Billionaires are at a record number but how fragile is their wealth? Rich List compiler Robert Watts reports on those who cashed in during the lockdown digital-shopping bonanza and asks when the bubble might burst.
It is the most unsettling of booms. Over the past year tens of thousands of us have buried loved ones and millions of us have feared for our livelihoods. But at the very same time more people have become billionaires than at any point in British history.
This year's UK Rich List identifies a record 171 UK billionaires — 24 more than in 2020. That is the biggest jump in the 33 years The Sunday Times has been tracking the fortunes of the UK's most affluent people. The combined fortunes of the billionaires in this Rich List grew by nearly 22 per cent to £597.269 billion.
A global pandemic created golden opportunities for internet fashion retailers, computer games tycoons and a wave of other technology entrepreneurs who delivered their products to us direct and helped make lockdown life more bearable. This year's Rich List also includes a burgeoning pack of unicorns: start-ups providing online payments, virtual meetings and other high-tech services that are all worth at least US$1 billion.
There are many readers who will feel uncomfortable that such astonishing fortunes have been created as Britain battled a virus that has so far claimed about 128,000 lives, increased unemployment to 1.7 million, ramped up government debt, clipped civil liberties and heightened levels of depression and other mental illnesses.
However, it is not just the timing of this gilded epoch for the super-rich that feels disturbing. This is also a boom that often appears detached from the laws of economic gravity.
How can businesses set up less than two years ago, that have never turned a profit, be worth more than US$1 billion? How can an Oxfordshire-based manufacturer that hasn't put a vehicle on the road now have a stock market value of more than US$11 billion? How can two billionaires from Blackburn and their business partners stump up just 11.5 per cent of the billions of pounds needed to buy one of our biggest supermarkets — and borrow the rest?
How can a virtual currency understood by so few balloon to be worth 400 per cent more than a year ago? And how did this explosion of wealth happen at our darkest moment since the Second World War? Is this fledgling boom a mirage, teeing our economy up for an almighty crash?
Look through today's Rich List and some of the financial winners — and losers — of lockdown Britain don't seem that surprising. The pandemic pushed the fast-forward button on the decline of ailing high street giants and accelerated the growth of online retailers. A dismal year for River Island hit the wealth of the founder, Bernard Lewis, and his family. The former billionaire Philip Day drops out of the Rich List after his Peacocks chain fell into administration and he sold his pandemic-battered Edinburgh Woollen Mill clothing empire.
When Sir Philip Green's Arcadia empire finally sank into administration last November the buyers who lined up to purchase some of the brands in his stable seemed to signify the changing of the guard in British retail. Asos, 25 per cent owned by the Danish businessman Anders Povlsen, snapped up Topshop and Miss Selfridge from Arcadia's wreckage. Boohoo, the fast-fashion titan launched by Mahmud Kamani, grabbed Wallis, Burton and Dorothy Perkins.
Online retailers such as Asos and Boohoo thrived as lockdowns shuttered their high street competition. Even the shaming of Boohoo for the treatment and pay of staff at Leicester factories in its supply chain had only a short-lived impact on its share price, now up more than 50 per cent since last summer's trough. Kamani and his family's wealth is now put at £1.422 billion — an average growth of £1 million a day since last year's Rich List.
A year without parties or catwalks did not stop sales booming for Farfetch, the luxury online platform selling clothes from more than 700 boutiques. José Neves, 46, the British-Portuguese founder, enters this year's Rich List off the back of its affluent clientele's ferocious spending. With a £2 billion personal fortune, it's been quite a ride for this self-confessed "nerd" who once dismissed fashion as "frivolous" and a "waste of time and money".
Further woe for high street giants has had a knock-on effect in the property world. Grand dynasties owning swathes of London for centuries — the Cadogans, the Howard de Waldens and the Grosvenor family — have all seen the value of their estates fall. The wealth of the Grosvenors, led by the 30-year-old Duke of Westminster, has fallen by more than £240 million after write-downs in the value of their properties. Retail is a significant part of his empire. Now the property barons — who for many years have seen their wealth go only one way — face a second hit: the shift towards home and hybrid working looks set to damage further the value of their estates.
There were other predictable winners and losers from lockdown living. Ocado deliveries soared during the pandemic, boosting the shares of its co-founder Tim Steiner. But the mothballing of the West End's theatreland proved disastrous for Sir Cameron Mackintosh and Lord Lloyd-Webber. The Phantom of the Opera composer has been obliged to take out not one but three mortgages on his Hampshire estate since the onset of the pandemic. These loans total £15 million, all of which has been ploughed into maintaining his theatres and keeping his business alive.
At the opposite end of the billionaire experience more than £106 billion has been added to their combined wealth in the past year, much of it difficult to fathom. Part of this story relates to the stock market rally, which began as optimism grew about the Covid vaccine rollout. The FTSE 100 is up 25 per cent since late October and it's a similar state of affairs in the US. Year after year of rock-bottom interest rates have encouraged investors to chase high returns in the stock market — or elsewhere. They have also encouraged enormous borrowing, inflating asset prices — including the value of businesses owned by Rich Listers.
