Russia's Wealth Creators: Facing the Challenges of Succession and Wealth Management

London/Moscow (9 October 2013)-“In Russia, risk and opportunity always go hand in hand which explains higher returns in comparison with the rest of the world. Anything less than a 30% return on investment is uninteresting. This is our reality.”

This provocative observation made by a Russian entrepreneur follows the trend of recent years that have seen the wealth of Russia’s millionaires rise at rates of up to 90%.

Despite the recent decline in Russia’s overall GDP growth, Russian entrepreneurs remain confident about business prospects, with many planning to expand their business in the year ahead. Because they are active across business sectors, Russian entrepreneurs are well-positioned to influence the debate on the future of the business environment in Russia, as well as the political landscape.

These are among the main findings of the fourth annual UBS/Campden Russia’s Wealth Creators report, which offers unique insight into the thoughts of Russia’s entrepreneur class. As such, the report provides a rare opportunity to understand the evolution and influence of an entrepreneur class in a large emerging market economy.

UBS/Campden’s Russian Entrepreneurship Report 2013 explores three major dynamics of the Russian entrepreneurial experience: business development, family participation and wealth management. Business development covers the growth and professionalism of the company. Family participation looks at family involvement in the business, the transfer of ownership, control and wealth, the next generation and philanthropy. Wealth management looks at investment strategies and plans, onshore versus offshore portfolios, preferred asset classes, the role of wealth management service providers and family offices.

Unusual family lifestyles are common among wealthy Russian entrepreneurs. One respondent identified Europe and North America as the most popular destinations in which to live and settle down while simultaneously maintaining business interests in Russia. Surprisingly however, when asked what type of services they would expect most from their wealth managers, only four of the Survey’s 20 respondents said they needed experts to help them with the management of their lifestyle.

Other key findings include:

·           Even more of the entrepreneurs surveyed this year – 95% compared with 91% in 2012, and with 90% in 2011 – admitted that corporate governance reforms do not find enough support from the country’s companies.

·           Eighteen of the respondents indicated that none of their family members hold stakes in the companies they own; only two of them said children would likely be entitled to hold a stake in the future.

·           Among the attributes that Russian entrepreneurial parents consider as essential for their children if they are to make a meaningful contribution to their business, is a university degree (19 out of 20 respondents in total), followed by work experience of between one to three years (70% of respondents in 2013 from 67% in 2012).

·           This year marks a stark increase in Russian entrepreneurial interest in philanthropy, coupled with a growing distrust toward private wealth managers.

·           The fallout from the Cyprus banking crisis has led to concerns about foreign banks, and respondents appear more likely to embrace local banks than in previous surveys. Switzerland, however, remains the most-preferred offshore jurisdiction for banking.

"Russia's entrepreneurs continue to face many difficulties of doing business in their home country and the government needs to do much more to encourage a more entrepreneur-friendly environment to flourish," said David Bain, editorial director, Campden Wealth. "But, despite the multitude of difficulties entrepreneurs face in Russia, they show considerable resilience and most continue to invest in the country. This is testament to the huge opportunities available for entrepreneurs in Russia, more than the government's efforts to encourage entrepreneurship to thrive."

Stefan Reutter, Head of UBS Wealth Management in Russia, added: "As the only global bank for which wealth management is a core business, UBS has long been a market leader in Russia with a key focus on private business owners. We service Russian clients in a holistic approach from a number of locations, including our strong and growing presence in Moscow. We are pleased to once again support the Campden Russian entrepreneur survey in an effort to further deepen our understanding of client needs and continuously improve and adapt our offering."

About the report

The survey was distributed in two ways. First, researchers conducted structured, in-depth interviews with a sample of successful entrepreneurs in Russia. These face-to-face interviews were carried out in early 2013. The 20 entrepreneurs that participated in the survey are, with just two exceptions, domiciled in Russia or have a core operating business that is domiciled in Russia. The majority of them have a personal net worth in excess of $50 million, and also own a business or businesses with annual revenues ranging from between $50 million and $1 billion.

Second, quantitative survey data was gathered during the same time period. The respondents were selected to ensure industry diversity and operated within the following sectors: banking, financial services, manufacturing, mining, technology, telecommunications, pharmaceuticals, real estate, development, and retail. While there was no sampling discrimination according to place of residence within Russia, as many as 80% of the respondents claimed to reside in the capital city of Moscow, which currently generates 80% of the country’s personal wealth.

The translated interview transcripts were analysed by Campden and family business experts to identify business, wealth management and family issues. All currencies are in US dollar unless otherwise stated. Find out more about this report here.

Notes for editors

For more information about the report, please contact:

Andrew Porter

Director of Research, Campden Wealth

+44 (0)20 7214 0544

andrewporter@campden.com

About UBS

UBS draws on its 150-year heritage to serve private, institutional and corporate clients worldwide, as well as retail clients in Switzerland. Its business strategy is centered on its pre-eminent global wealth management businesses and its leading universal bank in Switzerland. Together with a client-focused Investment Bank and a strong, well-diversified Global Asset Management business, UBS will expand its premier wealth management franchise and drive further growth across the Group. Headquartered in Zurich and Basel, Switzerland, UBS has offices in more than 50 countries, including all major financial centers, and approximately 61,000 employees. UBS AG is the parent company of the UBS Group (Group). Under Swiss company law, UBS AG is organized as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors. The operational structure of the Group comprises the Corporate Center and five business divisions: Wealth Management, Wealth Management Americas, the Investment Bank, Global Asset Management and Retail & Corporate.

About Campden Wealth

Campden Wealth is the leading independent provider of information, news and education for generational family business owners and family offices globally in person, in print, via research and online.

Campden Research is a business specially formed to further extend this information offering. Campden Research supplies market insight on key sector issues for its client community and their advisors and suppliers. Through in-depth studies and comprehensive methodologies, Campden Research provides unique and proprietary data and analysis based on primary sources.

About Svetlova LLP

Svetlova is an international law firm with offices in London and Moscow. Svetlova provides expert legal advice to private clients and their businesses with services spanning from tax structuring, estate planning, immigration in the UK and residency in offshore jurisdictions to real estate and corporate acquisitions.

The firm is known as a preferred service provider for individuals and businesses wishing to establish a presence in the UK. The firm is well known for facilitating a smooth transition for businesses and individuals from the Russian Federation or ex-CIS to the UK and Europe. Svetlova’s lawyers are bilingual in Russian and English, which is often key to clients.

Svetlova is committed to philanthropy. They are delighted to be working closely with a number of outstanding artists, musicians and writers, providing free legal advice and supporting their projects. Svetlova acts as a pro-bono legal counsel for the New English Ballet Theatre and Kazakh Gala.