By Blake Foster, Financial Advisor, UBS (Newport Beach)
As of 2024, there were a record 813 billionaires worth a combined $5.7 trillion in the United States, according to Forbes, up from the 756 billionaires quoted by World Population Review in 2023. That year, the U.S. was the country with the most millionaires at 22 million people, with more than 1.15 million California households among them.
This number represents those having more than one million dollars in investable assets – or nearly 9 percent of California’s 13.5 million households – and they are heavily concentrated in Southern California and the Bay area.
Orange County has more than 116,000 millionaire households. Orange County, and Newport Beach specifically, are home to a large community of affluent residents, including business owners, senior management executives, wealthy athletes, famous celebrities and entertainers.
A recent report from the OC Business Journal, in fact, highlighted profiles of several local billionaires and how they contribute to Orange County’s cultural life and philanthropic endeavors.
With a median household income of $149,471 and average household income of $240,9064, Newport Beach is one of the richest cities in Orange County and in the US, as a whole.
Although California is the state with the most billionaires and millionaires, the majority of Californians are not going to be underwriting family offices, which centralize and coordinate various aspects of a family’s financial affairs using a dedicated team of professionals.
So, what can millionaires, or those who haven’t quite gotten there yet, glean from these billionaires and multi-millionaires? What are the wealthiest investors prioritizing when it comes to finances?
UBS, a leading global wealth management firm with offices in Newport Beach, recently published its annual Global Family Office Report, bringing together insights of 320 single family offices. This report, which represents families with an average net worth of $2.6 billion, is the most comprehensive analysis of this influential group of investors.
UBS also just released its Global Wealth Report, which looks at more than 50 key markets around the world to identify wealth growth, distribution, transfer, inequities, and outlook for the near to mid-term future. Economists typically like to know where wealth exists to understand how investment will happen, in order to plot a likely course for economic growth.
So, what are some of the main concerns that the wealthy may have? Is it major geopolitical conflict, climate change, increased debt and interest rates, or inflation?
Here is an overview of some of the key findings from these two reports:
How are family office holders allocating wealth?
In a move to rebalance portfolios and lower risk, many family offices in 2023 shifted larger allocations to developed market, fixed income vehicles. Some of this may reflect elevated bond yields; however, it was the largest amount to be allocated to fixed income in five years.
For 2024, family offices expect to sustain these changes but not shift much higher, as inflation and policy rates appear to have peaked in the U.S. (and EU) and are expected to gradually move lower in a healthier global economy. Given seemingly lower interest rate sensitivity in the United States, almost three-quarters (i.e. 73 percent) of family offices believe real interest rates will remain positive in the US for longer than in Europe.
Their thoughts on real estate and private equity
Allocations to real estate also declined in 2023 when commercial real estate prices in some regions had corrected and traffic and occupancy rates were still lower post-Covid, but there is lower rate sensitivity in the U.S. than in Europe. Average allocations to real estate declined to 10 percent in 2023, down from 13 percent in 2022.
For 2024, family offices plan to partially reverse the decline in real estate allocation, with the average recovering to 12 percent. In private equity, overall allocations remain relatively steady but see a slight increase to raise allocations in funds or funds of funds to 13 percent, most likely in search of greater diversification.
More than one-third of family offices (39 percent) plan to add to direct private equity investments and a similar proportion (34 percent) will add to funds/funds of funds. Suggesting they are becoming more optimistic, more than a quarter (28 percent) plan to cut cash allocations.
What are their biggest anxieties?
Family offices are concerned about the danger of a major geopolitical conflict, in both near and medium terms. Over a five-year horizon, nearly half also view climate change and high debt levels as top concerns, especially as Western countries are burdened by high levels of public debt that may appear to be unsustainable.
For family offices, sustainability is becoming an essential matter of risk and opportunity for both operating businesses and investment portfolios. As sustainability requirements become more specific, partly driven by regulations, family offices want more sophisticated information and advice on sustainable companies.
Healthcare is the top-rated sustainability and impact theme that family offices look to focus on or to better understand, according to 39 percent of them, followed by energy transition (32 percent), clean/green/climate tech (30 percent), and education (28 percent). These all lend themselves to investors earning a competitive investment return while simultaneously having the possibility of generating a positive impact on society.
What about inflation?
In 2023, inflation fell back from the peak it had reached in 2022, and real growth exceeded nominal growth slightly. This doesn’t mean that inflation disappeared, far from it – but the reduction from the year before was enough to push up real growth relative to 2022.
In the U.S., average wealth per adult grew by almost 2.5 percent. Inflation and interest rates are still a concern for the next twelve months but appear to play a less prominent role over the longer term.
Where are these family offices investing?
Family offices appear to be strong believers in American exceptionalism, as U.S. tech companies lead the generative artificial intelligence (AI) revolution and occupy a growing share of global equity markets. AI is the most popular investment theme, with 78 percent of family offices worldwide and 83 percent of US family offices indicating it is likely to be an area of investment within the next two years. This is closely followed globally by health tech at 70 percent, and then automation and robotics at 67 percent.
On average, family offices have 50 percent of their portfolios invested in North American asset classes, continuing to build on a multiyear theme of increasing investments in a region resilient to high policy rates and geopolitical risks, while offering the prospect of relieving global labor shortages through AI’s anticipated productivity gains.
Just over a quarter (27 percent) of total allocations are in Western Europe with its market-leading companies in luxury goods and automation. In Asia-Pacific markets including Japan, India and Australia (but not China), assets accounted for nine percent of portfolio allocations. Greater China, by itself, accounted for eight percent, although European and North American family offices have allocated just two percent to Chinese assets.
Most intend to increase investments in the North American, Asia-Pacific (excluding Greater China) and Western European regions within the next five years.
While currently private equity appears to cause concern for some ultra-high-net-worth investors due to its lack of available exits and liquidity, there continues to be confidence in this asset class’s return. An average of 71 percent say that they invest in private equity to diversify their portfolios, but the same percentage also thinks the long-term returns are likely to be better than in public equities.
What is happening with wealth mobility?
A substantial share of people in the Global Wealth Report markets do move between wealth brackets in their lifetimes and it is more likely for people to move up the ladder than down it. The likelihood of getting richer tends to decrease over time, however.
UBS analysis shows that the longer it takes adults to gain appreciably in wealth, the slower the increase tends to be in future years. However, in many couples, one partner is younger than the other. Generally speaking, women live longer than men, by as much as 4-5 years. This indicates that intra-generational wealth occurs before intergenerational wealth transfer.
What does the future look like?
Analysis also shows that $83.5 trillion of wealth will be transferred within the next 20–25 years. UBS estimates $9 trillion of this will be shifted horizontally between spouses, the majority in the Americas. Over 10 percent of the total $83.5 trillion is likely to be transferred to the next generation by women.
With wealth acceleration and ongoing generational wealth transfer, and regardless of your financial status, the same is true for everyone: it behooves us to become better educated about finance and investing. Working with an experienced, knowledgeable financial advisor can save investors from stress and anxiety and empower them with valuable insights. Visit www.UBS.com for more information.
Blake Foster is a Senior Vice President at UBS Financial Services Inc., a subsidiary of UBS Group AG. Foster lives and works in Newport Beach and is an active member of the Newport Harbor Yacht Club and Big Canyon Country Club. He graduated from Loyola Marymount University in 2009, earning a B.B.A degree with concentrations in finance and entrepreneurship, and joined his father at UBS as part of the Newport Legacy Wealth Management team. He focuses on alternative investments, financial planning, and educating clients’ next generations on investing.
