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>Big Story >What Does a Billionaire Divorce Mean for the Economy
The Gates Billionaire Divorce

What Does a Billionaire Divorce Mean for the Economy

After 27 years of marriage and $146 billion in collective wealth, Bill & Melinda Gates announced their divorce via a statement posted on Bill Gates’ Twitter account on the 4th of May. The internet was abuzz instantly; the Twitter threads and think pieces went up hastily. Not only was theirs yet another in a long list of celebrity and billionaires’ divorces, but their separation also put hundreds of public health initiatives and research hinged on their donations in a precarious position. Since the inception of the Gates Foundation, the philanthropic couple has donated over $36 billion of their wealth to global health and development causes through their Gates Foundation. Announcing a divorce in the middle of a pandemic when global health hangs on a thin thread would jeopardize billions in charity. The recent rise of public interest in stocks and cryptocurrency also means that this development will significantly shake global stock markets.

The long-standing argument of billionaires and equitable distribution of wealth has had sparring perspectives. For most, the existence of billionaires is the persistence of capitalism, monopolistic business structures, and income inequality. For others, billionaires are simply reaping where they sowed. While in theory, billionaires generate a positive economic impact through job creation, wealth and income inequality remain immense drawbacks.

According to Business Insider, millions of Americans struggled with the economic impact of the COVID-19 pandemic; more than 60% of the workers are earning less than they did before the coronavirus outbreak. The wealth of American billionaires, on the other hand, grew by $845 billion in 2020 alone. To put that into perspective, $845 billion is twice the GDP of Nigeria all in the hands of less than a thousand people. 

Wealth Inequality

Global income inequality is the harsh reality of the existence of billionaires. Most, however, have tried to remedy this situation by following the footsteps of Rockefeller and Carnegie and donating their money to charity. Aliko Dangote, the richest man in Africa has contributed over $100 million in charitable funds to several causes in Nigeria and Africa through his Dangote Foundation. Berkshire Hathaway CEO, Warren Buffett has donated more than $37 billion since 2006. The Gates Foundation has also expanded its donations to over $36 billion. 

These funds are poured into development causes, ending poverty, enabling food security, humanitarian aid, and several global health initiatives. However, these donated funds are only a small fraction of their total accumulated wealth and what they would pay if their taxes weren’t written off. Only ten billionaires on the 2020 Forbes 400 list have given more than 20% of their wealth over their lifetime. Even top philanthropists like Warren Buffet and Bill Gates continue to see their wealth grow by leaps and bounds due to the benefit of ownership of capital.

For couples like Bill and Melinda Gates, whose donations are concentrated in disease prevention initiatives, a divorce will ultimately have a ripple effect on the beneficiaries of their humanitarian efforts. Although the Gates foundation is yet to put out an official statement on its implications, they stated that “ Bill and Melinda would remain as co-chairs and trustees of the organization. They will continue to work together to shape and approve foundation strategies, advocate for the foundation’s issues, and set the organization’s overall direction.”

While the Gates’ divorce poses relatively little to no threat to their joint charity efforts in the short term, their timely announcement has other financial and economic implications. A Reddit post on March 11 noted that more than one million GameStop shares were borrowed from exchange-traded funds (ETFs) in the pre-market. Speculations linked this spike in borrowed GameStop shares to the possibility of billionaire hedge funders and their wealthy investors increasing their short positions as part of a plan to prepare for their impending divorces. 

GameStop Market Chart (via Bloomberg)

In early January, the American gaming enterprise, GameStop had soared at over 2000% in market value when a group of Reddit users upended the market. This market pressure forced expert investors and hedge funders into a short squeeze as they scrambled to buy shares to keep up with the rapidly ascending stock value. Although GameStop shares have stabilized since the January frenzy, users surmised that some of GameStop’s wealthy short-sellers were trying to prevent another short squeeze by protecting their assets from an imminent market collapse. When major shareholders divorce, the consequence is unstable markets which have historically been a bad indicator for hedge fund managers.

According to Jioforme, Gates has invested most of his family’s assets through Cascade Investment LLC, one of the world’s largest family offices with over $ 50 billion in assets, primarily Deere & Co.  The Bill & Melinda Gates Foundation Trust has roughly $22 billion in US stocks and billions of dollars in other securities across Amazon, Walmart, Apple Inc, and more. Microsoft shares also dipped substantially in days following the Gates’ divorce announcement.  The same thing happened in 2019, two days after the Bezos divorce and Amazon shares dipped at 0.5%

While the debate of the billionaires and equitable wealth distribution will not be ending anytime soon, there is no denying the huge role they play in keeping markets and initiatives afloat.

New Release: The African Economic Congress 2020 Report.