Short read: Billionaires’ Billions Are Increasing Faster Than Ever

In our Global Compounders Fund, we have been invested into the European luxury goods sector, not just for its fabulous heritage brands but also the fast-growing market they cater to – billionaires. As unfortunate as it might seem, the world is indeed getting more unequal when it comes to wealth and the uber-rich are letting the rest of us know as seen with the boom in luxury consumption globally. Our team estimates the global billionaire count to be growing at north of 7% p.a. That was before last week’s SpaceX listing and the upcoming IPOs of Anthropic and OpenAI. Indeed, the SpaceX IPO gave the world its first trillionaire – Elon Musk.

And as one would expect, America leads the way here as well, thanks to the staggering rise in shares of some of its big tech companies known for its liberal stock option culture and as a result spawning of tens of thousands of millionaires and hundreds of billionaires. Americans make up almost a third of the 3500 billionaires globally.

“One reason for the sudden surge of growth at the peak of the wealth ladder is the boom in artificial intelligence, which has funneled trillions of dollars of capital investment into a small clutch of tech companies. Nvidia, Apple, Microsoft, Alphabet, Meta and Taiwan Semiconductor Manufacturing Corporation, for example, are each worth more than $1 trillion. Their founders and early investors have reaped most of the financial gain.”

Whilst the stock market boom is benefitting the average Joe with a 401(k) retirement plan too, it is disproportionately accruing to the top few: “…it’s the top 1 percent of Americans who own half of all stock, according to data from the Federal Reserve. The top 0.1 percent of Americans — a group of about 135,000 households — own stocks that total $13.7 trillion. That is nearly double the $7.1 trillion owned by the bottom 90 percent of Americans, a group of about 115 million households.

The tech firms that are playing an outsize part in generating those returns have created jobs — but so far the numbers of employees are relatively small. Billionaires’ returns are based on investments in capital much more than in those companies’ employees.

…Financial assets have traditionally brought home bigger returns than a weekly paycheck. But since the early 2000s, the gap between the two has been growing. Economists point to several reasons: the declining power of labor unions’ bargaining power; the spread of automation, artificial intelligence and other technologies that can replace workers; the movement of manufacturing and other jobs to countries like China; and policies that tax wages much more heavily than income from investments.”

The last bit about tax policy changes is worth noting particularly given the argument that the most worrying aspect of super concentrated wealth is the ability to influence policy and making the gap widen in a self-fulfilling sort of way.

“In the United States, changes in the tax laws over the past 10 years have steered more benefits to the wealthiest sliver of households, reducing the amount of taxes they have to pay.

A drastic reduction in the corporate tax rate has supercharged the wealth of the ultrarich, enabling them to double down on their gains as corporations use the increased profits to buy back their stock.

The reduction in taxes owed by corporations and the wealthy increases the tax burden on workers, who pay both income and payroll taxes — two types of tax that barely scratch billionaire wealth. It also reduces the public revenue available to pay for health, education, defense, infrastructure and other public benefits at a time when governments are in deep debt.”