Marco Rubio submits plan to overhaul US State Department

The US State Department on Thursday notified Congress of plans for a major reorganisation that would cut thousands of jobs and focus the department on promoting “America's interests”.

Secretary of State Marco Rubio said the department needed slimming down after decades of bureaucratic bloat that had brought spiralling costs with no gains for US citizens. Mr Rubio first announced the reorganisation in April, ordering officials to assess how many jobs would be cut in the closure of 132 bureaus and offices, and the merging of others.

“Since my first day as secretary, I have said that this department must move at the speed of relevancy and in April announced a broad reorganisation of the department to better achieve that goal,” Mr Rubio said in a statement. “The plan submitted to Congress … will result in a more agile department, better equipped to promote America’s interests and keep Americans safe across the world.”

Mr Rubio also posted a link to a Fox News story saying the department plans to merge or eliminate more than 300 offices and bureaus.

An executive summary of the proposal, seen by Reuters, said nearly 45 per cent of the department's domestic offices would be merged, eliminated, consolidated or streamlined in the reorganisation.

The department plans to cut thousands of US-based workers, reducing its civil service and foreign service domestic workforce by 3,448 people, according to the congressional notification, out of 18,780 people as of May 4.

Nearly 2,000 of those will be subjected to job cuts while more than 1,500 will be deferred resignations. No job cuts are planned for locally employed staff or US personnel posted overseas.

The State Department published a new organisation chart showing that a new undersecretary of state position would be created to oversee foreign assistance and humanitarian affairs, which will include much of the work previously done by the US Agency for International Development, which was eliminated by Elon Musk and the Department for Government Efficiency.

Senior Democratic senators Jeanne Shaheen and Gregory Meeks said the proposed cuts are too broad and would leave an opening for Russia and China to increase their diplomatic contact with other nations.

"We welcome reforms where needed, but they must be done with a scalpel, not a chainsaw," they said in a statement.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”