Saturday, January 31, 2015

"How the Superrich Hedge Their Bets"

This is very serious stuff.
There are two questions you should be able to answer in the affirmative to establish a base from which to develop:
1) Do I have a talent or skill that I can market should the worst happen?
2) Do I have friends in countries outside my own domicile.
Link after the jump.

From Barron's Penta:
The world of the superrich is getting more fluid and complicated by the day. The very wealthy increasingly have a second passport, far-flung homes, and assets to escape to, if the going gets rough at home. Wittingly or not, we have created an elite subset of globe-trotters who are residents of this city or that, but they may no longer be citizens, in the deepest sense, of one specific nation or the other.

That’s our conclusion from reading the latest in-depth wealth report. According to insurer National Financial Partners and Wealth-X, a research outfit, there are 211,275 ultra-high net-worth individuals on the globe, defined as those with assets of more than $30 million each. All told, these folks lord over $29.7 trillion. But the superrich are aging, and $16 trillion of that pile is expected to pass to their heirs over the next 30 years.
Victor Habbick/Visuals Unlimited, Inc.
The world is their oyster: The globe’s ultra-wealthy are increasingly reducing their risks by acquiring a second nationality.
That means roughly the equivalent of the current U.S. economy is going to trade hands during this wealth transfer, producing a long list of private bank winners and losers across the globe. Wealth-X came to that $16 trillion wealth transfer figure by presuming wealth creation will follow its historical trend, with the ultra-high net-worth population growing annually by 4.6%, and the wealth they control, by 6.7% annually. Assuming that’s the case, the world’s billionaire population will, by 2020, grow by nearly 80% and increase by 1,700 individuals.

It’s a staggering notion.

Where is their money going to wind up? That, it seems, is up for grabs. About 64% of the ultra-rich are first-generation wealth creators and are, on average, 59-years-old. They have an average net worth of $141 million and they keep 38% of their net worth in privately-owned businesses.

They’re also world-travelers. The average billionaire, for example, owns four properties worth $78 million, most of which are outside their primary country of residence. David Friedman, Wealth-X’s president, says that “luxury real estate is the new Swiss bank account.”

That’s an important point. The superrich hedge their bets way beyond simply diversifying their portfolio; they spread their assets around the globe and pick up passports. Billionaires are five times more likely than the ultra-high net-worth crowd to apply for an immigrant investor program, seeking either residency or second citizenship (see Penta Asia’s “A Golden Entry Ticket for Asia’s Wealthy,” Nov. 14, 2014).

Buy an expensive property overseas, and some countries will throw in citizenship. In the last year, Malta received over 400 “naturalization” applications worth 450 million euros ($524 million) in investment. “The concept of citizenship is fast evolving, and we want to be at the forefront of this innovation,” said Malta’s prime minister.

According to Friedman, Russians usually snag extra passports for security reasons; Chinese want them as status symbols (but also, we suspect, as a quiet exit in case they run afoul of Communist Party authorities); while in the Middle East, the rich eagerly seek escape routes from local instability. Good schools and ease of travel are also deciding factors....MORE

From our April 2011 post "How Travel can be an Education for Investors and Could Possibly End Up Saving Your Life and Fortunes":
...If there is an effective hedge against calamity, it is a combination of geographic diversification, retention of capital in mobile form and the keeping in personal touch with active businesses, both at home and in other centers.

One must keep personally alert, active and in the swim. Retired businessmen, in my opinion haven't much chance. One must not tie up all one's assets in one's home town or in a form that is not liquid and subject to easy shifts. There are far too many people who have a small business in their home city, their own house in the same city, and if they own any securities, some shares perhaps of the local utility company.
In addition their friends and connections are all in a radius of 10 to 15 miles.

My real thought is that one's greatest assets are his mental competence to do something useful and his connections.

Therefore establish some emergency connections away from home. Establish a fund or funds away from home as well, both as a "calamity hoard" and as an aid to keeping your foreign interests alive....

...One ought to be able to move to several parts of this country and the world, and have enough friends to be happy and get a helping hand to start, and have ready at hand enough funds for a grubstake to start.

Ask yourself how many widely separated  places you could go to and make a successful new start in life....
Excerpted from Chapter 29, "Travel as an Education for Investors" of Gerald M. Loeb's The Battle For Investment Survival, Simon & Schuster, 1935.

See also:
Happy 75th Anniversary to one of the few MUST READ Investing Books: Gerald M. Loeb's "The Battle for Investment Survival" Chapters 1-3
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