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Ranks of Pentamillionaires Swell Throughout L.A., U.S.

Ranks of Pentamillionaires Swell Throughout L.A., U.S.

By HOWARD FINE

Staff Reporter

They’re called Pentamillionaires.

They’re the Angelenos with household net worth in the $5 million to $20 million range and, as of last year, they numbered nearly 20,000. That’s less than two-thirds of one percent of the 3.1 million households in L.A. County, but it’s still the second-largest agglomeration of wealth in the nation, behind New York.

Unlike income figures, which are tracked by government agencies, net worth data are much harder to come by. But according to figures compiled by Spectrem Group, a financial services consulting firm, there were 19,958 households in L.A. County last year with net worth exceeding $5 million. Nationwide, there were 677,000 pentamillionaire households last year.

The figures include households with more than $20 million in net worth. However these “super-rich” households make up only a small percentage of the pentamillionaire group, probably less than 10 percent.

What distinguishes L.A. pentamillionaires from their brethren in the Silicon Valley or elsewhere is the diverse nature of wealth. While some broke through the $5 million barrier with stock options or the Nasdaq, most got their money through years of hard work and penny-pinching in very unglamorous industries.

Real estate effect

In 1995, there were 10,337 pentamillionaire households in L.A. County, excluding those who only pass the $5 million threshold because of the value of their primary residence. Last year, that number increased 37 percent, to 14,150.

Spectrem director Scott Slater said that his company generally tracks net worth without the value of the primary residence, since many homes appreciate in value regardless of who lives in them. Only in the last couple of years has Spectrem included the values of primary residences in its data.

Nationally, L.A. lags when it comes to the exploding ranks of pentamillionaires. Back in 1995, there were 268,000 pentamillionaire households in the U.S.; that went up 80 percent, to 480,000, last year. Leading this growth was the Silicon Valley: San Jose had 5,500 pentamillionaires last year, up from 2,900 in 1995.

Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County, suspects that L.A. pentamillionaire households may be undercounted. “Unlike other areas like the Bay Area where everyone had stock holdings or options in publicly traded companies, the wealth here is held by people who are notoriously low-profile,” said Kyser. “You have thousands of highly successful Asian and Latino entrepreneurs who are probably not picked up in any surveys; and, even when you ask them, they have no idea of how much they are worth.”

And because so many of the businesses of L.A. pentamillionaires are or were located in the manufacturing belts to the south and east of L.A., it’s not unusual for them to live in relatively modest and nondescript communities.

“They live in places like Whittier, La Habra Heights, Monterey Park, Pomona, Northridge and other communities far away in distance and in character from the showy affluence on the Westside,” Kyser said. “In fact, you can be in a distinctly middle-class neighborhood and not realize that the house at the end of the street is owned by a family worth $10 million or $20 million.”

Diversified holdings

Slater said that those households with more than $5 million in net worth have weathered the stock market stall and tech market collapse far better than those in the $1 million range. That’s because they tend to be more diversified in their holdings.

“There was actually a decline in the number of households nationwide worth between $500,000 and $1 million,” Slater said. “That was the group more heavily invested in tech stocks and options. By the time you get into the $5 million range, most turn to professional advisers who make sure the holdings are diversified.”

Those in the lower end of the pentamillionaire grouping, say between $5 million and $10 million in net worth, tend to be more conservative in their approach to wealth than those households worth $50 million or $100 million.

For starters, many of these households have much of their wealth tied up in private companies without access to huge amounts of liquidity.

Also, after years of frugal spending habits and putting nearly everything back into their businesses, many don’t change their ways just because they suddenly have $5 million or $10 million more at their disposal.

But that doesn’t mean these pentamillionaires skimp entirely borne out by the numbers that send their children to private schools. And, according to 2000 U.S. Census data compiled by ESRI Business Information Systems, many of the communities these pentamillionaires live in spend two or three times the national averages on entertainment and home improvements.

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