What Actually is the 'Great Wealth Hand Down'?

Matt Ong

Over the next 25 years, a staggering $68 trillion is expected to be handed down to younger generations in the US alone. In this blog, we’re exploring what this may mean for the world of alternative assets, and why it’s important to all of us.

What does it mean and why are people talking about it?

With populations ageing globally, and increases in prosperity year-on-year across many parts of the globe, there is expected to be a significant increase in the number of inheritances and financial gifts made to younger generations each year (Kings Court Trust).

The Kings Court Trust estimates that over the next thirty years, as much as £5.5 trillion will be passed down in the U.K. alone. This level of wealth transfer is unprecedented in U.K. history and brings with it both huge possibilities and unique risks for the financial services industry.

As Millennials and Gen Zers become the main financial players of the world, they will undoubtedly change the priorities and values that lead to success or failure in the financial sector. The change in customers may also bring a change in preferences, a phenomenon not unprecedented in the investment space.

How Generational Shifts Affect the Investment Market:

Fundstrat Global Advisors' co-founder and managing partner, Thomas Lee, argued at the CFA Institute Equity Research and Valuation Conference 2018 that "Generations drive markets far more than we realise".

Using statistics from the United Nations Department of Economic and Social Affairs, he showed that the Greatest Generation's demographic peak year was 1930, soon after the Great Depression began. The Silent Generation, who came after, invested substantially in gold, reaching its peak in 1974, coinciding with the 1973-1974 market meltdown. Following that, baby boomer investors no longer regarded gold as a safe haven. Instead, they preferred shares, investing in businesses like Walmart and Home Depot, among others, that supported their consumer culture. According to Lee, the baby boomer generation peaked in 1999, at the same time as the equities market reached a new high.

Millennial and Gen-Z investors may have had their trust in traditional stock and bond investing shaken thanks to having already lived through two ‘once in a lifetime’ economic contractions. This generational shift is a major factor in understanding how best to serve investors and is part of the reason why we focus exclusively on alternative assets.

Several factors highlight why we think alternatives will be essential for the next generation of investors:

1. Desire for Diversification

The ever-growing need for portfolio diversification is one driving factor behind the interest in alternative investments, particularly among millennials. A diversified portfolio, with investments spread across various asset classes, can reduce risk and potentially provide more stable returns.

According to the CFA Institute, a remarkable 83% of millennials believe a diversified portfolio is essential, demonstrating Gen Zers’ keen interest in risk management principles and an eagerness to avoid having all their eggs in one basket (CFA Institute, 2017).

2. Digital native investors

Budding and newly established investors today grew up in a digitally native world and are therefore a lot more comfortable with digital platforms, online investing, and alternative assets. Robo-advisors like Nutmeg in the UK, which incorporate alternative assets into their portfolios, have seen a huge surge in popularity among this demographic.

3. Investing in what you're passionate about:

Being able to say you own a piece of rare memorabilia from your favourite artist, or being able to participate in fractional ownership of a film from your favourite director is exciting and new. This is another reason why alternatives are so engaging to younger investors that being their secondary interests in the meaning behind assets.

The fractionalisation of alternatives like collectibles marks a significant departure from business as usual and is already drawing in millions of pounds of investments from fans and collectors who enjoy the emotional attachment they have to their investments.

Those of us more interested in Birkins than Fifa might find it interesting to note that luxury items can also be a worthwhile investment. The Knight Frank Luxury Investment Index, which tracks the value of 10 “investments of passion”, rose by a strong 16 per cent last year, beating both inflation as well as more mainstream equities. By contrast, the S&P 500, an index of the larger US public companies, fell by 20 per cent in 2022.

4. Appetite for Green Investments:

A significant force behind the increasing demand for sustainable investments, as demonstrated by a huge surge in interest in sustainable investments is the millennial generation. Characterised by their commitment to personal values, millennials have demonstrated a distinct preference to align their investment choices with these ideals (CFA Institute, 2017)

Providing options for value-based investment seems, then, to be paramount to success. Not only could this approach be instrumental in attracting new assets to firms who provide them, but it could also enhance the retention rate of millennial clients who are beneficiaries.

References used in this piece as follows:

Kings Court Trust, Passing on the Pounds report, April 2021

CFA Institute, Next Generation Investors: How Millennials Will Influence Finance, 2017