UAE investment products are becoming increasingly sophisticated.

The GCC has one of the world's largest pools of private wealth, with $1.5 trillion (Dh5.50 trillion), according to the IMF, held in real estate, offshore securities and bank deposits.

Since the late 1970s, private banking in the UAE evolved and grew dramatically due to the Opec oil bonanza, the construction boom, and the influx of wealthy expatriate traders to Dubai. Such an economic expansion led to a large increase in the number of potential clients for sophisticated wealth management products.

Regional events such as the Iranian revolution, the Iran-Iraq war, and the civil war in Lebanon, led investors to seek alternative avenues for wealth diversification in the US and Europe. Also, the lack of investment opportunities for expatriate investors in their home markets as well as the UAE, forced them to access these more developed markets. The Iraqi invasion of Kuwait in 1990 accelerated the pace of capital flight from the region.

Time of reconstruction

The 1990s were a time of reconstruction and rebirth in the UAE economy. Under the guidance of Shaikh Zayed Bin Sultan Al Nahyan and His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, the blueprint for the Emirates, and Dubai in particular, as a financial, tourism and service-based economy were laid out.

Nevertheless, the terror attacks in New York on September 11 shocked the region, and following that, the subsequent occupation of Iraq by coalition forces provoked the repatriation of Arab capital from the US and Europe. This contributed to the trebling of oil prices and triggered a flood of liquidity into the UAE. The rules of the game in regional private banking thus changed.

The capital flows into the region fuelled the regional property and stock market boom. The market capitalisation of Dubai Financial Market (DFM) and the Abu Dhabi Stock Market (ADSM) exploded by 700 per cent since 2001. Fortunes were minted overnight in speculative real estate. Coupled with the phenomenal growth rate of 16 per cent GDP, Dubai alone has proven to be an irresistible magnet for investment from South Asia, Iran, East Africa and Russia.

Approximately 1.22 per cent of the UAE's population consists of millionaires, according to the World Wealth Report 2005, released by Merrill Lynch and Cap Gemini. It also notes that growth in the number of millionaires in the UAE was 12.3 per cent last year, higher than the US and the UK. The UAE ranks second among Arab nations after Qatar on per capita GDP.

Profound effect

These economic realities have a profound effect on the evolution of private banking in the region in terms of delivery, business models, competitive dynamics, product offerings and brand equity.

In the UAE, the private investor's potential product universe encompasses a wide spectrum of asset classes, risk tolerance ranges and investment methodologies. Traditionally the demand was for products such as equity, fixed income and foreign exchange. Today, with investor's increasingly sophisticated demands, equity investments can range from traditional long-only plain vanilla products to capital protected notes on the volatile UAE stock market.

Debt instruments have developed from the customary US Treasury Notes and Eurobonds to Islamic asset-backed Sukuks issued by the likes of DP World, Qatar and Malaysia. Commodity trading has developed from physical buying and selling into sophisticated managed futures strategies with Wall Street Commodity Trading Accounts (CTA). Lastly, the demand for new ideas has given way to the huge growth of alternative investments in derivatives, hedge funds and private equity.

So how is the UAE private banking investor different from his global peers? UAE investors have the majority of their assets in the same emerging markets where they have businesses and own real estate. Also, leverage ratios are extremely high across products, and asset classes in the UAE Islamic wealth management products are fast creating a niche constituency with the emergence of Sukuks and Murabaha deposits as core products.

Banks that incorporate Arab capital market products in their wealth management offerings have boosted assets under management and market share significantly. Nonetheless, the recent turbulence in the UAE and GCC stock markets has triggered renewed interest in US, European, and Asian markets as well as traditional commodities such as gold.

Private banking is in the midst of a structural transformation. Whether the wealth is inherited or earned, the top segment of the UAE investor elite views the world in the same way as regional institutional investors. Formerly, 'off the shelf' first- generation products were the norm, now clients require customised solutions with highly quantitative asset allocation and portfolio strategies. Increasingly there is also a demand for corporate finance advice and access. Global private banking franchises are also incorporating regional and Islamic products in their offerings to access new investor constituencies.

Sophisticated clients now expect their private bankers to be fully acquainted with the global financial markets. The UAE investor demands interesting and alternative solutions. Private bankers are expected to be well versed in subjects as diverse as gold mining shares in Canada, the impact of Silver Exchange Traded Funds on the bullion markets, the grey market in the Tamweel IPO, and the implications of a shift in the Bank of Japan's monetary policies on the yen and other currencies.


The advent of the Dubai International Financial Centre (DIFC) enables international private banks to establish a footprint in the UAE under an independent financial services regulator. Banks such as Credit Suisse led the way in establishing full branches in the DIFC, closely followed by, amongst others, Lloyds Bank and Deutsche Bank. The establishment of the DIFC serves to increase the pace of financial innovation and creates a professional ecosystem for the wealth management industry. The DIFC is truly a bridge between the east and the west, and shall increasingly shape the future blueprint of the UAE private banking industry.

- Chatterjee is Vice President, Multi Markets Group and Advani is Assistant Vice President, Non Resident Indian Group, Credit Suisse.