Editorial: The Wealth Generator

Richard Jory, Editor

What do investors want to buy? The answer at the moment is complicated by a number of factors, not least low interest rates, risk aversion, lack of income, and most recently the ease and speed with which some entrepreneurs have been able to accrue vast amounts of wealth.

The last of these is an emerging markets phenomenon, although it has also spilled into developed markets with the dotcom boom at the turn of the century. But pick any economic boom in any part of the world at any time and you will find a newly-enfranchised wealth generator.

The latest example is China, a country that has absorbed trillions of dollars for the products it has been willing to export over the past decade or so. Before claiming its place at the world economy’s top table, China’s wealth did not attract private bankers. Instead, the money loped around in a domestic economy dominated by government control and a more prominent political desire to foster state enterprise rather than capitalism.

These years of capitalism have done for China what TV rights have done for football players. Once controlled by others and lowly paid, they are now abundant in riches and have sniffed the possibility of being rich for life.

So what do China’s new fat cats want? Simple, they want a return on their investments that matches the 100%-plus increases in wealth they have grown accustomed to while creating their manufacturing businesses. So today’s juicy 7-10% annual returns are far too low for them. Wealth generators also face the dilemma that, while they have no idea how best to invest their money in financial products, they are absolutely terrified of losing any of it.

It is only when the wealth generators succeed in passing their money down to a following generation that sellers of financial products are able talk to investors with more knowledge about how to invest and a recognition that returns depend on the financial markets, and bear no correlation to the speed at which a wealth generator has amassed his fortune.

In most emerging markets, though, wealth managers and private bankers end up talking to the wealth generators. And as long as these financial advisers can offer complete and absolute capital protection with returns in excess of 30-40% a year, then everything will be fine.