By Julie Creswell, The New York Times, March 5, 2014
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| The rising fortunes of the wealthy fueled spending last year, like the $142.4 million for Francis Bacon’s “Three Studies of Lucian Freud” at Christie’s in November. |
You guessed it: The rich are getting richer. And — shocker! — they are having a pretty good time spending their money.
The world’s club of ultrawealthy individuals, or those with $30 million or more in net assets, added about 5,000 new members last year and now stands at around 167,000, according to the latest Wealth Report, an annual compendium of all things rich from Knight Frank, the property management firm.
Over the last decade, the ranks of the über-rich have swelled by 59 percent, and the register of billionaires climbed 80 percent, to 1,682, according to Knight Frank’s data.
And most of the world’s 0.1 percenters had a pretty good year; three-quarters said their assets had increased. Only 4 percent said they wound up worth less, according to the survey, which polls 600 private bankers and wealth advisers who represent more than 23,000 clients.
While the United States, Japan and Germany are still home to more millionaires and billionaires than other countries, wealth is growing rapidly in the Middle East, Latin America, Australasia and Africa. By 2023, China is expected to have 322 billionaires, more than Britain, Russia, France and Switzerland combined, according to the report. The United States is forecast to have 503 billionaires in 2023, up from the current 417, according to the report.
Looking for someplace to park their wealth, the world’s rich still prefer property. In commercial real estate, wealthy families and individuals are buying hotels, office towers in Brussels and retail properties in Poland.
And while the rich typically have 30 percent of their wealth in their main residence and second homes — say, a seaside escape or a ski chalet — demands for vineyards, especially those in France, have also been on the rise, the report notes.
Among the biggest buyers? The Chinese.
The growing wealth in emerging economies has not gone unnoticed by global luxury brands. The chief executive of Rolls-Royce Motors Cars attributed much of the company’s record performance last year to developing markets. Sales soared 17 percent in the Middle East and grew 11 percent in China, according to the report.
Porsche is expected to enter the Kenyan market this year.
But more money can mean more problems for the newly rich in such places. Experts say they are increasingly looking for ways to protect their newfound wealth, whether from political instability or high taxes.
As various countries vie to attract investors, the result has been a binge of “passport shopping.”
A hotly debated proposal in Malta would allow the country to sell passports for 650,000 euros ($893,000) with no residency requirement.
Spain and Portugal are offering residency in return for spending only limited time in the country. Experts expect Latvia and Estonia to follow suit.
“For any country short of capital, this is a quick way of getting hold of it,” Nick Warr, the international head of wealth at Taylor Wessing, a law firm, said in the report.
Another popular — and controversial — route is investor visas, in which individuals are granted residency or citizenship in exchange for investment.
The United States, which limits the number of investor immigrant visas to 10,000 each year, granted 7,641 in 2012, the latest year for which data is available, the report said. Eighty percent went to Chinese investors.
In Britain, which, unlike the United States, does not tax individuals on their reported global wealth, the number of investor visas rose by a quarter in the first three-quarters of 2013. Over the last five years, half of those visas went to Russian and Chinese investors.
And while London remains the hot spot for the world’s wealthy, New York is forecast to surpass the British capital by 2024, thanks to its increasing importance to ultrawealthy Chinese, Russians and other Europeans.
If the wealthy made a mistake en masse last year, it was holding gold, which fell about 28 percent. A big chunk of the respondents in the survey said they would probably reduce their stake in the metal this year.
The ultrarich, however, continue to collect jewelry, watches and wine, while the biggest jump in popularity went to art.
An index of classic cars has had a five-year gain of 121 percent. Coins have risen 91 percent and rare stamps are up 50 percent.
The biggest laggard is furniture — and not the kind from Pottery Barn — which fell 16 percent in value over the last five years, according to the report.
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| Leon Black of Apollo Management made $546.3 million in 2013. |
By William Alden, The New York Times, March 4, 2014
Payouts for the top executives in private equity have rocketed into the stratosphere, thanks to a soaring stock market and shrewd maneuvers by their firms in the aftermath of the financial crisis.
But the millions upon millions in earnings disclosed in recent days were so great that the same executives may not be able to reap quite so much in the future. Some of the dynamics that enabled these princely payouts are now posing a daunting challenge for private equity’s deal makers, who must reload their profit machines by finding cheap deals when stock indexes are soaring.
The founders of the top four publicly traded private equity firms took home $2.6 billion in 2013, according to recent filings. Leon D. Black, the chief executive of Apollo Global Management, personally made $546.3 million, more than twice his take a year earlier. Stephen A. Schwarzman, the head of the Blackstone Group, took home $452.7 million, also more than double what he made in the previous year.
