The first full day of the annual meeting of the World Economic Forum spanned topics from the Ukraine invasion to restoring societal trust.
The two plenary speeches from heads of state were given by Ukrainian President Volodymyr Zelenskyy and Emir of Qatar Sheikh Tamim bin Hamad.
Mr Zelenskyy addressed the business community with a focus on getting their backing for his country, a complete boycott of Russia and preparing for the “reconstruction” phase that will inevitably follow the war.
Countries and corporations are already trying to assess the costs associated with that reconstruction, though an end to the war is not in sight.
Sheikh Tamim also spoke of the importance of ending the war in Ukraine but stressed the necessity of appreciating the suffering of others, with an emphasis on Palestine.
He said that “Palestine has been an open wound since the establishment of the United Nations”, pointing to the death of an Al Jazeera journalist who was killed this month during an Israeli military operation.
World Economic Forum — in pictures
“Shireen Abu Akleh, a Christian Palestinian-American journalist, was killed two weeks ago in Palestine and then robbed of a dignified burial,” he said, in reference to attacks by Israeli police on her funeral procession.
Business leaders attended both talks but in large part were concerned with what the two heads of state had to say on energy.
The impact of the Ukraine war and increased energy prices, with gas prices jumping about 500 per cent since the last meeting in Davos, has finance officials and corporate leaders concerned.
And while some were arguing for the need to further sanctions on Russia, former US congressman Eric Cantor said in a public session on Monday morning that an “off-ramp” was necessary for Russia to end the war and restabilise energy markets.
Ukrainian officials in attendance were not pleased with the idea of finding a way to bring Russia in from the cold. A congresswoman from the US state of Missouri, Ann Wagner, posited that her country should be the “Saudi Arabia of LNG” in the same session, with little interest in finding a way to lift the sanctions on Russian energy supplies.
Saudi Minister of Finance Mohammed Al Jadaan said that the green transition was in danger as some European countries have opted to burn coal to compensate for Russian gas.
While discussions on climate mitigation are in full force, including the need for investments in technology to enable a green transition, the most immediate concern was the coming winter, due to high energy prices.
The intricate relationship between geopolitics and energy is a big topic in Davos. As the Iran nuclear talks languish, the Iranian foreign minister is expected to speak at the World Economic Forum later this week.
Whether a nuclear deal could ease some of the pressure has yet to be seen, but the bigger picture in Davos is that the energy issue is at the top of the minds of leaders across the board.
UAE currency: the story behind the money in your pockets
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.”
Defence review at a glance
• Increase defence spending to 2.5% of GDP by 2027 but given “turbulent times it may be necessary to go faster”
• Prioritise a shift towards working with AI and autonomous systems
• Invest in the resilience of military space systems.
• Number of active reserves should be increased by 20%
• More F-35 fighter jets required in the next decade
• New “hybrid Navy” with AUKUS submarines and autonomous vessels
