Brave new world: An essay exploring how HNW wealth is changing

Breakfast in Milan. Lunch in London. Dinner in New York. Just a few short months ago, we skipped over time and place as if neither really existed at all. Whether for work or play, we went anywhere, bought anything, did anything with anyone from anywhere. The free flow of goods, services and people across national boundaries seemed to be the irreversible wealth creation and spending story of our times. Until, one day in March, it all came to a screeching halt.

The great global lockdown is the most dramatic and disruptive force most businesses have faced and probably ever will face. Unlike the dot.com crisis, whose effect was largely restricted to tech, or the global financial crisis, which was centred on the banks, Covid-19 has upended most sectors of the global economy. With countries accounting for almost 75% of global GDP closed down for months, no business, no matter how small or large, has been left unaffected. The way we make money and spend it will never be the same again.

Entire new industries and market sectors have been created and existing ones turbocharged. Take green energy — indeed green anything. The combination of clear skies and clean air during lockdown, coupled with the bushfires in Australia and California earlier this year, is a tipping point for green business, argues the former Bank of England governor Mark Carney. Green innovation will be “the greatest commercial opportunity of our time”, he says. 

Wealth managers are scouring the world to find the best investments. Expect to become more of an expert than you ever imagined in batteries and solar outfits in the US, German and China. The same goes for electric cars — and not just Tesla. Aston Martin is pioneering electric supercars and high-performance SUVs.

Another sector that will boom, certainly in the short- to medium-term, is health. Pharmaceutical companies are looking forward to reaping the rewards of Covid-19 treatments. Rival outfits GlaxoSmithKline (GSK) and Sanofi are teaming up to develop a Covid-19 vaccine and produce it on a global scale. GSK is also joining forces with major UK competitor AstraZeneca and the government to fast-track new anti-viral drug testing — a process that often takes years and costs up to £1.5bn per treatment. “The world is learning from this pandemic,” says GSK boss Emma Walmsley. 

Health tech — especially online medical services — has had a kickstart since lockdown. In just 48 hours in the UK in March, 11 suppliers were chosen to provide video consultations to the NHS and 7,000 GP practices were ordered to conduct as many video and phone consultations as possible. “We’ve achieved more in 20 weeks than in the previous 20 years,” says Martin Marshall, chairman of the Royal College of General Practitioners. Remote monitoring of patients is also increasing.

What’s true for health is also true for education. While many children and adults have managed to study at home far more productively than most ever imagined they could, far too many — up to two-thirds, according to the poll by the Sutton Trust and Public First — lack adequate access to online learning. This is an opportunity for UK plc, which already generates £20bn in education export earnings a year through our strong educational “brands”, notably Oxford and Cambridge universities. In future, perhaps tuition will be live-streamed from best-in-class schools for the benefit of all pupils across the globe. 

Wealth managers are on the lookout for property developers who can transform the bricks and mortar shops and malls that have been hollowed out by lockdown and the rise of e-commerce into the new homes and offices that will suit the post-Covid world. “Thanks to the rise and effectiveness of working from home, there will be a lot less commuting,” says Mark Dixon, chief executive of flexible-working company IWG. “More people will work in their local communities, less in city centres, and we need to drive that development on brownfield sites.” Changes to the planning system have made it easier to convert commercial properties to residential use. 

When it comes to investments in consumer sectors, wealth managers have their eye on companies that are making innovative new moves in the world’s biggest markets. Take fashion. Lockdown has forced some of the biggest brands, notably Prada, to accelerate their e-commerce programmes. “There has been a paradigm shift for luxury to online,” says Luca Solca, an analyst at Bernstein. This has helped to protect their bottom line in the west and now the race is on to use it as a springboard to sell more in China. 

Shares in Richemont, whose brands include Cartier and Montblanc, soared recently after it joined forces with China’s Alibaba Group Holding to invest $1.1bn in Farfetch’s Chinese operations. Richemont CEO Johann Rupert says there could be further co-operation between Farfetch and the other e-commerce platform it owns, Yoox Net-a-Porter, in the future. Putting them together would create a global e-commerce behemoth. 

While this year’s disruption creates new opportunities, there will also be losers. Oil companies, city-centre commercial property developers and health insurers are unlikely to regain the profitability they enjoyed in 2019. The same goes for airlines and cruise companies. “2019 will prove to be the year of peak travel,” says Simon Calder, one of Britain’s best-known travel journalists. Morgan Stanley predicts it will be at least six years before hotel occupancy rates return to last year’s levels. 

