How a New Aristocracy Is Profiting from Covid

Worldwide, secretive 'family offices' turn individual wealth into dynastic fortunes for everyone from CEOs to ex-prime ministers – and they've made big money from the Covid crisis.

Credit: Alan Crowhurst / Getty Images

Throughout history, those born into dizzying wealth could usually be relied on to lose it. ‘Three generations between clogs and clogs‘ was the Victorian maxim, which held that any working person who amassed a fortune could near enough guarantee their grandchildren would have lost it. Even with minuscule inheritance tax, by its third generation, a rich family typically became large enough, feckless enough, or extravagant enough that there’d be no money left. Reams of data from around the world show this playing out time and again.

But things have changed. Most billionaires now vest their fortune somewhere before their descendants can lose it, all supported by the so-called ‘Wealth Defence Industry’ that counts thousands of lawyers and investment managers among its ranks. Today, the founder of a tech start-up that floats on the stock market can, the same day, vest their millions in a secretive financial vehicle that will not just pass this wealth down the generations, scarcely touched by taxes, but create an ever-growing dynastic fortune.

Obsessively secretive, the murky organisations that allow the ultra-rich to create this new sort of feudal dynasty—among them ‘family offices’, unregistered corporations, and private foundations—have shown their faces in recent scandals involving Prince Andrew, David Cameron, a collapsed megafund named Archegos, and some of the investors in the Pfizer Covid vaccine. Together they cast a little light on an industry that guards a scarcely imaginable fortune—unknown trillions of dollars worldwide—that remains blanketed in darkness.

How to Hide it

If you’re a member of the ultra-rich, with somewhere north of $100 million (or £75 million) to your name, the most common way to shelter your fortune is by starting a family office. Family offices worldwide hold a total of more than $5 trillion – a few hundred times the cost of vaccinating everyone on the planet against coronavirus and dozens of times what it is estimated to take to end global hunger and poverty for good. In the last decade, as global wealth inequality has skyrocketed, family offices have boomed. Today, there are 10,000 of them worldwide, up from 1,000 a decade ago, according to EY. Outside of the US, the UK has long been the global centre, with an estimated 3,000 such offices in London.

Family offices are unlike most other organisations in the City: equal parts private bank and personal butler service, which will pay off family members’ parking tickets, book their holidays, and buy grandchildren an apartment to live in at university. The advantages of this concierge service are highlighted in a recent feature for the Telegraph in a series of grim euphemisms: ‘arranging bail for errant billionaire offspring, and firing housekeepers with too much attitude’, etc. Above all, it forms an expensive veil of secrecy, which rebuffs public scrutiny of both family and banker. This was the opaque industry that allowed paedophile Jeffrey Epstein to amass a fortune, even after his initial conviction for soliciting prostitution from a minor, as an advisor for the family office of Wall Street tycoon Leon Black (himself currently fighting allegations of rape).

The investment arm is no more ethical. This operates like a hedge fund, using the family’s wealth to buy shares in companies and aggressively searching for investments that promise big returns – from property, to technology, to healthcare, to lending money. A new book by Chuck Collins, senior scholar at the Institute for Policy Studies in Washington, DC, demonstrates the proven effectiveness of the Wealth Defence Industry. The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions describes how family offices, just like big multinationals such as Apple, exist at the pinnacle of a head-spinning constellation of tax-shielded funds, subsidiaries, and shell companies, spread out across the world. Its employees spend their days shuttling money between these accounts, so that costs end up being counted in relatively high-tax countries like the UK—so minimising their tax burden—while profits are counted in low-tax or no-tax countries, such as the Cayman Islands.

The ancestors of Walmart supermarket chain founder Sam Walton have been among the greatest beneficiaries of this arrangement, explains Collins. In 1982, when patriarch Sam was first labelled America’s richest man, the Walton family had a combined wealth of $692 million. They are now worth $215 billion, according to a Bloomberg report from August. In three generations, the wealth defence industry has not just ensured the family has avoided ruin, but has taken every cent in their bank account and turned it into a dollar, delivering a real-terms increase of about 100 times.

Privacy to Profit, Secrecy in Failure

Despite their clout, many family offices work hard to make themselves ‘almost entirely undiscoverable’ according to an article called ‘The Faceless Organisations Running The World’, written by a family office consultant for Forbes magazine. Iconiq Capital, the family office that is believed to manage the wealth of Mark Zuckerberg’s family, along with some other Silicon Valley billionaires, did not even have a website for years. The family office of the richest man in the world, Jeff Bezos, controls $100 billion and its website looks like it was made on Microsoft Paint. Many employ legal and SEO experts to bury URLs deep down in Google searches.

It has all worked to keep these financial powerhouses far from public debate. To give one example: when the family office Archegos made some of the riskiest bets of the pandemic, and spectacularly collapsed owing billions to banks, many newspapers including the Guardian didn’t think it was worth explaining family offices to their readers, instead referring to Archegos as a hedge fund. Yet the family office industry is now twice the size of all the world’s hedge funds combined.

This is most worrying because some family offices have now adopted the ultra-risky tactics that earned the hedge funds their reputation as the financial villains of 2008, according to those inside the industry. In 2010, Dodd-Frank financial reform legislation in the US meant hedge funds had to begin reporting details about their investments, bringing a small degree of regulatory oversight. But the family office sector successfully lobbied to keep itself exempt. Scores of hedge funds simply converted to become family offices from 2011.

