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The “Great Wealth Transfer” is in full swing, as more than $100 trillion is expected to be transferred from older generations to their heirs through 2048, according to Cerulli Associates.
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Since the stick of wealth is inherited by younger generations, the heirs of wealthy families take a more active role in the impact they seek to create in the world using the traditional monolithic. family office for more innovative, value-based investments.
U large transfer of wealth is in full swing as more than $100 trillion is expected to be passed on from older generations to their heirs until 2048 in the United States, according to a December. report by research and consulting firm Cerulli Associates.
“There is a large intergenerational transfer of wealth, but the preferences of baby boomers are very different from the preferences of … millennials,” Nirbhay Handa, CEO of global migration platform Multipolitan, said. CNBC Make It.
“Now you have this young generation that 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) are the biggest beneficiaries of the wealth transfer, and are expected to inherit about $85 trillion between 2024 and 2048, according to the report.
Generation Z and younger generations (ages 27 and younger) are expected to inherit more than $15 trillion.
In particular, the majority of wealth transfer comes from high-net-worth (HNW) and ultra-high-net-worth (UNHW) households, which together make up about 2% of all households, according to the report. These households are expected to contribute more than 50% of transfers, or about $62 trillion.
Compared to baby boomers and older generations, “[younger generations] they are less motivated by money, if I generalize, and much more [motivated by] they contribute to society,” said Martin Roll, an Insedito Distinguished Fellow and family business and family office expert for McKinsey and Company. “They look out the front window. [and ask]: ‘What’s next here? What are the big questions of our time?
Gen X and millennials are concerned about social impact – topics such as climate change, diversity, health and well-being and protection against geopolitical conflicts are at the top, said Handa.
“I think the sustainability and the whole ESG narrative is extremely robust [among younger generations]”, added the CEO of Multipolitan. “So they are not interested in investing in fossil fuels or oil and gas, but they are 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 change in investment attitudes by younger generations has come about out of necessity, Handa said.
“People see wars, [they’re] Seeing the impact of climate change … there is a lack of drinking water in many parts of the world,” he explained. “Because of this, this generation has become more determined to focus on things that are aligned with their personal values. .”
“The challenges are real … yes, we talked about the weather in the 60s and 70s, you would find them in the American newspapers then, but it was just a little more abstract. Now, it is real. The storms came, floods .happens, hurricanes are more often… is the proof [and] they see it,” Roll said.
“Innovation Centers”
Another major change can be seen in how some family offices are executed.
“The whole idea of family offices is less rigid than before… Family offices have become centers of innovation,” Handa said. Having grown up in the age of digitization, the younger generations of wealthy families are investing more in technology and startups.
Look to discover and invest in technologies that can be a “lever for impact,” said Roll. “For example, invest in climate technology, edtech, food treatment, water treatment, natural resources, renewable energy.”
In addition, the younger generations are more active in investing through their family offices.
“30 years ago, family offices were mainly the equity of the company that the family owned through the family office, and they would be linked in real estate, some broader public shares and [overall, it would be a] passive portfolio,” Roll said.
Today, however, family offices do more and more direct investments in private companies, which is not traditional, Roll added.
“The parents were what I call monolithic – they run a business, but the young people coming are not interested in chemicals, which are the main business, so they start to diversify. [through] the family office,” Roll said.
Why is the great transfer of wealth happening now?
Although it is true that wealth has always changed hands, the meaning of the Great Transfer of Wealth of our generation can be explained by the third wave of the industrial revolution.
“It was really that the industrialization of particularly, the Western world, which took place in the 50s and 60s, ultimately, with the rise of America after the Second World War, and Europe – a lot of wealth is was created,” said Roll.
Outside of this postwar “boom,” there were about 40 years of “exceptional economic activity,” which led to the creation of new industries, large businesses, and ultimately the rise of the middle class in the States. United States and Europe, said Roll. .
“Because of that, jobs were created … Everyone had a car, people had a house … so you had a lot of major changes that allowed this kind of wealth creation,” Roll told CNBC Make It.
It was this older generation that really built “the world and the wealth after the Second World War”, and “this wealth, including the business parties, has now passed to Gen X, but also, of course, to the young people,” he said. Roll.
Bring the old with the new
Overall, as trillions of dollars change hands, what does this mean for the world?
“This massive change in money means that the way things were done in the past is not necessarily how things will be done in the future,” Handa said.
“This era is about vitality and vitality and engagement. It’s about democratization, it’s about aspiration, it’s about accessibility,” Handa said. “Investment preferences are changing and legacy institutions need to adapt to the new world.”
Ultimately, as younger generations inherit wealth, Roll said, “I think you’ll see the money. [doing] good work It will be reinvested in the economy … in technology, and I think in some of the great challenges of our time: climate, gender issues, minorities, countries, poor and basic [education].”
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