Dubai: The strong return of growth in private wealth in the region to pre-crisis levels combined with a marked slowdown in private wealth creation across the West is attracting a large number of wealth managers to the region.
Capgemini and Merrill Lynch's World Wealth Report for 2010 showed that the number of wealthy individuals in the region rose by 10 per cent to 400,000, the size of their wealth jumping 12.5 per cent, outpacing every region except Africa.
In a recent interview with Gulf News, Tamer Rashad, Merrill Lynch's managing director and head of global wealth and investment management in the Middle East and North Africa, explained the latest trend in the global and regional wealth management industry.
Gulf News: Last year we saw a number of wealth managers setting up shop in Dubai, especially in the Dubai International Financial Centre (DIFC). Is there a fundamental change happening in the market?
TAMER RASHAD: There are two forces that are driving the wealth management business. One relates to what is happening outside the Middle East and the other relates to what is happening within the region and both of them are pushing to the same conclusion, which is about the growth in the share of the region in global wealth management business.
At the global level there has been significant slowdown and in some markets virtual stagnation in the wealth management business, especially in western Europe and the US. Most of the growth comes from emerging markets and that has resulted in global wealth managers strategically evaluating their global foot print and focusing on new areas of growth. There is little-to-no growth in the markets such as the UK, Germany and the US, which traditionally were the largest markets.
Given this backdrop, a significant surge in the personal wealth in the region is attracting many wealth management firms. The latest estimates I have seen are that there is about $1.2 trillion (Dh4.4 trillion) of investable assets in the GCC alone. In GCC, wealth is growing, there is about 12 per cent annual growth that is actually the highest growth rate across various regions, second only to Africa according to our estimates.
In absolute terms Asia is ahead of the region in wealth generation. What makes the GCC special for wealth managers?
Everybody is talking about Asia. Yes, Asia's wealth is higher in absolute figures, but in terms of growth, the Middle East is higher than Asia. Again, in the $1.2 trillion investable assets available in the Gulf region, 60 to 65 per cent is invested offshore which is indeed an opportunity for non-GCC/regional or local wealth managers.
The high growth rate of about 12 per cent (increase of assets year over year) is not expected to slow down unless we see massive slowdown in oil price in a downtrend.
For 2012 the wealth in the region is estimated to be more than 1.4 trillion with about two thirds of it managed offshore.
In a couple of years, we are expecting the GCC wealth managed offshore to exceed $1 trillion.
That is a very good size of business that attracts players in the industry whether they are large European and American firms or mid-sized Swiss players.
There are new Asian players coming to the market. When we talk about competitors, Merrill Lynch is the largest in the world in terms of asset size. We manage $2.2 trillion dollars, have more than 17,000 financial advisers and we have presence in more than 24 countries.
How is the entry of more international wealth managers in the regional wealth management space affecting some of the long established payers like Merrill Lynch in the Middle East?
In terms of value chain in the wealth management, we have clients at the one end and a number of providers of wealth management on the other. Then we have product manufacturers such as mutual funds, hedge funds, etc. No doubt, competition is increasing.
Everybody is going after pretty much the same client base. However, despite the growth on the client side within the industry itself one would question if there is too much of private banking.
But we see competition as healthy. Some of the challenges come around the equation of supply and demand for talent. In the Middle East, when it comes to true senior experienced private bankers, relatively speaking, given the level of interest, there is a shortage of supply.
Many of our advisers have been with Merrill Lynch for more than 20 or 30 years. And, I think at the end of the day clients do value the relationships. There has been a strong trend within the UAE and the regional banking sector to diversify into wealth management and private banking business.
How do you see this segment emerging within the regional asset management business?
Part of what the local/regional banks are offering to clients is in the space that is not really a competition to players like us.
Wealthy individuals, depending on their preference, split their wealth between onshore and offshore opportunities. From our point of view this kind of diversification is good for our clients.
In fact this is what we preach. So the local players are playing well in this space and they are better than many international players in what they do.
Are there complementarities in what the local institutions and you do?
Interestingly enough, in the recent past we have had numerous inquiries from local institutions on collaborating and working with us.
They have a very good understanding of what we bring to the table and they also could be very valuable to us in terms of sharing clients. We are in discussions with many of them. They are indeed playing a big role in developing the market.
In your asset class offerings do you expose clients to some of the regional asset classes such as regional equity or debt?
Merrill Lynch works on an open platform model. Some of our competitors have their own products. We really value our offerings and services to our clients that we don't have any in-house organic products. We don't have something like Merrill Lynch products.
We used to have such products and exited the business in 2006 when we sold our Merrill Asset Management to Blackrock. This gives us a competitive advantage that we have no bias in directing investors to any particular product. We offer advisory but we also offer discretionary.
Within the advisory we bring to the client an idea. We could point out opportunities, we could then recommend specific assets from anywhere around the world. Today we are not in the space of regional equity or region fixed income.