One of them was Archegos, run by a basically unknown trader called Bill Hwang, which briefly controlled $30 billion before losing it in ‘one of the most spectacular failures in modern financial history‘. In two days Archegos collapsed, having taken on billions of dollars in debts to fuel bets that didn’t pay off, while not required to report how indebted it had become. No individual in history has lost so much money so quickly, according to Bloomberg, with banks that gave money to Archegos left with billions of pounds of debts.

Who Profits from Covid?

But most family offices are not collapsing; instead, they’re delivering on their promises of ever-greater riches. Understanding how the billionaire class got $4 trillion richer during the pandemic is impossible without considering how such family offices invest. Behind many of the biggest financial deals of the pandemic—from the booming medical supplies sector to meme stocks—you’ll find a secretive family office.

Many made their biggest gains by ploughing in money after the Nasdaq and FTSE hit their lowest point on 23 March 2020. Others were more creative. When amateur investors won and lost fortunes betting on GameStop early this year, the Financial Times argued that the real winners were Zuckerberg and Iconiq, who pumped in $3.4 billion to keep the Robinhood investment app afloat amid the rapid swings of the market. Bigger winners, still, were the family office of brothers Andreas and Thomas Strüngmann, key majority owners of BioNTech, which co-developed the world’s second most used vaccine with Pfizer. Defenders will point to this as an example of the socially beneficial investments that can be made with the ultra-rich’s unrestrained capital, but BioNTech showed its true colours by lobbying to oppose patent waivers, the most effective and fairest route to ending the pandemic.

Secrecy over Generations

Family offices are not the only option for the very rich. Today, there are countless financial vehicles, both UK-based and foreign, jostling to shelter dynastic wealth.

Prince Andrew’s new family investment fund, launched with a Coutts banker accused of sexual harassment, is a little more unconventional than a family office. The fund, Lincelles, which launched just as the UK emerged from its first lockdown last June, is structured as an ‘unlimited company’, apparently designed to pass on the Prince’s private wealth to his daughters. This arrangement offers a trade-off, compared to a regular ‘limited’ company: the owner takes on a higher level of personal risk but gets privacy, by not having to publish accounts with Companies House.

It’s a trade-off that just doesn’t make sense unless you’re obsessively secretive. And intriguingly, the Office of David Cameron is one of only a few thousand such companies in existence, having hastily switched from a regular limited liability company in April 2020. Speculation is rife that Cameron’s change came in anticipation of a big windfall from his investment in Greensill Capital, expected to make Cameron £60 million, which never arrived as it collapsed in March. According to the Telegraph, Prince Andrew’s vehicle is in the process of being wound down at the say-so of Buckingham Palace, who (ironically) told the Duke of York that such secretive, neo-aristocratic financial structures were ‘not appropriate’ for members of the Royal Family.

And then there’s always the seemingly respectable option of the private foundation, a family charity that can give descendants a cushy job and allow them to attend gala dinners and sign big cheques to worthy causes. These so-called charities again operate in the mould of investment firms, ensuring endowments grow over time by investing in anything from housing to oil, while remaining notoriously stingy with the donations they hand out. To give one example, the parent company of budget retailer Primark is majority-owned by the private foundation of the Weston family, which has made unlawful donations to the Tory Party. The Garfield Weston Foundation had amassed more than £9.9 billion by the start of the pandemic, according to its 2020 annual report and congratulating itself on its best-ever year for handouts. But donations amounted to £88 million, less than 1 percent of its wealth at the year-start, compared to £2.5 billion it lost on souring investments. The most famous remains the Bill & Melinda Gates Foundation, whose lobbying against a vaccine patent waiver (before the Gates found themselves outflanked by the Biden administration) follows a long line of dangerous initiatives that support billionaires’ interests over the most vulnerable people on the planet.

What’s the Threat?

Regulation is belatedly catching up, with the US Securities and Exchange Commission and Britain’s Financial Conduct Authority expected to close loopholes after Archegos’ collapse. An unnamed family office executive told the FT that the industry is preparing for the end of the ‘Golden Age’. Moves by the US and UK (and its tax haven territories, like the Channel Islands and British Virgin Islands) alone could do the lion’s share of the work required globally, says Collins on a phone call. But international agreements are needed: ‘Wealth always moves to the weak link, to the shadows,’ he adds.

The clearest impact of these tax-avoidance arrangements has been evident throughout the pandemic: the rich don’t pay, and the burden of funding tax-supported systems—things like the NHS, social housing, and social welfare—falls on the rest of us. Another outcome will be the widening chasm of inequality.

Collins is himself an heir—receiving about half a million dollars in a trust fund as the great-grandson of the American hotdog sausage magnate Oscar Meyer—but gave it away to racial and social justice groups, before devoting his efforts to highlighting the dangers of this wealth hoarding industry.

For the future, the threat is looming, even within the timespan of one generation, never mind the many generations the ultra-rich are planning for. Collins paints a dire picture: ‘If we stay on this trajectory, even just another 20 years, we will see more of these inherited wealth dynasties,’ he says. ‘We will be governed by dynasties of wealth and power, and those families will dominate the economy. They’ll have huge ownership power. They’ll dominate our politics, in terms of their ability to influence democracy. They’ll dominate philanthropy and, therefore, the charity-recipient sector will be largely shaped and morphed by the appetites and desires of wealthy donors. And they’ll control the media; we’ll have more oligarchic ownership of the fourth estate. That just shapes and warps the whole culture.

Simply put, we will move toward a much more entrenched unequal society dominated by dynastic families.’