Gulf's private wealth to swell

Dubai: The Gulf's private wealth is estimated to swell by a massive 81 per cent to $3.8 trillion by 2012 from an estimated $2.1 trillion in 2007, according to Oliver Wyman, a global management consultancy.

According to a recent study The Future of Private Banking - A Wealth of Opportunity? by the firm has found that the bull run in stock markets and unprecedented wealth creation has driven an 11 per cent year-on-year growth in assets held by high networth individuals (HNWI) globally. However, due to a tougher market environment, annual growth is expected to slow to nine per cent over the next five years.

Challenging era

"The combination of increased competition and more difficult market conditions has marked the beginning of a more challenging era for the global private banking industry. We expect growth rates to vary significantly by region, with the Middle East and Asia-Pacific - except Japan - leading the pack," said Stefan Jaecklin, Partner and Head of the Wealth and Asset Management Practice at Oliver Wyman.

Globally, an estimated 16 per cent of HNWI wealth was held offshore in 2007, while about 52 per cent of the Middle East's private wealth was held offshore.

However, the study observes that there is a strong trend among the GCC's richest to repatriate wealth and invest in regional assets. For a market that was historically served offshore, players are now hiring teams to service clients onshore, with many foreign wealth management firms also increasing their coverage of the Middle East. Regulatory pressure on tax avoidance will continue to rise, with the share of tax-driven offshore banking set to decline, the study said.

The scarcity of talent - skilled and experienced client relationship managers - is also a challenge in the Middle East.

Wealth management

Latest trends

- The share of entrepreneurs is fast growing as opposed to "old money", in the client mix. This is particularly relevant for the Middle East.

- Many private banks and wealth managers operate under one roof with investment banking units. While synergies do exist, this set-up can expose private banks to significant reputational risk, as shown by recent market turmoil and write-downs.

- Current risk management strategies in banking are heavily geared towards solvency and liquidity-related issues. However, in private banking, the latter are often less significant than non-financial and reputational risks. These risks endanger the franchise and might irrevocably destroy shareholder value.

- Private banks operate as much in the luxury market as in banking. Branding is instrumental in attracting and retaining the "right" clients. Wealth managers therefore need to create a suitable message that can be conveyed via brand imagery as a key component in maintaining and growing the value of the business.