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The Great Wealth Transfer

Over the coming two decades, the immense wealth created by Baby Boomers will be transferred to the next generations. The sum is measured in tens of trillions of U.S. dollars worldwide. The process has been called 'The Great Wealth Transfer.'

The gradual shift of power and influence to Millennials has significant implications for society: According to a Pew Research survey entitled 'The Generation Gap in American Politics' (2018), the Millennial generation remains most supportive of same-sex marriage, immigration, and bigger government. It is also the only generation in the U.S. where a clear majority attributes global warming primarily to human activity.

Regarding investment style, millennials, the most educated generation in the world's history, are deemed more risk-averse, digitally-minded, and sustainability-conscious than Baby Boomers. The wealth and asset management industry has been actively positioning itself to serve this new clientele.

As investor preferences on the demand side of the capital markets shift following the Great Wealth Transfer, the supply provided by corporates will naturally be incentivized to adjust. The recent trends in sustainable finance are set to benefit from further tailwinds for years to come.

But there is a twist to this logic. According to a recent Federal Reserve study, the intergenerational wealth transfer is expected to lead to further wealth concentration as wealthy Millennials benefit the most from inheritance. Millennials might abandon their liberal value as they age, especially those who accumulate wealth. According to a 19th-century French adage, 'he who is not a [liberal] at twenty compels one to doubt the generosity of his heart; but he who, after thirty, persists, compels one to doubt the soundness of his mind.'

While historical observations validate the thesis of an aging population's political shift to conservative values, the magnitude of that shift is subject to debate. Furthermore, the future may be different: if 'human nature' is seen as subject to inertia, 'human culture' has proven to be capable of change.

The question raised by the Great Wealth Transfer is therefore wide open: Will the wealthy Millennials act in coherence with their current socio-political and investment preferences or will they resist them to protect their growing privileges?

The answer will be transformative for political parties, economic actors, and financial market participants.

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