What type of investor are you?

“There is one peculiarity about wealthy clients in the UAE that you do not find elsewhere,” says Eddy Abramo, Regional Chief Executive Officer — Middle East at Banque Internationale à Luxembourg (BIL). “They have dreams, and they actually take steps to realise [them]. They believe nothing is impossible, and it is this positive mindset that is driving growth.” Abramo emphasises that this attitude cascades down from the nation’s rulers, who have taken concrete steps to fulfil their vision for the UAE.

Gary Dugan, Global Wealth CIO, National Bank of Abu Dhabi, echoes the sentiment. “People in this region tend to be optimistic. The risk appetite is high, but it is not so much about risk; it is more about using and growing the money.” He says this is also in line with the teachings of the Quran, which cautions against hoarding wealth. “The attitude to wealth here is ‘I want to build the business. I want to make my money work. I want to be creative’. And this conviction makes a big difference.”

Dugan contrasts this outlook with that in the UK, where he says there is a sense of gloom. “Investors [have] the view that they are not going to make much money, and therefore end up being extremely cautious. So the bulk of wealth in the West is not going to create more wealth.”

Commenting on the investment attitude of entrepreneurs and business owners in the region, Fouad Hamiyeh, Head of UAE Representative Offices, Crédit Agricole Private Banking, says, “These regional clients are yield seekers and have a higher appetite for risk. The search for yields is a key aspect in the investment culture of the region, as investors continuously look to grow and preserve their wealth.”

Multiplying wealth

The global management consulting arm of PwC, Strategy&’s GCC private banking study 2015 reiterates the capacity for wealth creation in the region. It estimates that liquid money reached a massive $2.2 trillion (Dh8.08 trillion) last year from $1.1 trillion in 2010.

While Saudi Arabia is still home to much of the GCC’s wealth, it is the UAE’s wealth that witnessed maximum growth at a compound annual growth rate of 25 per cent during this period, followed by Oman and Bahrain at 21 per cent and 18 per cent respectively. Saudi Arabia and the UAE together account for about 74 per cent of total GCC wealth.

Emirates NBD Private Banking says the number of millionaires in the Gulf is expected to grow by about 18 per cent until 2017. Saud Obaidullah, Head of Private Banking — Gulf, Emirates NBD, says, “Historically ultra-high-net-worth individuals

[UHNWIs] were leading growth in numbers and total wealth. Today we are seeing a strong emergence of core millionaires driving the increase.”

While the global rebound in equities, increasing government spending on mega projects, further economic diversification, job creation and the impact of high oil prices in the first half of last year helped to grow regional wealth, the GCC, the UAE in particular, have also seen considerable inflow of wealth. Abramo identifies three important sources — regional inflow that came as a flight-to-quality reaction to the Arab Spring; that from the West as clients moved their businesses and money to the UAE to escape the financial situation in Europe; and inflow from East Africa as non-resident Indians (NRIs) based in those countries deposited their finances in Dubai to better access international markets.

The pull factors are the attractiveness of the UAE’s location, world-class infrastructure and safety for the client to operate. Wealth creation and inflow will continue on an upward trajectory in the near term.

Private banking soars

All this is good news for the region’s private bankers, as it creates opportunities to provide specialised offerings, discretionary portfolio management, open product platforms and advisory services to the rapidly growing number of wealthy clients. From being a small, rather unstructured industry, or a tiny division of a large bank, private banking in the GCC has witnessed huge growth in less than a decade, incorporating the professionalism of established institutions in the West to provide world-class services.

Furthermore, as unscrupulous managers and product pushers get weeded out following the implementation of more stringent compliance norms and regulations, it is the serious and committed players who remain to generate renewed confidence in the private banking industry.

The client profile has also undergone a makeover. “As new wealth spreads to the highly educated younger generation, we are witnessing a steadily increasing level of sophistication and empowerment among our clients that go with more complex product offerings and financial needs,” says Obaidullah. 

So what are the defining features of the new-generation clientele?

An investor’s profile could be shaped by several factors including old generation money versus the new, the manner of wealth acquisition and even nationality. Having done the math, we’ve identified four broad categories of private banking clients: expatriate entrepreneurs, young Emiratis/GCC nationals, merchant families and female investors.

