russian billionaires










Inherited


• Growth rate for inherited since 2008: n/a

• Growth rate for inherited since 2010: n/a



• Growth rate since 2008: n/a

• Growth rate since 2010: n/a

russia(n=101)


familY in Business Family involvement = 57.5% of Singapore fortunes

• Growth since 2008 for fortunes with families in business: 45%

• Growth since 2010 for fortunes with families in business: 14.8%


• Growth since 2008 for fortunes run without family involvement: 40%

• Growth since 2010 for fortunes run without involvement: 18.8%


• percentage that are self-made = 57.5%



Inherited








singapore(n=40)


familY in Business Family involvement = 25% of u.K. billionaires




• Growth since 2008 for billionaires who run their business without family involvement: -7.8%




• Growth rate for self-made since 2008: -0.7%

• Growth rate for self-made since 2010: 39.1%

Inherited






• Growth rate since 2008: -9%


United Kingdom(n=32)


familY in Business Family involvement = 42% of u.S. billionaires

• Growth since 2008 for billionaires with families in business: -5%



• Growth since 2008 for billionaires who run their business without families: 5.9%

• Growth since 2010 for billionaires who run their business without families: 32.2%





Inherited








United states(n=412)


methodoloGy

The information in this study is based on an exclusive analysis of ultra-high net worth individuals in 12 mar-kets conducted by Forbes Insights. The markets studied were: Brazil, China, France, Germany, Hong Kong, India, Mexico, the Middle East (United Arab Emirates, Saudi Arabia, Kuwait and Lebanon), Russia, Singapore, the United Kingdom and the United States.

Using the list of the world’s wealthiest individuals compiled by Forbes magazine for 2011, as well as Forbes lists of the wealthiest individuals in Russia, China, India, Singapore and Hong Kong, Forbes Insights evaluated trends and developments involving ultra-high net worth individ-uals by country, region, industry, family involvement and source of wealth.

The minimum net worth of the individuals studied was US$1 billion or local currency equivalent in all markets. There were three exceptions: India ($370 million mini-mum), China ($500 million minimum) and Singapore ($210 million minimum).

Forbes Insights would like to thank the following individu-als for sharing their expertise:• Donald Trump, billionaire luxury real estate developer, media

and business personality, New York City, United States• Dr. S.D. Shibulal, co-founder, CEO and managing direc-

tor, Infosys, Bangalore, India • Edward Mermelstein, co-founder of Edward A.

Mermelstein & Associates, international real estate law firm, New York City, United States, and Moscow, Russia

• Justin Doebele, chief editorial advisor, Forbes Indonesia, Jakarta, Indonesia

• Kerry Dolan, senior editor, Forbes, San Francisco, United States

• Russell Flannery, senior editor, Forbes, Shanghai, China • Refaat K. Jaafar, business producer at Al Arabiya TV,

Dubai, United Arab Emirates • Naazneen Karmali, India editor, Forbes Asia, Mumbai, India• Luisa Kroll, senior editor, Forbes, New York City,

United States• Tatiana Serafin, consultant to the New York Stock Exchange

and wealth analyst, New York City, United States

about Forbes insiGhts

forbes insights is the strategic research practice of forbes media, publisher of forbes magazine and forbes.com. taking advantage of a proprietary database of senior-level executives in the forbes community, forbes insights’ research covers a wide range of vital business issues, including: talent management; marketing; financial benchmarking; risk and regulation; small/midsize business; and more.

Bruce Rogers ChieF insiGhts oFFiCer

Brenna sniderman senior direCtor

christiaan Rizy direCtor

kasia moreno editorial direCtor

& report author

clara knutson researCh manaGer

Robert azcuy desiGner

60 Fifth avenue, new york, ny 10011 | 212.367.2662 | www.forbes.com/forbesinsights

Documents

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