Among other things, the pandemic has been a great social leveller. Impacting both the rich and the poor equally, it has clearly revealed that nobody is immune to the ravages of certain events, irrespective of their wealth. This realisation has caused many Ultra High Net Worth Individuals (UHNWIs) to rethink how they will fund their liquidity, growth, and legacy needs.
Looking at risk through a new lens: In his book, the Psychology of Money, Morgan Housel wrote, “Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are so similar that you can’t believe in one without equally respecting the other. They both happen because the world is too complex to allow 100 percent of your actions to dictate 100 percent of your outcomes.” However, no one is leaving anything to luck now.
The pandemic underscored the importance of risk mitigation in all spheres of our life. Whether it is health or wealth, taking unnecessary risk is a complete no-no. However, the perception of unnecessary risk has changed. While wealth preservation has always been one of the biggest mandates for UHNWIs along with wealth growth, the focus on the former is now increasing. Everyone is now concerned about liquidity. This could be for meeting large health-related expenses or for bridging gaps in a tepid economic environment. Further, diversification is taking on new meaning. There is a little bit of fear of geographic concentration. Thus, exposure to international stocks, foreign currencies, and even a home in a foreign country is being actively considered.
Quietly aggressive about new wealth creation opportunities: Albert Einstein said, “In the midst of every crisis, lies great opportunity.” While focusing on risk mitigation and wealth preservation, UHNWIs are also developing an appetite for new investment opportunities. Inarguably, nobody is throwing caution to the wind. However, wealthy investors understand that new opportunities for long-term wealth creation are germinating. As a result, wealthy investors are increasingly looking to invest in innovative startups that are either challenging the status quo or creating solutions to elevate their respective ecosystems. In an attempt to mitigate risk while maximising returns, they are also gravitating towards pooled investments. For example, instead of purchasing real estate directly, they are showing a preference for investing in Real Estate Investment Trusts (REITs).
Legacy planning: Confronted with their own mortality, the wealthy are now proactively looking at legacy and estate planning. If there is anything that the pandemic has taught us, it is that fate can be highly whimsical and even the best-laid plans can go awry and lead to innumerable challenges. Recognising this, UHNWIs are now reviewing and updating matters related to succession, estate planning, and financial handovers. Additionally, in the case of family-owned businesses, many UHNWIs are drafting carefully crafted wills that can facilitate the smooth transfer of business interests, assets, and wealth in the event of death. From that perspective, trusts are also becoming a favoured option for wealth transfer as they can help avoid legal squabbles over property and money.
A feeling of responsibility towards the environment: Today, more than ever, individuals and businesses are realising the importance of preserving and protecting our ecosystems. The pandemic has prompted many investors to re-evaluate what matters most to them. This has led to an increasing desire to contribute more to benefit society and the environment around us. Profit just for profits sake is no longer the mandate. People want to generate positive profit. As a result, an increasing number of UHNWIs are gravitating towards Environment, Social, Governance (ESG) investing which entails the use of ESG screens in addition to fundamental screens for choosing portfolio investments. Undoubtedly, we are in the midst of great change. The way we live, work, and interact with our friends and colleagues is changing. It is inevitable that the way we invest also changes.
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