It is important to emphasise here that these distinctions are not set in stone and the walls between various investor types tend to be highly porous.

Expatriate entrepreneurs

Origin of wealth: Innovative business ideas

Age group: 40–60 years

Profile: Expatriate entrepreneurs (very often a non-resident Indian or westerner) are knowledgeable and informed about the market and familiar with complex financial instruments. They are studious, like to be aware of what is happening, and are interested in discussing matters at length before taking decisions and making investments. Some are active players in financial markets, and a small percentage of their portfolio is focused on high-risk, short-term investments. In their own businesses, however, the focus is on long-term sustainable growth.

Investment philosophy: Expat entrepreneurs typically look at investing for the long term, and expect wealth managers to provide them with opportunities that have a good risk-reward ratio.

Preferred asset classes: Local and international real estate, gold, increasing exposure to international equities — particularly well-known international brands — and structured products

Merchant families

Origin of wealth: Typically large conglomerates with diversified interests in oil or trading, merchant families own the bulk of regional wealth. They have and continue to participate actively in the development of the country and the region.

Age group: Management of wealth is often strongly controlled by the patriarch or a few senior family members (often 70 and above), although every member is generally linked to wealth creation overall and enjoys the profits.

Profile: With older generation Arab investors, investment tends to be about feeling, not analysis. In the early days of private banking, the markets were less complex and information was limited, so merchant families have been highly intuitive, displaying a flair for making the right investments. Trust in the banking institution and wealth manager is extremely important to this clientele.

Investment philosophy: The investments are well directed and often tightly controlled through the family-run office managed by a CFO from the family, and channelled through trusts, merchant bonds and other group holdings.

Merchant families generally invest heavily in local real estate and financial markets, so internationally, they prefer low-risk investments that provide sustainable growth in the long term. The return on investment is not quite the end but the means to an end. This group of investors is often interested in buying real estate outside the GCC — in Africa, Turkey and even South America — to set up businesses and attract investment back home.

Preferred asset classes: There is a marked preference for tangible assets that can be touched and felt, so real estate — both local and international — features high on this list.

The female investor

Origin of wealth: Inherited from the father, through joint accounts with the husband or from being an independent business owner.

Age Group: 25–40 years

Profile: Women of wealth hold about 35 per cent of the GCC’s total wealth, but barely comprise 10 per cent of the investor population. They are more often Emiratis than expatriates. Usually highly educated with international degrees, these women are mature investors with a keen interest in actively participating in the management of their money. They are studious and wish to gain maximum information about an investment opportunity so they are comfortable while making a decision. They are willing to listen and ask for advice, but at the same time, are sharp, clear-headed, confident and decisive.

Investment philosophy: Usually more conservative, female investors do not have a high appetite for risk. Rarely will they put all their money into one investment category.

Preferred asset classes: Real estate (usually local), gold and local equities.

Young Emiratis/GCC nationals

Origin of Wealth: A growing business, significant investments, or rebuilt wealth since 2009.

Age Group: 28–35 years

Profile: Highly educated with university degrees, they remain in contact with their university alumni groups, which gives them increased exposure to global trends and developments. Interested to learn more about market complexities, they ask a lot of questions with a focus on how to get the best returns from different asset classes. This has resulted in the elevation of private banking standards both in terms of service and investment advice. Highly active on social media networks, young Emirati investors have considerable exposure to information and are sometimes influenced by the conspiracy theories that abound. Most want to take advantage of the various opportunities available and participate fully in every investment decision.

Investment philosophy: With young Emiratis, it is not necessarily about how they can make more money quickly — it’s more in terms of what’s the most exciting thing they can put their money into. They are often driven by their passion to prove their capabilities to their fathers. Typically more interested in the Dubai Financial Market and the Abu Dhabi Securities Exchange, their exposure to international equities is minimal and only to well-known brands. With a high level of optimism and confidence in local markets, they also have high risk appetites.

Preferred asset classes: Real estate (usually local) and gold with limited investments in well-known international equities (particularly famous brands). There is also a growing interest in investments of passion as well as collectibles such as sports clubs, art and vintage cars.