Arnault, Musk, Bezos… How are their fortunes calculated?

Arnault, Musk, Bezos... How are their fortunes calculated?

Participation in listed companies, valuation estimates, algorithms at work… The assets of the planet’s greatest fortunes are now known in near real time.

Bernard Arnault passing in front of Elon Musk who had himself overtaken Jeff Bezos after the latter dethroned Bill Gates… For several years, the ranking of the first fortunes has been quite fluctuating.

It is all the more so since we now have almost real-time estimates of the evolution of the wealth of the planet’s billionaires with the Bloomberg Billionaires Index on the one hand and the Forbes Real-Time Billionaires on the other. Each offering globally close, but not totally identical, estimates of the world’s greatest fortunes.

Previously, you had to wait for the annual delivery of the American magazine Forbes or Challenges in France to estimate these assets. It was in 1987 that Forbes magazine published its first ranking of the greatest fortunes on the planet. Previously, the Guinness Book tried to estimate who was the richest person but did not publish a ranking. Thus the Gettys were long considered, in the second half of the 20th century, as the richest family in the world.

In the 1980s, when finance was not yet computerized, Forbes investigators had to do painstaking work to make their estimate by going through accounts, annual results, company stock prices…

The Arnault family owns 48% of LVMH

“Journalists were traveling the world, making phone calls, traveling in Asia and reading documents to discover and identify fortunes (we still do this but the Internet helps a lot). So they were able to find the richest man in the world” , explains the magazine on its website.

From now on, it is algorithms that provide the daily results of these assets. But are they reliable?

Already, you should know that these are professional fortunes made up essentially of shares held in companies. Personal assets such as bank accounts, real estate, works of art and other jets and yachts are excluded for the most part. It is therefore a classification of the largest professional assets on the planet more than the largest fortunes strictly speaking.

The assets estimated here are mostly public when it comes to listed companies. But not all of them are. This is the case of the Chinese giant ByteDance (owner of TikTok) whose founder Zhang Yiming is however rewarded with a heritage of nearly 55 billion dollars by Bloomberg. For these cases, analysts make estimates of the company’s value when it raises funds or based on market and performance parameters.

For listed companies, estimates can be made in real time. Take the case of Bernard Arnault. The Arnault family owns 48% of the capital of LVMH, according to a regulatory file provided to market authorities. The valuation of the luxury giant (value of the share x number of shares) being this Friday of 362.3 billion euros, we can therefore conclude that the heritage of the Arnault family in LVMH amounts to 174 billion. euros. It suffices to do the same for the companies in which the Arnaults hold an interest. The algorithm thus programmed can give an estimate of the heritage.

Elon Musk pledges Tesla shares

That of Bloomberg makes a daily estimate at each stock market close. Arrived later on the “real time”, Forbes offers him a higher frequency.

“The value of public assets [sociétés cotées] is updated every 5 minutes when the respective stock markets are open (there will be a 15-minute delay for stock prices), Forbes says. People whose wealth is closely tied to private businesses [sociétés non cotées] will have their net worth updated once a day.”

Other parameters are taken into account to estimate these assets. So if a billionaire owns almost all of his company, a 5% discount is applied to its valuation because the asset is more difficult to sell.

“If a billionaire has pledged shares he owns in a listed company, the value of those shares or the value of a loan taken out against them is removed from the net worth calculation,” Bloomberg further specifies.

This is the case of Elon Musk who pledged several billion dollars worth of Tesla shares to take control of the social network Twitter.

Finally, for unlisted companies such as hedge funds, they are valued using the average ratios of market capitalization to assets under management of the most comparable exchange-listed funds.

To rate the reliability of the estimates, Bloomberg assigns stars to its degree of certainty. This ranges from 5 stars when “the majority of the individual’s wealth is held in listed companies” to 1 star when “the majority of the individual’s wealth is tied to closely held assets for which limited information is available”.

Apart from the fact that it is only about professional heritage, these rankings have other limits. Like not taking into account the indebtedness of individuals or groups. If they do when it comes to listed shares pledged for example, they do not always have access to information when it comes to bank loans.

The last pitfall finally concerns the concealment of assets in tax havens via cascades of front companies, trusts and foundations. It is then by definition impossible for Forbes and Bloomberg to estimate these hidden assets. American billionaire James Simons, a hedge fund magnate, had a fortune estimated between $15 billion and $20 billion by Forbes. Before the “Paradise Papers” affair revealed that he had concealed in a trust in Bermuda assets valued between 7 and 15 billion dollars.