Private markets primed for $83.5tn wealth transfer

July 16, 2024 (Preqin News) – The world has been becoming progressively richer, after rebounding from a 2022 slump, according to UBS’ Global Wealth Report 2024. With multi-trillion-dollar generational wealth transfers set to take place over the next decade, private capital may offer opportunities for wealth preservation.

Global wealth grew by 4.2% in 2023. Wealth growth by region saw the highest increase in EMEA at 4.8%, followed by APAC and the Americas at 4.4% and 3.6% respectively, according to the report.

The Zurich-based bank forecasts that $83.5tn of wealth will be transferred between individuals within the next 20–25 years. As people over 75 years old hold almost a fifth of global wealth, and their average life expectancy ranges from 82 to 86 across most of the world, a chunk of this can be expected to be transferred within the next 10 years.

UBS noted significant differences between regions. In 2023, the US had the highest number of dollar millionaires, at almost 22 million, representing 38% of the world’s millionaires. This was followed by China, with just over six million, and the UK with about half of that.

Of the 56 countries looked at by UBS, 52 are expected to have more millionaires by 2028, with the Netherlands and the UK among the few that are expected to decline by 4% and 17%, respectively (Greece is set for a small decline of less than 1%, and the other country is not named in the report).

On the other hand, Taiwan is expected to see a 47% increase in its number of USD millionaires, from 789,000 to 1.2 million, the greatest increase. This is forecast partly due to Taiwan’s microchip industry, which should see gains as the AI boom continues, as well as the immigration of wealthy individuals to Taiwan.

An increase in private wealth will likely accelerate growth in private markets AUM, which had reached $15.4tn at the end of 2023, according to Preqin data.

UBS’ 2024 Global Family Office Report, published earlier this year, found that family offices are maintaining their interests in private markets, and plan to allocate 42% to alternatives this year.

‘With this demographic change comes a shift in focus for family offices, from wealth creation to wealth retention,’ Rachel Dabora, an Analyst in Preqin’s Research Insights team, wrote in Fundraising from Family Offices: A Guide to Raising Capital. ‘The main concern for many is therefore capital preservation, ahead of maximizing ROI.’

In Preqin’s survey of family offices, diversification was cited as a reason to invest in all alternative asset classes; however, it was specifically important for hedge funds, real estate, infrastructure, private debt, and private equity. Real estate, private debt, and infrastructure were valued for their reliable income streams, while private equity and private debt were seen as having high risk-adjusted returns.

Fund managers are developing new products tailored to individual investors as private wealth grows. Evergreen funds, which had at least $350bn of net asset value as of the end of 2023 and provide a range of benefits to non-institutional investors, are a clear example.

For family offices, understanding the attribution of fund returns, fee structure, and the potential of emerging managers can all help to succeed in the often opaque alternatives industry, as detailed in Preqin’s Family Offices in 2024: Lessons on Investing in Alternatives primer.

_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin providing the information in this content accepts no liability for any decisions taken in relation to the above.}