Billionaires club only for high-risk takers

Thursday February 20 2014

British billionaire Richard Branson next to a model of the Virgin Galactic, the world’s first commercial spaceline, at the Farnborough International Airshow in Hampshire, southern England, on July 11, 2012. PHOTO | FILE

British billionaire Richard Branson. PHOTO | FILE AFP

JOSHUA MASINDE
By JOSHUA MASINDE
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Billionaires have a high-risk appetite and are more likely to invest in offshore markets compared to millionaires, who are comfortable with holding onto their cash and investing in the local real estate sector.

The billionaires, according to the 2014 New World Wealth report, have a high inclination to investing their money in offshore investments, high value assets (collectables) and commodities.

The report says millionaires, on the other hand, are generally unable to spend very huge funds on “big-ticket collectable items”. They have a tendency of holding larger portions of their wealth in investible assets — more so fixed income and equity markets. “This feature makes them an attractive band for wealth managers and private banks,” the report says.

According to the chief executive officer of Afrika Investment Bank, Mr Paul Mwai, most of the billionaires have a high risk appetite and this may explain their billionaire status.

“The greater the propensity for risk, the wealthier one is likely to become. The fact that they are wealthy explains the fact that they took on more risk in their investments,” Mr Mwai said in a phone interview.

RISKIER VENTURES

He adds that as the lower-tier millionaires take on more investment risks, especially by taking on more bigger and riskier ventures, the more they are likely to rise to the next ladder of wealth.

“I think it’s all a matter of sequencing. I suspect that lower tier millionaires are perhaps more defensive and prone to keep a safety net to avoid a relapse,” argues Mr Aly Khan Satchu, chief executive of Rich Management, which manages funds for firms and high net worth individuals.

The report also found that both the mid-tier and lower-tier millionaires vary considerably from their wealthier peers in terms of wealth acquisition. They are more likely to have earned their wealth through a salaried position and are relatively younger.

The report categorises mid-tier millionaire as the high net worth individuals (HNWIs) with an asset value of between Sh430.9 million ($5 million) and Sh2.6 billion ($30 million), excluding their primary residences. 

“They generally hold large portions of their wealth in cash and other low-risk products and generally build their savings to acquire real estate in which they hold a high proportion of their wealth,” the report says.

It also ranks billionaires as those HNWIs with a net asset value of Sh86.2 billion ($1 billion) or more, excluding their primary residences.

Millionaires are categorised as those HNWIs with net asset value of between Sh2.6 billion ($30 million) and Sh8.6 billion ($100 million), excluding their primary residences. Lower-tier millionaires on the other hand, are HNWIs with a net asset value of between Sh86.2 million and Sh430.9 million. This excludes their primary residences.

The report adds that at 8,300, Kenya has the fourth largest composition of HNWIs in Africa after South Africa, Egypt and Nigeria.