The “Great Wealth Transfer” is in full swing, as over $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 inherited by younger generations, the heirs of wealthy families are taking a more active role in the impact they seek to create in the world by using the traditionally monolithic family office for more innovative, value-based investments.
The great wealth transfer is in full swing as over $100 trillion is projected to be passed down from the older generations to their heirs through 2048 in the United States, according to a December report by research and consulting firm Cerulli Associates.
“There’s a big intergenerational wealth transfer, but the preferences of the baby boomers are starkly different from the preferences of … millennials,” Nirbhay Handa, CEO of global migration platform Multipolitan, told CNBC Make It.
“Now you have this younger generation which really believes that profit and progress should go hand in hand,” Handa said.
A sea change
Millennials (ages 27 to 42) and Generation X (ages 43 to 58) stand 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.
Notably, the majority of wealth transfer will come from high-net-worth (HNW) and ultra-high-net-worth (UNHW) families, who together make up around 2% of all households, according to the report. These families are expected to contribute to over 50% of the transfers, or about $62 trillion.
Compared to the 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, an INSEAD Distinguished Fellow and family business and family office expert for McKinsey and Company. “They look out the front window [and ask]: ‘What’s ahead here? What are the big questions of our time?'”
Gen X and millennials are concerned with societal impact — topics like climate change, diversity, health and wellness and hedging against geopolitical conflict are top of mind, said Handa.
“I think sustainability and the whole ESG narrative is extremely robust [among younger generations],” the Multipolitan CEO added. “So they may not be interested in investing in fossil fuels or oil and gas, but they’re very interested in investing in a company like Oatly … or Beyond Meat,” said Handa.
Family offices have become centers of innovation.
Nirbhay Handa
CEO, Multipolitan
This shift in investing attitudes by younger generations came out of necessity, said Handa.
“People are seeing wars, [they’re] seeing the impact of climate change… there’s a lack of drinking water in many parts of the world,” he explained. “As a result of that, this generation has become more resolute on focusing on things which are aligned with their personal values.”
“The challenges are real … yes, we talked about cliamate in the 60s and 70s, you’ll find them in the American newspapers then, but it was just a little more abstract. Now, it’s real. Storms are coming, flooding is happening, hurricanes are more often… it’s proof [and] they see it,” said Roll.
‘Centers of innovation’
Another major shift can be seen in how some family offices are run.
“The whole idea of family offices is less rigid than it used to be… Family Offices have become centers of innovation,” said Handa. Having grown up in the age of digitization, the younger generations of wealthy families are investing more into technology and startups.
They seek to discover and invest in technologies that can be a “lever for impact,” said Roll. “For example, investing in climate tech, edtech, food treatment, water treatment, natural resources, renewable energy.”
In addition, younger generations are more active in how they invest through their family offices.
“30 years ago, family offices were primarily the equity stakes from the company that the family owns through the family office, and would be tied up in real estate, some broader public equities and [overall, it would be a] passive portfolio,” said Roll.
Today, however, family offices are increasingly making direct investments into private companies, which is not traditional, Roll added.
“The parents used to be what I call monolithic — they ran one business, but the younger people coming in may not be interested in chemicals, which is the main business, therefore they start to diversify [through] the family office,” said Roll.
Why is the great wealth transfer happening now?
Although it is true that wealth has always changed hands, the significance of the Great Wealth Transfer of our generation can be explained by looking back at the third wave of the industrial revolution.
“It was really that industrialization of particularly, the Western world, that took place in the 50s and 60s, ultimately, with the rise of America after World War Two, and Europe — a lot of wealth was created,” said Roll.
Out of this post-war “boom,” there were about 40 years of “outstanding economic activity,” which led to the creation of new industries, big businesses and ultimately, the rise of the middle class in the U.S. and Europe, said Roll.
“Therefore, jobs were created … Everyone got a car, people got a house … so you got a lot of major shifts that enabled that kind of wealth creation,” Roll told CNBC Make It.
It was this senior generation that really built “the world and the wealth after World War Two,” and “that wealth, including business stakes, is now getting passed on to Gen X, but also to, of course, younger people,” said Roll.
Bridging 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 the way things were done in the past is not necessarily how things will be done in the future,” said Handa.
“This era is about vitality and vibrancy and engagement. It’s about democratization, it’s about aspiration, it’s about accessibility,” Handa said.
Perubahan Preferensi Investasi dan Adaptasi Institusi Warisan di Dunia Baru
Dalam era yang terus berubah dan berkembang, preferensi investasi juga mengalami perubahan yang signifikan. Institusi-institusi warisan perlu beradaptasi dengan dunia baru yang terus berubah ini untuk tetap relevan dan kompetitif.
Perubahan Preferensi Investasi
Secara historis, preferensi investasi telah didominasi oleh institusi-institusi warisan yang cenderung konservatif dalam pendekatan mereka. Namun, dengan munculnya generasi muda yang semakin berpengaruh dalam dunia keuangan, tren investasi juga mengalami pergeseran yang signifikan.
Pentingnya Adaptasi
Adaptasi institusi warisan terhadap perubahan preferensi investasi sangat penting untuk memastikan kesinambungan dan pertumbuhan mereka di pasar yang semakin kompetitif. Institusi-institusi tersebut perlu memahami dan merespons perubahan tren investasi dengan cepat dan efektif.
Peran Generasi Muda
Generasi muda memiliki peran yang penting dalam mengubah preferensi investasi dan mengarahkan arus modal ke sektor-sektor yang berdampak positif bagi masyarakat dan lingkungan. Dengan menerima warisan kekayaan dari generasi sebelumnya, generasi muda diharapkan bisa memanfaatkannya untuk melakukan investasi yang berkelanjutan dan berdampak positif.
Tantangan dan Peluang
Dengan perubahan preferensi investasi yang mengarah pada investasi yang berdampak sosial dan lingkungan, terdapat tantangan dan peluang bagi institusi warisan untuk beradaptasi. Institusi-institusi tersebut perlu mempertimbangkan untuk mengalokasikan modal mereka ke sektor-sektor yang mendukung pembangunan berkelanjutan dan memecahkan masalah-masalah sosial yang mendesak.
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Perubahan preferensi investasi merupakan hal yang alami dalam dunia keuangan yang terus berubah. Institusi warisan perlu adaptasi dengan cepat dan efektif untuk tetap relevan dan bersaing di pasar yang semakin kompetitif. Dengan memahami tren investasi yang baru dan mengambil langkah-langkah yang tepat, institusi warisan dapat memanfaatkan peluang yang ada dan memastikan kesinambungan bisnis mereka di masa depan.
