The London Cluster of Ultra Rich

by Svetlana Masjutina on March 20, 2015

imageCities compete for the attention of current and potential residents, investors and visitors. To keep economic growth in par with population growth is the modest ambition of many cities in the advanced economies today, but it is not really enough to sustain public services and maintain spaces.

Cities need big spenders to thrive. These can be either business companies who invest in the local operations and local community, or big spending individuals, who contribute through their taxes and through consumption of goods and services.

The 2015 Wealth Report by global real estate consultancy Knight Frank ranks the top 40 cities for "Ultra High Net Worth Individuals," meaning anyone with a net worth of $30 million or more. The ranking looks at business links, economic activity, quality of life, and the number of other super-rich people who live there.

"In short, these are the cities where the wealthy congregate, work, invest, are educated and spend their leisure time," the report says.

In 2014 the global population of UHNWIs grew by almost 5,200 or 3% according to data prepared exclusively for The Wealth Report by the analyst firm WealthInsight. There are now 172,850 individuals in this cohort who hold wealth totalling $20.8 trillion, an increase of $700 billion during 2014.

Here are the top ten cities of the ranking:

  1. London
  2. New York
  3. Hong Kong
  4. Singapore
  5. Shanghai
  6. Miami
  7. Paris
  8. Dubai
  9. Beijing
  10. Zurich

Not surprisingly London leads in this years list of cities competing for the best place on earth for ultra-rich to park their wealth. The City has just the right mix of traditions, creativity and innovations that make it a unique place and attract the most successful and the wealthiest people like a magnet. It is the international place to be of the 21 century, and there are certain reasons behind it.

clip_image002According to Michael Porter at Harvard, clusters positively affect competition by increasing productivity, driving innovation in their specialization field and stimulating new business to grow. In the sense of cluster development as a driver of competition it is important to understand why London became a real cluster of mass affluence businesses. All productivity factor conditions, including high-skilled, talented labour force and appropriate infrastructure, are at place, serving the needs of world most prosperous clients.

London “hosts” an amazing 6,815 UHNW individuals, and a remarkable 75% of them have not inherited but created their fortune by themselves.

Improvement of economic conditions coupled with government initiatives to create more entrepreneurs is considered one of the main drivers of millionaire growth and London has a reliable reputation in this field. Coupled with the city’s strong expertise in professional services — law, accountancy, hedge-fund management — not surprisingly London has also become the world capital of the dynastic headquarters, with the family offices of super-rich gathered around Mayfair.

Money attracts money, success breeds success and London traditionally has been a centre of success. According to the Attitudes Survey 2015, family succession issues are the number one worry, with 85% of respondents saying their clients are concerned about the handover of family wealth to the next generation.

Access is a key part of the business in the world of UHNWs, an incredibly private audience, and to have a presence in London is becoming crucial for those who want to have a finger on the pulse.

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According to the Attitudes Survey, included in the Wealth Report, the growing power of the internet, both in terms of cyber-crime and the ability to invade privacy and damage reputations is a big reason for concerns among UHNWs.

Reputation management for ultra-rich in the global age was a subject of the hot discussions at the recent Global High Net Worth conference in Monaco, which I wrote about last week. A lack of regulatory clarity, need to take into account the specifics of the clientele were tackled during the discussion.

In this sense London is a right place to find the top level “fixers” who specialise in strategic reputation advice for affluent customers. Tim Allan of Portland, Rory Godson of Powerscourt, Ben Wegg-Prosser at Global Counsel and Ian Osborne of Osborne & Partners to name a few.

London can offer wealth treats the super-rich are keen about in terms of satisfying their big-ticket spending ambitions, including, real estate, arts, cars, aircrafts, concierge services, the finest wines, entertainment, clubs and world-leading restaurants and luxury goods.

At the same time the place creates a nurturing climate for luxury start-ups linked to investor networks of the super-rich, who are keen to become the next big thing. This adds value to the city luxury offering and attraction as well as the vibes of creativity in the business developments targeting super-rich customers.

