What do the next generation of ultra wealthy investors want?
The current intergenerational transfer of global wealth carries massive implications for the wealth-management industry. A 2019 survey by Wealth X flagged the unprecedented magnitude of this transfer. It estimated that about 550,000 individuals with a net worth of over USD 5 million will transfer USD 15.4 trillion of assets in total by 2030. The average amount of each of these transfers would be a phenomenal USD 28.2 million1.
In another survey by Capgemini in 2020, 64% of 1,200 HNWIs aged below 40 reported that they would rely on investment returns as their primary source of income over the next five years2. The survey also suggested that 35% of wealth managers believed that changing client profiles and expectations had very high potential to disrupt their industry. As this unique cohort takes over the reins, wealth managers must ready themselves, now!
What do millennial investors want?
As the first generation of digital natives, it’s been said by McKinsey that millennials tend to be more research-savvy and more price-conscious3 and as a result this new cohort expects a hybrid model of service delivery from their wealth managers. They seek the convenience and flexibility of transacting digitally, along with an empowering range of options at their fingertips.
With their emphasis on personalisation and convenience, this generation of HNWIs is likely to consolidate their wealth-management relationships with those that best move the needle. While their parents had several banking relationships across private banks, this generation is likely to seek more targeted solutions from a smaller number of providers. These characteristics are critical for wealth managers when deciding how to tailor service delivery.
According to Wealth X, the new class of HNWIs brings new experiences and a broader outlook than ever before. Having acquired expanded awareness through education, work, and running family businesses as second- or third-generation leaders, this deeply connected generation is more open-minded to investment opportunities in new jurisdictions or lines of business. In a 2020 Pew survey, the US millennials polled appeared to be at least 10% more favourable towards international organisations and other countries than their preceding generations4.
Alternative assets take centre-stage
True diversification can be achieved by balancing clients’ business holdings and other assets in a portfolio that mitigates risks while allowing for growth. This entails careful consideration of their family businesses, as well as their illiquid assets such as real estate. Investments must take into account the inherent risks of geographical, sector, asset-class or even currency concentration.
Furthermore, with recent years having been marked by low interest rates, volatility, black-swan events, and geopolitical tensions, long-term investors are looking beyond public markets. They are increasingly drawn to private equity, venture capital, private debt and other alternative investments – a global trend that is difficult to ignore.
Highlighting the growing demand for such investments, Preqin forecasts a 60% increase between 2020 and 2025 in investments in alternative assets. This would bump up the total figure to USD 17.16 trillion5. The growth, it estimates, will be most pronounced in private equity and debt, mainly in the Asia Pacific.
As a result, the next generation of investors will look for deep capabilities and a technical edge in the institutions they work with. Capabilities must include a range of products and services that address their unique needs for risk management and alpha.
The next generation of investors are more conscious of sustainability
The next generation of HNWIs is also more deeply committed to sustainability, climate-change, and environmental, social and governance (ESG) investing. In the same Capgemini poll of HNWIs in 2020, 41% of HNWIs aged below 40 expressed interest in sustainable investing, compared to just 16% for those above 60.
About 55% of the respondents highlighted their interest in environmentally-friendly solutions, climate change and reducing carbon footprints – themes that can be accessed via alternative investments from all over the world.
In Deloitte’s 2020 pulse survey of millennials at the peak of the COVID-19 pandemic, 76% of the respondents said they had become sensitive to new issues. They reported feeling more sympathetic to the needs of different people around the world.
Avenues for such investments can be found in pockets of innovation across the globe. Bringing these deals to the attention of clients calls for increased cooperation among deal originators, distribution platforms, and relationship-management specialists.
How does Covid-19 affect the next generation of investors?
It is impossible to discuss the future of wealth management without considering the impact of the pandemic. With a younger generation increasingly taking over decision-making, a great deal of their attention has shifted to future-proofing their portfolios.
This requires careful navigation, given the uneven rates of recovery across countries and industries. S&P forecasts the likelihood of a K-shaped recovery, with China and a few other countries recovering sooner than others that are at risk of subsequent waves of infection6. This underscores the importance of strategic asset allocation and diversification for investors.
In this era of volatility and uncertainty, investment options must magnify their upside while building in a measure of risk mitigation. Taking such factors into consideration, wealth managers can offer expertise in divergent geographies and growth sectors that can help protect against specific downside risks.
To wrap it up
According to CB Insights, by 2030, ongoing wealth transfers would mean that the next generation of investors will hold five times as much wealth as they do today7. How this money will be managed, and who benefits, will depend on how well wealth managers can adapt to the new ways of structuring portfolios and delivering services. Winners of the next decade will be those who are able to base their strategies on a deep understanding of their customers’ values and design a customer journey comprising seamless touchpoints.
The aftermath of the pandemic will add impetus to the above. Clients are increasingly seeking flexibility, liquidity, and convenience in all aspects of their wealth management. As the sector evolves, they will seek choice and participation in a larger universe of investment options where their money can make a difference.
At LU Global, we bring deep expertise born of our roots in China, one of the world’s largest and fastest-growing economies. Our strengths lie in our spectrum of underlying instruments that meet investors’ needs for returns, risk mitigation, flexibility, and liquidity – all of which can be transacted digitally via our award-winning app.
LU Global is primed to help HNWIs as we offer bespoke investment opportunities that encompass a spectrum of mutual funds, private equity and debt, collateralized loan obligations, commercial mortgage-backed securities and more. These can be transacted at lower minimum investment sums and tenures than what is available elsewhere, with built-in mechanisms for liquidity, win-win-win.
- Wealth X, 2019, A Generational Shift: Family Wealth Transfer Report 2019
- Capgemini Research Institute, 2020, World Wealth Report 2020
- McKinsey, 2017, Cracking the Code on Millennial Consumers
- Pew Research, 2020, US Millennials Tend to Have Favourable Views of Foreign Countries
- Preqin, 2020, Preqin Special Report: The Future of Alternatives 2025
- S&P Global, 2021, Coronavirus Impact
- CB Insights, 2019, Next Generation Investors [is this the full title?]