The easy access to credit has made it possible for petrol-station entrepreneurs Mohsin and Zuber Issa and the private equity group TDR Capital to put down just £780 million of the £6.8 billion it is poised to pay for Asda. The rest of the bill will be funded by borrowing.
The story of Alex Chesterman, one of our new entries, is another tale that seems to fit with these extraordinary times. The former bagel salesman made earlier fortunes from the DVD rental service LoveFilm and the property website Zoopla. His new venture is Cazoo, a website selling second-hand cars, which last summer became Britain's fastest unicorn yet. It achieved that $1 billion valuation just six months after launch.
If you think that looks optimistic, Cazoo has recently been working on a New York Stock Exchange debut that could value the company at £5 billion — quite a sum for a loss-making business that as recently as February had yet to sell its 20,000th car.
This boom has created plenty of other paper fortunes that seem just as bold. Last year Johnny Boufarhat, a Sydney-born computer programmer, launched the online events platform Hopin, which took off during lockdown. A recent investment round valued Hopin at £4.1 billion and Boufarhat's stake in the company at nearly £1.5 billion. He turns 27 next week.
The private equity houses and other investors that make such valuations possible are sitting on very large war chests of cash. As the chemicals baron Sir Jim Ratcliffe once observed of private equity to the Rich List: "If you do bad deals, you get fired. If you don't do any deals, you get fired."
That pressure to do deals encourages private equity houses to overpay for the companies they buy and invest in.
There is a similar dynamic at play with the special-purpose acquisition companies (Spacs) that have emerged in the US in recent years, vehicles used to buy other companies and pull them onto the stock market without having to jump through the traditional regulatory hoops. There is clamour for Spacs to be introduced here.
"There's a two-year time limit for Spacs," one Rich Lister noted. "That's a recipe for overpaying for companies."
It was a Spac listing that provided what is perhaps the most extraordinary number in this year's Rich List — the £6.173 billion fortune of Denis Sverdlov, founder of the Banbury-based electric vehicle manufacturer Arrival. The Russian entrepreneur, once a telecoms minister in Vladimir Putin's government, plans to create a network of micro-factories to make his green vans and buses across the world. It's a notion that tips the tenets of a century of automotive manufacturing on their head; dismissing the economies of scale of large plants.
Two months ago Arrival joined the New York stock market, delivering the biggest float yet by a British company. You won't see its vehicles on the road any time soon — commercial production doesn't begin until next year.
"I just don't understand many current stock market valuations," sighs one European billionaire living in London. "A few years ago one used to say a company was worth eight or ten times its annual profits. Now I am told 20 times is somehow not unreasonable. This won't end well."
How worried should we be? The past few months have underscored just how quickly companies with multibillion-pound valuations can fall apart. If this year's Rich List had been published in February the Australia-born financier Lex Greensill would almost certainly have featured. Investment by a Japanese bank had valued his Greensill Capital at £2.5 billion — suggesting the founder's stake was worth just over £1 billion. As recently as late last year there was even feverish talk of a £5.1 billion stock market debut for Greensill, which was being promoted by the former PM David Cameron.
While Greensill unravelled, Deliveroo and its Connecticut-born founder, Will Shu, were cooking up an IPO. Even the chancellor, Rishi Sunak, was roped in to puff the business, which aspired to be worth as much as £9 billion. That price would have booked Shu's place on the Rich List, valuing his 6.9 per cent Deliveroo stake at £621 million. But the float flopped. The business was worth about £4.6 billion earlier this month — and Shu's holding is not enough to justify inclusion in today's rankings.
One asset price seems to epitomise the froth in the market more than any other: bitcoin. The cryptocurrency's utopian ideals seemed just about plausible at its inception in 2009. Why should governments and banks effectively control currencies? If it's possible to email someone anywhere in the world for free, surely it should be possible to send money in the same way without bankers taking their cut?
But the boom in bitcoin's price since last October is certainly anything but plausible. At the time of going to press, a single coin cost almost £40,000. That spike has nothing to do with inherent value, it's simply because virtual currencies have become a hot investment opportunity for speculators happy to have a gamble.
Five billionaires I asked about the virtual currency came across as sceptics, albeit with varying degrees of ferocity. The words fired back included "nonsense", "madness" and "the biggest Ponzi scheme in history".
"There's a touch of the tulips about all that," one of these billionaires said dryly, referencing the mania surrounding the flower in 17th-century Europe.
Another said: "Perhaps [bitcoin enthusiasts] are very clever and I am very stupid. But I don't think so."
Even though it was renounced by Elon Musk earlier this month, due to its carbon footprint, maybe bitcoin's price will remain high. Maybe lots of these unicorns will become household names. But many of us remember how just 20 years ago bright young things shone all too briefly during the dotcom boom. How many of today's unicorns await a fate similar to that of Boo.com and MySpace?
With stock markets strong and interest rates low, this boom looks to have time to run. Around the world wealth creation is soaring, especially in China, sufficient to exclude all our UK billionaires from the ranking of the 50 richest globally. Sales of superyachts, supercars, diamonds and other luxuries are all gathering pace. This is a party that could rage for some time.
The most unsettling question is not whether this unexpected boom time for the super-rich will come to an end. The more pertinent questions are when, and what that will mean for the rest of us.
Written by: Robert Watts
© The Times of London