For the Gulf’s ultra-wealthy, time to change course

As Gulf economies slow down due to declining oil prices, an important question presents itself: Where is the money going? Even though there is no one definite answer, we are seeing that a good portion of the GCC wealth is being injected into real estate, particularly in the UAE.

Globally, many high net worth investors (HNWIs) are including more residential properties in their portfolios, particularly those in top-tier cities such as London and New York. HNWIs often view this asset class a safe investment that secures wealth transfer from one generation to another.

However, this traps them with a different problem: lack of diversification, which in a fluctuating real estate market could mean a greater risk of loss than not. A step towards a more diversified portfolio would be investing in second — tier cities where more lucrative opportunities are available as the global market recovers from the financial downturn.

After years of considerable growth in the numbers of the wealthy around the world, we are entering a period of deceleration as China’s economy slows and commodity-exporting emerging economies are hit by lower prices and demand. The number of the newly wealthy will slow, and ultra-HNWIs will find it harder to grow their wealth.

At the same time, the recent boom in wealth has heightened scrutiny on this group, not least as regards to tax evasion. And with low interest rates prevailing around the world and increased life expectancy, the passage into retirement has become much more costly. This increases the challenge for ultra-HNWIs to maintain and pass on wealth.

In spite of these issues, philanthropy among the ultra-wealthy is at an all-time high and continues to grow. The ultra-wealthy are also increasing their asset allocation to passion investments such as fine art and second homes overseas, enabling them to enjoy their wealth.

The results of this year’s Attitudes Survey from the Knight Frank Wealth Report highlights how important the next decade will be for ultra-HNWIs and their advisers. Wealth creation is expected to slow, which, combined with an uncertain economic outlook around the world, will require new investment and wealth management strategies. However, judging by the sentiment of the survey’s respondents, property will remain an important part of their investment portfolios.

We find our clients to be more multi-jurisdictional than ever before, with families often ending up dispersed across the globe.

When we speak of family businesses we automatically think: succession planning, legacy and impact, and capital and investment flow. Family businesses have always had a large impact on the global economy, making up 70—90 per cent of global GDP and generating 40-60 per cent of employment in many economies. For these reasons and more, it is imperative that family businesses sustain growth and move on to the next generation.

Unfortunately, this is not always the case, where research shows that only a third of family businesses make it to the next generation, 12 per cent to the third generation and only 3 per cent to the fourth. This is mainly because several family businesses do not have a solid succession plan in place.

To ensure these businesses are maintained over many generations, several steps could be adopted by the family including hiring employees that are not family members, focusing on communication and many others.

Another trend we have been noticing in family business and wealth management is the rising involvement of women. The number of high net worth women has been increasing faster than that of their male peers. In the Middle East, where societies are more traditional and the senior seats are dominated by the men in the family, more women are studying abroad and returning home with a strong set of skills and expertise ready to take on senior roles in family business.

An increasing commitment to philanthropy and the growing involvement of women and the next generation in managing family wealth is an exciting and challenging development for those advisers who can adapt to the changing attitudes and aspirations.

— The writer is a Family Office Analyst at Knight Frank.