Private wealth moves overseas amid oil plunge

The super-rich in the Middle East are moving their money out of the region to protect their wealth from the worst effects of the plunge in oil prices. Oil is trading at $40 (Dh146.8), down from a high of $115 in June 2014, which has left many investors looking for alternative investment locations that are not as impacted by the oil price or politics of the region. 

 

“Some of the move to overseas asset markets is very logical,” says Saod Obaidullah, Executive Vice President, Head of Private Banking for Emirates NBD. “With an oil price in the $30s, there is an inevitable decline in regional growth, which is likely to crimp the potential growth rates of local economies and local asset classes. 

 

“Local equities and real estate markets performed particularly well between 2012 and 2014 but the former in particular has seen returns disappear. Overseas asset markets offer a wider range of investment opportunities by industry and risk profile.”

Last month, Citi said it expects assets managed by its private banking business to grow by more than 20 per cent this year as wealthy clients  seek to diversify their portfolios. “We’ve really seen a shift over the past six to 18 months,” says Anthony Habis, Managing Director of Citi Private Bank UAE and Head of Global Family Office Mena. “Clients have become a lot more engaged with the international private banks [and they have] started thinking more constructively about running a sensible investment mandate where they are diversifying their risk in the first instance, moving away a little bit from the region.”

 

Traditionally, the core of Middle Eastern investors’ portfolios has been here in the region, with a small international exposure of about 5 per cent, says Habis. But that has changed in recent months with a significant growth in the international part of their portfolios. “In some instances we are hearing big numbers, as much as 20 per cent and 30 per cent. We are engaged in a lot of active dialogue with families who are looking at executing that, almost in the immediate term.” 

 

Preserving wealth

Building wealth is hard work and losing it can be devastating, says Andrew Prince, Financial Planner with consultancy DeVere Acuma. For that reason high-net-worth clients are more interested in preserving their wealth, as opposed to high returns, he adds. 

 

Wealth preservation has been the main motivation for Citi’s private banking clients who have moved money out of the region. “When they come to us they are a lot less concerned about ‘I want to make double-digit returns’. It is more about ‘Can you show me a healthy structure that I can put some of my fortune into that is going to be insulated from the local environment,’” says Habis. 

 

Diversification is a sensible strategy because it helps smooth the impact of sharp downturns on portfolios, says Alexandre Suarez, Director of Investment Advisory at Mashreq Private Banking. “Diversification across asset classes and securities, even if it is sometimes not 100 per cent effective, is still by far the best approach to achieve wealth preservation. Banks should focus on promoting stay-rich strategies as opposed to get-rich strategies, which ultimately lead to concentrations, which unequivocally is the most common cause of capital losses.”

Mashreq offers an internationally diversified platform of products with a regional flavour. It still offers a suite of GCC and Mena products such as bonds, equities and funds, but if its clients want to get exposure to other geographies such as the US, Europe or other emerging market blocs, it is equipped to deliver that with the same efficiency and proactivity, says Suarez. 

 

“Being a one-stop shop for our clients enabled us to capture a larger portion of our clients’ portfolios as he or she will not necessarily have to have a second relationship with an international bank to participate in such markets.” 

 

Investment options

Citi’s private banking customers here in the region talk a lot about real estate, and specifically real estate in the US, says Habis. “In this part of the region, most of our clients understand real estate development and real estate asset posturing in the local market so they believe they understand that well. Hence the very first thing they look to do in the US or the UK is buy themselves real estate,” he says. 

 

“On the other piece, what I am seeing a lot of is going into asset classes that they are comfortable with and they understand. Equities continue to be something that is considered known to them as well as fixed income.”

 

Several local banks are revamping and in some cases introducing private banking divisions in an effort to attract those high-net-worth customers. They include ENBD, which has revamped its private banking proposition and Abu Dhabi Commercial Bank, which is launching a new division.  

 

There were approximately 59,000 millionaires in the country in 2015 and the number is expected to grow significantly in the coming years, says Preeti H. Bhambri, Founder and CEO of Moneycamel.com. “Banks want to expand their private banking divisions to catch a piece of the pie.”