The rich are getting richer. And in the oil rich Arabian Gulf, which boasts the greatest portion of household wealth, the rich are getting even richer.
Their fortunes are growing at one of the fastest paces in the world amid an economic renaissance spurred by government spending on civic works such as roads, airports and metros.
That is because in the decade that ended in 2010, oil prices more than tripled, allowing governments in the region to build cash stockpiles and businessmen to benefit from the trickle-down effect of these public projects. During the same period the average wealth of adults in this country alone tripled to US$150,121 from $56,777, according to Credit Suisse, the fifth-largest private bank in the world by assets under management. In Qatar, the richest nation on Earth per capita, almost 18 per cent of households have more than $1 million in investable assets – the threshold that gives you the honour of being called rich, according to a report last month from the Boston Consulting Group.
Global private financial wealth is notoriously difficult to gauge and there are many competing figures floating around. According to Boston Consulting, it grew 14.6 per cent to $152 trillion in 2013, compared with 8.7 per cent in the previous year. That was mostly on the back of a rally in stock markets, rising property valuations and improving economic growth. While most private wealth is still in North America, South East Asia is the fastest growing engine of wealth creation, followed by eastern Europe and the Middle East, the report by the global management consultants says.
In the Middle East and Africa, private wealth increased 11.6 per cent to $5.2tn last year. Oil-rich countries such as the UAE, Saudi Arabia, and Kuwait had above average growth of between 12.8 per cent and 13.6 per cent. And private wealth in the region is expected to grow 6.5 per cent annually to reach $7.2tn by 2018, the report says.
Naturally, that has not escaped the notice of Middle East private bankers – financial experts who specialise in investing money for the rich in assets such as stocks, bonds and property. Unlike wealth managers at retail banks, they can typically also invest money for clients in hedge funds and other exotic assets such as fine art. They also advise the rich on how to pass wealth down from one generation to the next.
During Dubai’s boom years before the downturn of 2008 many of these bankers set up shop in the Dubai International Financial Centre, the region’s answer to Wall Street. But as heydays unwound and the UAE was left with slumping stocks, depressed property prices and hot under the collar creditors, many of those private banks shipped out of town. Now though, there is a reversal of that trend amid the improving economic fortunes of the region – especially as the region is a rare bright spot in a world marked by anaemic growth.
“This region is big for us,” says Pablo Garnica, the Geneva-based chief executive of JPMorgan Private Bank Europe, Middle East & Africa. “This region has the advantage of good macro growth, energy is obviously a big source of it. We see it as a very attractive market. It’s a region of growth with a very young population, sophistication, a curiosity to listen to new ideas. Everything we see, we like.”
Still, the majority of private wealth is controlled by a small number of people, called ultra high-net worth individuals, typically with more than $30m to invest (although some will set that bar as high as $100m). The latest tally by Insight Discovery, a Dubai-based consultancy, counted 58 private banks in the region, with the majority being based in Dubai. About half are international, domiciled outside the region, according to the research firm. Getting figures about how much money is managed in the region by private banks is almost impossible because many guard such data carefully and do not publicise it.
“There’s a lot of money in a small number of hands unlike in some European countries,” says Nigel Sillitoe, the chief executive of Insight Discovery. “And there’s a large number of banks chasing a small number of clients.
“There are a number of ultra high-net worth individuals who prefer dealing with the head office of a Swiss bank rather than a representative office at home. Some banks are said to have increased business by closing their rep office.”
However, now Dubai’s economy is bouncing back, many Swiss private banks, such as Swissquote, are keen to open in the UAE and tout the virtues of their banking industry.
The country is also a haven for wealthy investors in other parts of the Arab world as well as emerging markets, such as Russia and China, that are roiled by political instability or experiencing economic turbulence.
“Switzerland is still considered to be the number one in investor protection and that’s one level of protection that gives us a competitive advantage,” says Mario Camara, the chief executive of Swissquote. “Swiss banking secrecy is not what it used to be but it’s still the best. Switzerland now has to abide by a lot more rules than before but it’s still the most protected financial centre world wide.”
Banks including Swissquote and La Cloche Wealth Management have opened doors at the DIFC in the past year, while banks such as Falcon Private Bank, a Swiss money manager owned by Abu Dhabi, are beefing up their capabilities here while shutting offices in Hong Kong to focus on the super-rich in the Middle East, Africa and eastern Europe.
Typically the rich are owners of family-run businesses that often now have second-generation executives. “Our clients are becoming more sophisticated, educated in the West. Even here, you’ve seen a lot of investment in education,” says Mr Garnica. “And there’s a lot of information that people can access. I think our job is to digest that information and make it actionable. And the younger generation in family businesses are much more involved in the process.”
Even so, private bankers have to contend with their global competitors, local private banks such as Emirates Investment Bank and the ever expanding wealth management arms of the biggest banks in the UAE such as National Bank of Abu Dhabi, Emirates NBD and Abu Dhabi Islamic Bank.
As the good times roll, the rich are now willing not only to take on greater risk but also to invest their money for longer. The fact that many local stock markets have boomed in the past two years has also made many rich people keen to diversify. “In the aftermath of the global financial crisis in 2008 and 2009, clients became extremely risk averse and their investment horizons shortened very considerably,” says Arjuna Mahendran, the chief investment officer at Emirates NBD Wealth Management.
“At that time, if you showed a client an investment anything beyond nine to 12 months, they didn’t even look at it. But as memories have faded of those events and people become a little bit confident, investors are taking longer and longer investment horizons in their portfolio.”
mkassem@thenational.ae
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