Big tech is likely to shrink, thanks to greater regulation from a Biden administration and from the EU. Washington and Brussels argue the tech giants “have too much power, and must be reined in”, as a US House antitrust report noted recently. Thanks to rapid growth under lockdown, America’s biggest tech names, the Faangs — Facebook, Apple, Amazon, Netflix and Google — make up almost 25% of the S&P 500 index of US stocks. Washington and Brussels have already brought anti-trust charges against Google and Amazon.

Pressure on “gig economy” firms, such as Uber, to reclassify workers as staff, not freelancers, is likely to increase, eating into their bottom line. Famed US investor Jim Chanos is betting against all gig companies. The lockdown has also flattened the sharing economy, hitting WeWork and Airbnb hard. 

So much for how to make it in the post-Covid world — how will the pandemic reshape the way new money is spent? The suburban and rural residential property markets are booming as the wealthy seek to spend more time OOO and WFH. Prices in the Hamptons increased in price by an average 46% in Q3, a study by analysts Miller Samuel for real estate company Douglas Elliman reveals. In the UK, Savills reports a 1,900% surge in sales of country estates. 

One of the beneficiaries of the flight to the countryshire has been John Hitchcox, founder of real estate firm YOO. Sales at his Lakes development, a 900-acre private estate of second homes in the Cotswolds for Londoners who want to leave the capital but not their artisan cappuccinos, are at record highs. He is now preparing to expand internationally, putting together a £100m fund to acquire “exceptional country estates for the roll-out of a YOO Retreat venture across Europe and North America,” he says.

When it comes to fashion expenditure, bling is out, according to analysts Jane Gundell and Faye Landes. Stealth wealth, ultra-luxe labels are likely to edge ahead of the glitzy pack, just as they did after the financial crisis, they say. Expect a fast rebound at Hermès, Celine, Bottega Veneta, Loro Piana, Brunello Cucinelli and Ralph Lauren Purple label. For some, the rebound has already begun: Bottega Veneta’s online sales tripled during the height of lockdown. Brands that have demonstrated their eco-credentials are also on a tear, says Yoox Net-a-Porter boss Federico Marchetti. Giorgio Armani argues the shift to more low-key, sustainable ways of showing status is long overdue. “We need to appreciate the things that give us pleasure more — things of beauty that are well-made, aesthetically pleasing and designed to last.

Anything with the word “private” will fly. Clive Jackson, founder of FlyVictor, a private jet broker, says customer requests “are up 55-60% and bookings up 80-85%” on last year. The biggest increase is in leisure flights. Roar Africa reports a sharp rise in demand for its bespoke African private jet safaris — week-long trips from $60,000 per person for eight people. “I would never have put it out there during normal times,” says Roar Africa chief executive Deborah Calmeyer, because of the additional cost of the trips. “But these are not normal times.” Sales and rentals of private islands have also never been more popular. In a pandemic, isolation is truly splendid.

Having a jet to whisk you to a private island may be a great escape plan, but it will only work if you have the right passport. Wealthy families are buying the ultimate insurance policy to make sure they will be able to travel to or relocate to whatever bolt-hole has low infection rates and good healthcare services. They are snapping up multiple citizenships in countries that offer Citizenship by Investment (CBI) programmes — a passport in return for a fee or investment in the local economy.

London-based citizenship broker Henley & Partners is one of the biggest players in the nearly $4bn-a-year “identity management” business. The firm’s latest figures show a 42% year-over-year increase in the number of people filing a formal application for a new nationality during the first three months of 2020. “Investment migration has shifted from being about living the life you want in terms of holidays and business travel to a more holistic vision that includes health, safety and security for all the family,” says Henley chairman Dr Christian Kalin.

But what if you do get away on your pandemic passport to your safe haven and then do get sick? That question is driving the most innovative new development in services for ultra-high-net-worths: the Medical Family Office. Just as a Family Office might handle investments and manage money, the new medical version handles a family’s healthcare needs, ranging from simple video conference consultations to leading doctors and surgeons, and short-notice medical evacuation.

The two men leading the development are Robert Maciejewski and Kevin Bürchler, of Swiss Insurance Partners. “Covid-19 has been a wake-up call for many people. When you fear that your life or the life of a family member is at risk, health becomes the only priority,” says Maciejewski. 

Multiple citizenships and a Medical Family Office are expensive. An Austrian “Pandemic passport” costs up to £6.2m per family member and a medical office can set you back £18,000 a year per family member. 

If that all sounds a bit complicated and expensive, here’s a more affordable — and sure-fire — tip for the post-Covid world: the Initial Public Offerings of sourdough bread-making apps are likely to be massively oversubscribed.