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Thursday, Apr 25, 2024

Companies run by billionaires are better for investors

Companies run by billionaires are better for investors

Billionaires tend to be good at making money for themselves. Buying into the companies they control could make the rest of us richer, too.

Shares in companies controlled by billionaires have significantly outperformed the global market average over the past 15 years, according to a new report from Swiss bank UBS (UBS) and auditing firm PwC.

To arrive at that conclusion, researchers analyzed the stock performance of 603 public companies in which billionaires have considerable sway and to which most of their wealth is tied.

The companies' annualized gain over the 15-year period was nearly 18% versus 9% for a broad stock index that tracks shares in 47 countries. The billionaire-controlled companies were also more profitable.

"The outperformance we call the 'billionaire effect' depends on the entrepreneur keeping control, irrespective of whether the business is public or private," the report said.


What makes billionaires special

The report found that billionaires tend to share three traits that make their companies successful: smart risk taking, business focus and determination.

Billionaire entrepreneurs have an "optimistic attitude," focusing on risks they understand and reducing them. They also constantly hunt for opportunities and are "undeterred by failures and roadblocks," it said.

"Billionaires' enterprises tend to pursue a long-term strategy that benefits from an exceptional alignment between performance and management incentives," the report added.

It found that close to 27 million jobs could be directly or indirectly linked to billionaire-controlled enterprises.


Billionaire wealth dips in 2018

Following years of growth, the "billionaire boom" experienced a "natural correction" in 2018 on a stronger dollar, market volatility and economic weakness, said Josef Stadler, an executive at UBS Global Wealth Management.

The number of billionaires fell by 57, with especially sharp declines in China and India. Only the Americas bucked the trend, lifted by the fortunes of US tech entrepreneurs. There were 89 US tech billionaires at the end of 2018, up from 70 in 2017.

Billionaires ended 2018 nearly 35% wealthier than five years earlier, owning a combined $8.5 trillion in assets. The number of women billionaires increased 46% over the same time period to reach 233, but that's only 11% of the total.


Tech is king


The net wealth of tech entrepreneurs has almost doubled over five years to $1.3 trillion, with the number of billionaire-controlled tech companies rising from 76 to 148.


Ten of the world's top 20 tech billionaires are from the United States and four are from China, including ByteDance founder Zhang Yiming.


Industrial entrepreneurs saw their wealth decline 15% to less than $609 billion against a backdrop of declining commodity prices.


Billionaires looking to grow their wealth are increasingly favoring direct private investments over listed equity markets, said Simon Smiles, an executive at UBS Global Wealth Management.


Billionaires and taxes


UBS cautioned that there could be negative consequences if billionaires are forced to pay higher taxes, a strategy that leading politicians in countries including the United Kingdom and the United States have suggested as a remedy for rising income inequality.


Democratic presidential candidate Elizabeth Warren wants to impose a wealth tax of 6 cents on every dollar of net worth above $1 billion and raise capital gains taxes. Jeremy Corbyn, the leader of Britain's opposition Labour Party, has said that "in a fair society there would be no billionaires."


Stadler warned against punitive taxes on billionaires, particularly those who are entrepreneurs. "Millions of jobs have been created by people who take outlandish risks. If you cap the upside, billionaires will manage their risk appetite downwards, [and] the impact will be detrimental to society," he told CNN Business.


The UBS banker acknowledged that wealth has become concentrated in fewer hands, but he said that concerns about inequality need to be balanced against what billionaires have achieved.

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