Beside the cliché of briefcase-carrying private bankers flying in to conduct business out of a hotel room in the UAE stands the stereotype of their clients. When they’re sharing trade secrets, bankers tell each other that their clients in the Emirates have larger risk appetites than counterparts in, for instance, Europe.
You may hear that as participants in their family businesses, the UAE’s high-net-worth individuals (HNWIs) are more likely to invest in private equity directly rather than via an investment fund.
The region’s ultra-high-net-worth individuals (UHNWIs) are said to prefer tangible assets and are serious buyers of assets such as yachts, property and hotels. According to Savills, one of the world’s largest real estate firms, 26 per cent of this group’s private wealth is invested in real estate.
As with most stereotypes, this one is rooted in some truth but is guilty of oversimplification. However, as the region gains importance for global wealth advisers, its wealthy residents are demanding that private bankers cater to their particular requirements and not provide cookie-cutter solutions off a dusty shelf.
What billionaires want
Wealth-X and UBS Billionaire Census 2013, an in-depth study of global billionaires published in November by Wealth-X, a wealth due diligence company, reports that the Middle East’s 157 billionaires have a combined net worth of $354 billion (about Dh1.3 trillion) and hold a higher percentage of total wealth than in any other region in the world.
They hold 40 per cent of the Middle East’s UHNW wealth, compared to 28 per cent in Europe, 22 per cent in North America and 18 per cent in Asia.
Standard private banking approaches may not necessarily work in this market, says Karim Shariff, founder of Majlis Investment Management, a privately held investment firm. He says his company is “supported by three investors from the US and two regional families with the goal ... to identify, validate, develop and commit to investment strategies relevant to regional families.”
Shariff says private banking in the Middle East is extremely relationship driven. “Families in this region have too many complications in their businesses (which they control) and want simplicity in their investment strategies or opportunities (which they do not control).”
HNWIs who are in the process of expanding their businesses are perfectly placed to take advantage of nearby growth hotspots in Asia and Africa. “They are looking ahead and saying we have so many opportunities with what is happening in our region. Why would we give them up? We know how to build these businesses. Why would we take out the money that we are making in doing that to put it in something else where the returns are less and the control is significantly less?” says Shariff.
While this may be true, on the back of investor demand and sectors seeking investments, opportunities in frontier markets are increasingly becoming more organised.
Mark McFarland, who is Global Chief Economist at Coutts, tells GN Prime, “Investors can participate [in opportunities in emerging markets such as Africa and the Far East] through funds, fixed-income securities and exhange-traded funds or through direct investments such as private equity. Most Asian financial markets are easily accessible and liquid and well known to investors worldwide.
“These facets aren’t as prominent in Mena and sub-Saharan Africa but funds that can access African markets directly or through MSCI Frontier Markets Indices are increasingly available. So is private equity in, say, agriculture or infrastructure,” he adds.
Emerging or frontier markets are now being individually evaluated rather than being lumped together as one entity under a single asset class. Bank of America Merrill Lynch recommends differentiating frontier markets along similar lines as in emerging markets in a recent report: “Some markets have been doing well thanks to reforms, while others have relied on favourable liquidity conditions and leverage. After a bumper 2013, the difficulties of mainstream emerging markets have started to catch up with frontier markets. For example, foreign exchange has come under pressure in Ghana, Kazakhstan and Nigeria, equities in Kenya and Nigeria and sovereign debt in Ghana.”
In many ways, the investment habits of regional HNWIs are characteristic of similar markets. Take property, for instance. “Emerging market investors, not particular to the Middle East, but globally, tend to invest a chunk of their money in real estate assets. It could be as high as 20-30 per cent and even higher in some cases. Initially, it is not diversified and they are more comfortable with their own market,” Arjuna Mahendran, Chief Investment Officer, Emirates NBD Wealth Management, tells GN Prime. He underlines the fact that as investment advisers step into the mix, a structured distribution of assets is more likely.
At the same time, investment managers are finding it necessary to document and cater to the particular habits of their clients in the region. JLL’s latest Global Capital Markets Research report bears this out, showing that Middle Eastern clients differ from other cross-border investors in their purchase of hotels. Regionally, investment in hospitality comprises a quarter of a mixed portfolio compared to the norm of 5-10 per cent.
On the other hand, Swiss wealth managers such as WT Capital Management, specialising in the Middle East, report an increase in demand for bespoke structured products.
Ultimately, the best advice is tailored to suit the individual, even if it seeks to capitalise on opportunities from an increasingly interconnected world. As Shariff says, “What customers here, and maybe everywhere, want is intimacy of thinking and more judgment.”