Billionaire surveys, timing…and the Ant Factory

Timing is all, when it comes to delivering an analysis of market sentiment, as you can discover from two surveys recently published by service providers Wealth-X and CapGemini.

According to the Wealth-X Billionaire Census, billionaires started 2019 in despair, following a 7% decline in their wealth over the previous twelve months.  It became lonelier at the top, as the number of billionaires in the world fell in number by 5.4% to 2,604 individuals.

The CapGemini World Wealth Report asserted that ultra-high net worth individuals, worth more than $30 million, suffered a 6.3% decline in wealth. Their population fell by 3.9% to 168,100 people.

The surveys cited economic turbulence, a slowdown in growth, trade tensions and falling equities. A strengthening of the US dollar resulted from a tough monetary stance from the US Federal Reserve, triggering emerging market outflows, currency volatility and risk aversion. 

We should never overlook the extent to which people fear the worst during hard times due to their sensitivity to threat. Billionaires, with so much money at stake, get particularly anxious. Towards the end of the fourth quarter of 2018, none of them would have been surprised to see a global plague of locusts and a visit from the four horsemen of the Apocalypse. 

But moods have a habit of bouncing back when the pressure is off. And this has come to pass this year, as people in the wealth community have become increasingly chipper over the last six months. 

Investors don’t like threats of a US war with Iran and a trade war with China.  But they have learned to live with the possibility. They have been further emboldened by a loosening of fiscal strategy by the Fed. Where they once feared the worst, they now hope for the best.

Cara Williams, global leader of consulting firm Mercer’s wealth division, confirms family offices are readily investing in debt strategies, private equity and deals, although they have been raising their weightings in gold: “There is still assuredness out there. I don’t know when reality will set in.”

The indices chart the change in sentiment quite neatly. In calendar 2018, the MSCI World index fell 8.7% in dollar terms, with emerging markets down 14.6%. All the pain, and more, was felt in the fourth quarter, whose ending coincided with the Wealth-X and CapGemini downbeat surveys. 

Smaller companies fell in value by 13.9%, following a really savage fourth-quarter decline of 17.7%.  Corporate bonds also fell in worth, particularly in the high-yield sector. All of which would have depressed animal spirits at family offices, which have tended to rely on income from credit, growth from venture and excitement from tech. 

This year, the MSCI World has surged 17%, with emerging markets rising 10.6%. Technology, yet again, has been driving the performance of the index with nearly 35% of the MSCI World exposed to its sector, as well as disruption communication and consumer areas. Smaller companies recaptured their sheen, with a gain of 16.3% in the first half, reigniting interest in venture. 

Much of the bounce takes the form of a relief rally in the wake of despair. It also relates to active managers buying technology stocks, and passive indices responding to the rise in their ratings. 

Revival for tech, and smaller companies, has reignited family office interest in disruptive deals.

Funnily enough, CapGemini believes the wealth sector will be next to experience serious disruption. 

Respondents to its survey say we are will see greater use of data, competition from big tech and pressure on fees. Ant Factory, an affiliate of Chinese tech giant Alibaba, is leading disruption after signing a joint venture with passive manager Vanguard, following its success in cash management. 

Heaven knows where that leaves family offices, but they are likely to become increasingly easy to put together.