The three founders of the Carlyle Group, a private equity giant based in Washington, together earned $749 million, while the two cousins who co-founded Kohlberg Kravis Roberts, Henry R. Kravis and George R. Roberts, each made more than $160 million. These payouts are largely dividends and they include any profits from the executives’ personal investments in their firms’ funds.
The compensation for the top executives at many of the industry’s other large firms, like Bain Capital and TPG Capital, remain unknown since those firms have stayed private and thus are not required to disclose executive compensation.
Fairly or not, private equity’s rewards have also become a political lightning rod, and probably will continue to be, as the midterm elections draw near. President Obama on Tuesday once again proposed to end a tax benefit for some of these private equity executives, and last month, the chairman of the House Ways and Means Committee proposed a similar measure, though the bill is seen as having virtually no chance of success.
The enormous sums for private equity executives vastly exceed the already-rich pay packages at Wall Street banks, booming technology companies and Fortune 500 corporations. For instance, Wall Street’s top banker, Jamie Dimon, the chief executive of JPMorgan Chase, made $28.5 million in 2013, including dividends, about one-nineteenth of Mr. Black’s haul.
But for all the wealth that has been generated, last year’s handsome payouts are in large part a product of the particular financial environment — one of low interest rates and high stock prices — that was ideal for selling investments.
“Those payouts can’t last,” said Charles M. Elson, a finance professor at the University of Delaware. “The question is: Will you continue to have that kind of frothy market that will enable them to take companies public at such significant premiums?”
A booming market creates challenges of its own for the industry. Private equity firms are collectively sitting on nearly $1.1 trillion of capital they must invest for clients — “dry powder” in Wall Street parlance — more even than they had before the crisis, according to the data provider Preqin. But if the buyout firms overpay, investment returns, and executive payouts, will fall, a conundrum weighing on the minds of the industry’s leaders.
“We can still survive and make clever investments in the environment we’re in now. However, you have to be careful,” Joseph Baratta, the head of private equity at Blackstone, said in an interview on Tuesday. “With the available credit at high levels, and the cost of it at historic lows, you can talk yourself into doing things that may not be prudent in terms of values you have to pay.”
Private equity firms, which buy companies and typically hold them for several years, ran into this problem in the years leading up to the 2008 crisis. But a number of investments that seemed doomed when the crash hit have been sold or taken public at rich valuations, thanks in part to clever management and financial engineering — and thanks as well to the soaring market.
Blackstone, the biggest of the firms, realized a $9.5 billion profit in December when it held an initial public stock offering for Hilton Worldwide Holdings, a hotel chain that struggled in the downturn. That gain was outpaced only by Apollo, which achieved a profit of roughly $10 billion from its investment in the chemical maker LyondellBasell Industries.
Mr. Black of Apollo captured the mood last spring when he said at a conference in Los Angeles that his firm was “selling everything that’s not nailed down in our portfolio.”
Certainly, private equity’s clients — pension funds and other institutions that provide the capital — are also benefiting handsomely from the firms’ successes. The industry returned an estimated $124.1 billion to investors last year, 8 percent more than in 2012 and more than five times the level in 2009, according to the consulting firm Cambridge Associates.
Now these investors are demanding more. Buyout funds raised $169 billion in capital last year, 77 percent more than in 2012, according to Preqin. Apollo, for its part, raised a fresh $18.4 billion fund.
Market forces also played a role in fund-raising. Pension funds, which often aim to invest a certain percentage of their assets in private equity, must increase those investments when their total assets grow on the back of rising stocks.
One private equity chief went so far as to publicly thank Ben S. Bernanke, the Federal Reserve chairman until last month, whose program of extraordinary economic stimulus has helped push stocks higher, feeding the private equity machine.
“Thank you, Ben Bernanke. I saw him last Thursday, and I thanked him,” Mr. Schwarzman of Blackstone said during a conference in December. “The opportunity for us to be able to attract funds is very, very high.”
But some private equity chiefs recognize that these returns may not last. David M. Rubenstein, a co-founder and co-chief executive of Carlyle, told students at Harvard Business School last month: “The days of getting fabulously rich in private equity may be a little bit behind us.”
Mr. Black, too, sounded a note of caution at a Columbia University conference last week. He quoted the Kipling poem “If,” which encourages the reader to “meet with Triumph and Disaster” and “treat those two impostors just the same.”
“We had a very good year,” Mr. Black said. “It’s important that it doesn’t go to our head.”
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