The “Great Wealth Transfer” is in full swing, as over $100 trillion is expected to be transferred from older generations to their heirs by 2048, according to Cerulli Associates.
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As the baton of wealth is passed on to younger generations, the heirs of wealthy families are taking a more active role in the impact they seek to create in the world through the use of traditionally monolithic family office for more innovative value-based investments.
The a large transfer of wealth is in full swing as more than $100 trillion is projected to be transferred from older generations to their successors by 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 those of … millennials,” said Nirbhay Handa, CEO of global migration platform Multipolitan. CNBC Make It.
“Now you have this younger generation that really believes that profit and progress should go hand in hand,” Handa said.
A sea change
Millennials (ages 27 to 42) and Gen Xers (ages 43 to 58) are the biggest beneficiaries of wealth transfer, 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.
Notably, the majority of wealth transfers will come from high net worth (HNW) and ultra high net worth (UNHW) families, which together make up about 2% of all households, according to the report. These families are expected to contribute more than 50% of transfers, or about $62 trillion.
Compared to baby boomers and older generations, “[younger generations] are less motivated by money, if I generalize, and much more [motivated by] contributing to society,” said Martin Roll, INSEAD Distinguished Fellow and family business and family office expert for McKinsey and Company. “They’re looking out the front window [and ask]: ‘What’s ahead here? What are the big questions of our time?'”
Generation X and millennials are concerned about the impact on society — topics like climate change, diversity, health and wellness, and protection from geopolitical conflict are top of mind, Handa said.
“I think sustainability and the whole ESG narrative is extremely robust [among younger generations]” added Multipolitan’s CEO. “So they may not be 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,” Handa said.
Family offices have become centers of innovation.
Nirbhay Handa
CEO, Multipolitan
This change in the attitudes of younger generations about investing came out of necessity, Handa said.
“People see wars, [they’re] seeing the impact of climate change … there is a shortage of potable water in many parts of the world,” he explained. “As a result, this generation has become more determined to focus on things that align with their personal values.”
“The challenges are real … yes, we talked about climate in the 60s and 70s, you’d find it in American newspapers then, but it was just a little more abstract. Now it’s real. Storms come, floods happen, hurricanes are more and more common… that’s the proof [and] they see it,” Roll said.
“Centers of innovation”
Another major shift can be seen in how some family offices are taken.
“The whole idea of family offices is less rigid than it used to be… Family offices have become centers of innovation,” Handa said. Growing up in the age of digitalization, younger generations of wealthy families are increasingly investing in technology and startups.
They want to discover and invest in technologies that can be “leveraged for impact,” Roll said. “For example, investing in climate technology, edtech, food processing, water, natural resources, renewable energy.”
In addition, younger generations are more active in the way they invest through their family offices.
“30 years ago, family offices were primarily equity interests in a company that the family owned through the family office, and were linked to real estate, some broader public stocks and [overall, it would be a] passive portfolio,” Roll said.
Today, however, family offices are creating more and more direct investments in private companies, which is not traditional, added Roll.
“The parents used to be what I call monolithic – they ran one business, but the younger people coming in might not be interested in chemicals, which is the main business, so they’re starting to diversify [through] family office,” Roll said.
Why is the great transfer of wealth happening now?
While it is true that wealth has always changed hands, the significance of the Great Transfer of Wealth of our generation can be explained by looking back at the third wave of the Industrial Revolution.
“Really that industrialization of the Western world in particular happened in the ’50s and ’60s, finally, with the rise of America after World War II and Europe — a lot of wealth was created,” Roll said.
Out of that postwar “boom” came about 40 years of “extraordinary economic activity,” which led to the creation of new industries, large businesses and, ultimately, the rise of the middle class in the U.S. and Europe, Roll said.
“So jobs were created … Everyone got a car, people got a house … so you got a lot of big shifts that allowed for that kind of wealth creation,” Roll told CNBC Make It.
It was this older generation that really built “the world and the wealth after World War II,” and “that wealth, including business interests, is now being transferred to Generation X, but also, of course, to younger people,” Svitak said.
Bridging the old with the new
Overall, as trillions of dollars change hands, what does that mean for the world?
“This massive change in money means that the way things were done in the past is not necessarily the way things will be done in the future,” Handa said.
“This age is about vitality, aliveness and engagement. It’s about democratization, it’s about aspiration, it’s about accessibility,” said Handa. “Investment preferences are changing and legacy institutions must adapt to the new world.”
Ultimately, as younger generations inherit wealth, Roll said, “I think you’re going to see the money [doing] good job. There will be reinvestment in the economy … in technology, and I mean some of the great challenges of our time: climate, gender issues, minorities, villages, poor people and basic [education].”
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