Businesses on making big money in reaching the “unreachable” are thriving and there are still plenty of UHNWIs to serve here.

Like in Monaco and Dubai, the presence of monarchy and aristocracy of the highest pedigree, combined with the culture and the heritage of the city creates a never ending source for storytelling and represents a mighty factor of attraction for those who value the best money can bring in terms of prestige, reputation and exclusivity.

Marina-Bay-Sands_-SingaporeAnother example of a destination of choice to live and invest the wealth in is Singapore. With the Gini Coefficient (measure of income disparity) second highest in the developed world, Singapore always hits the top positions in various international rankings related to the UHNWIs.

Excellent economic conditions coupled with government initiatives like Singapore’s Smart Nation vision make the city a thriving business hub. Stable government, predictability and ultimate efficiency of financial services combined with the pro-business policies and low taxes regime give comfort to high profile investors and create incentives for attractiveness growth.

One of the biggest concerns for UHNWIs across the globe is a potential increase in wealth taxes and increased government scrutiny of wealth.

Recent wide discussions around wealth and income inequality started by Thomas Piketty, a French economist who argues that there should be a global wealth tax on the richest in order to redistribute money to the poorest in society, cause a lot of potential head ache to the richest.

Piketty’s idea is based on the equation that r > g, where r stands for the average rate of return on capital and g stands for the rate of growth of the economy. The idea is that when the returns on capital outpace the returns on labor, over time the wealth gap will widen between people who have a lot of capital and those who rely on their labor.

Bill Gates in his Gatesnotes blog illustrates the constrains and ambiguity of Piketty’s conclusions by a trivial yet meaningful example.” Imagine three types of wealthy people. One guy is putting his capital into building his business. Then there’s a woman who’s giving most of her wealth to charity. A third person is mostly consuming, spending a lot of money on things like a yacht and plane. While it’s true that the wealth of all three people is contributing to inequality, I would argue that the first two are delivering more value to society than the third.”

The question of what level of inequality is acceptable and when does inequality start doing more harm than good is still and will remain a subject for discussion. It is clear that without HNWI, we would have less economic activity for the high value goods and services which drives productivity and economic growth.

In the meantime Singapore seems to find its sweet spot and is enjoying the reputation of the safe place where the privacy of UHNWs is respected and their investments are solid.

International rankings like the above are essential for benchmarking, and benchmarking is a key activity in our work at Bearing. When we work with a place, a business company or other organisation, we often start with a pre-feasibility or discovery phase where we look at the international competition and competitive and comparable strengths and advantages. After all,success in any market, whether it is sales of products or the attraction of a city, depends on how unique its offering is towards its target markets, and that the choice of target markets is the correct one.

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Returning to the topic of this article, on the one hand rankings based on benchmarking allows us to identify what are the main concerns of super rich which they try to overcome by choosing the right place for their business activities, on the other hand, rankings show the main drivers of the place success and prosperity in the given context as well as future trends. We have written about global city rankings in previous articles such as this one.

About Svetlana Masjutina :

Svetlana works as Research Manager in Bearing, with responsibility for our research, benchmarking and publication projects. She has over 15 years experience of work in communications, marketing, real estate and hospitality worldwide.

Svetlana has mastered an ability to naturally communicate with high-level international clientele and initiate relationships at each level of a client organization.

She has an MBA from the International University of Monaco and also degrees in Economics from MSU (Moscow, Russia) and Hotel Management from IHTTI ( Neuchatel, Switzerland) .

During the years Svetlana has developed a passion for research and analysis in the field of Corporate Social Responsibility and Innovation.

She has recently been involved in strategic projects for La Direction du Tourisme et des Congrès (DTC) in Monaco and in conducting the research on Sustainability and Social Index Imperative for Monaco, regional development projects in Croatia and Sweden and a city development project in East Africa for United Nations Habitat.

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