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    Billionaire effect: Why businesses owned by the super-rich outperform peers

    Billionaire effect: Why businesses owned by the super-rich outperform peers

    Billionaire effect: Why businesses owned by the super-rich outperform peers
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    By Manali Rohinesh   IST (Updated)


    A few billionaires are creating most of the wealth in the world and providing most of the jobs, a survey conducted by UBS and PwC shows.

    A survey conducted by UBS and PwC on billionaires came up with some interesting data. It showed that the world’s super-rich made money better than others (mere non-billionaires) and also were charitable enough to give it away to worthy causes.
    The billionaires who were surveyed met the definition of ‘control’ as was needed by the research team doing this survey. So a billionaire who controlled “20 percent or more of a company’s equity; 30 percent or more of a company’s voting rights and despite having less than 20 percent of the equity and 30 percent of voting rights, which means the billionaire evidently steers the company”, were exactly who this survey wanted to parse in detail.
    A few billionaires are creating most of the wealth in the world and providing most of the jobs. As the report pointed out, their businesses have benefited from their “long-term vision, smart risk-taking, business focus and determination” which has resulted in businesses that “have tended to outperform others financially”. This has been termed as the billionaire effect.
    Charitable donations by billionaires.
    This effect is something because for the past 15 years up to 2018, their companies which were listed on the stock market gave 17.8 percent returns versus 9.1 percent given by other MSCI ACWI companies. Also, their companies have been more profitable - earning an average “return on equity of 16.6 percent over the last 10 years, compared to the 11.3 percent of the MSCI ACWI. Overall, public and private billionaire companies’ average return on equity (ROE) was 16.6 percent over the 10 years to the end of 2018”, stated the report.
    Focus on climate change 
    The number of billionaires has grown 38.9 percent to 2,101 and out of this - 589 people - have become billionaires for the first time. All of them are looking to spread and spend their wealth to undo the damage done to this planet and to make right many of the social wrongs, to the best that they can. They are attempting to address the 17 Sustainable Development Goals as set up by the UN, and most of them are giving a lot to the education sector followed by healthcare. Asians (70 percent) tend to spend closer to home while Americans have given in a 50:50 ratio to causes in the US as well as other countries. Billionaires from Europe, the Middle East and Africa donate 61 percent to international projects.
    Women billionaires have risen steadily -- rising from 160 to 233. Meanwhile, the number of men expanded by 39 percent from 2013-18. Between 1995 and 2014, the number of female billionaires grew by a factor of 6.6, while male billionaires increased by a smaller factor of 5.2. This means their numbers increased from 160 to 233 and their assets have increased by over 26 percent to $871.2 billion.
    The billionaires seem to be predominantly from the tech sector, with e-commerce, data sharing, ride hailing and fintech being the other sectors from which they are emerging. “Technology is the only industry where billionaire wealth increased in 2018, rising 3.4 percent to $1.3 trillion. Their net wealth has almost doubled over the last five years, growing 91.4 percent,” the report observed.
    But that said, 27 companies of the 535 surveyed were making a loss, and 9 of them were tech companies. Profitability has also increased in the consumer, retail, and financial services sectors. But firms in entertainment and media, materials, and utilities have the lowest return on equity (ROE) because digital media is making inroads, raw materials are becoming expensive and renewable energy sources have popped up to provide competition. By the end of 2018, tech billionaires’ assets totalled $1.3 trillion. Their net wealth has almost doubled over five years, growing by 91.4 percent and that is because they have been adding value to sectors like retail, transport and finance by enabling them to come up with new business models.
    China leads the way in APAC region
    Among this wealthy lot, the Chinese overtook the Russians as the second-largest billionaire group, with their wealth growing by 202.6 percent to reach $982.4 billion till 2018. In 2018, Chinese billionaires’ net worth saw a decline by 12.3 percent and the number of Chinese billionaires fell by 48 to 325. The US billionaires maintained their lead.
    In the Asia-Pacific (APAC) region, China leads the way, when it comes to the number of billionaires in the world. But global headwinds like political turmoil, the US-China tariff issue and overall deglobalisation have made quite a number of these billionaires into… well... just plain ole millionaires! APAC also saw this happen -- the net number of billionaires in the region fell by 60 to 754. According to an Indian billionaire, anonymously quoted, in the report, “India’s economy went through financial stress, and consumer demand was subdued. Levels of trust dropped, and nobody is ready to lend any more.”
    One thing that consistently stood out was that billionaire-owned businesses, be it private or publicly traded corporations, did better than non-billionaire-owned ones. The report stated, “Almost all of the 2,101 billionaires on our database still hold interests in businesses. Some 1,936 have holdings in companies – in 65 percent of cases they have controlling stakes”, and if any of these companies came out with initial public offerings, even then they did better than non-billionaire-owned companies. Both before and after the IPO.
    Manali Rohinesh is a freelance writer who explores financial and non-financial subjects that pique her interest.
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