It is easier to get rich than to stay rich. That, at least, is the lesson of the Forbes 400 list, the 2007 update of which was published this week.
Nearly half of the 45 new entrants to the list, which ranks the richest Americans, are involved in private equity or hedge funds. David Bonderman and James Coulter of Texas Pacific Group, Blackstone’s Peter Peterson and Tony James and the three founders of Carlyle Group join less familiar new names such as the Fertitta brothers, who have made a fortune from the televised Ultimate Fighting Championship. How long, though, will these new members hang on to their wealth?
The historical evidence is mixed. By 2004, only 50 members of the first Forbes 400 list, published in 1982, were still there. Some of the original members had died, of course, but more had simply failed to keep pace with newer fortunes. On average, according to JPMorgan, the wealth of those who remained grew at a compound annual growth rate of 12 per cent, below the annualised return of the S&P 500 stock index.
The more recent past provides further salutary lessons for today’s masters of the universe. The combined net worth of the Forbes 400 members reached $1,000bn for the first time in 1999. Nineteen of the 60 new names in the list that year were linked to computer-related businesses. By 2002, the total net worth of the 400 had fallen to $860bn and did not hit the $1,000bn mark again until 2004. And the price of admission to the list, now $1.3bn, fell by $75m between 1999 and 2002. While many dotcom era entrepreneurs remain, others, such as AOL co-founder Steve Case who fell off the list last year, are conspicuous by their absence.
The latest list measures individuals’ worth at the end of August. It will take a while, though, for the worst of this summer’s financial market turmoil to feed through to the Forbes rankings. This year’s newbies should enjoy their place in the sun while it lasts.
Get alerts on Private equity when a new story is published