special report wealth management

The Middle East continues to be an attractive market for wealth managers across the world, but for how long will the interest tick in the face of low oil revenues—a major

wealth driver in the region?

BY MARY SOPHIA

SPECIAL REPORT

WEALTH MANAGEMENT

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Wealth Management Report Issue 46.indd 63 3/31/16 11:45 AM

64 FORBES MIDDLE EAST APRIL 2016

Saudi Arabia’s Prince Alwaleed bin Talal was the sole entry from the cash-rich Gulf in the recently revealed Forbes 2016 top 50 billionaires list that was dominat-

ed by the likes of Microsoft founder Bill Gates and Amancio Ortega, who owns Spanish fashion brand Zara. However, a lone representation among the wealthiest does not mean that the GCC is lagging behind in affluence. Home to some of the largest sovereign wealth funds and abundant per-sonal wealth, the region has been a private banker’s haven. According to the McKinsey Global Wealth Management survey, personal financial wealth in four of the richest GCC countries amounted to $2.7 trillion in 2015.

Strong returns from equities and high oil prices over the years have helped generate significant household wealth in the region. According to a report by Credit Suisse released in the latter half of last year, the number of millionaires in the Middle East and North Africa grew by 240% to reach 330,000 in 2015. This number is set to grow by another 52% to reach 500,000 by 2020, the report added. Despite such optimism

regarding wealth creation, the reality on the ground is hugely different today compared to the last few years. Oil prices, pre-viously a strong driver of wealth in the region, are languish-ing at a 12-year low while a slowdown in growth markets like China and a possibility of a Brexit have dampened equities’ and currencies’ performance. The impact from such headwinds has left a mark, although minimal, on the performance of the private banks and wealth managers.

Swiss lender UBS saw a tough fourth quarter as the bank’s net new money outflow from its wealth management unit reached about $3.3 billion, causing the unit’s pre-tax profit to fall 47%. The bank’s chief financial officer Kirt Gardner attrib-uted the outflows to clients in markets such as the Middle East, Russia and Brazil—who had some exposure to the energy sec-tor—needing the liquidity as crude prices plunged.

But regionally UBS says that its operations have not been dented. Instead clients are seeking out prudent private bankers to manage their wealth as economic conditions toughen.

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WOOING THE WEALTHYUBS says its Middle East

operations have not seen a negative impact

SPECIAL REPORT / WEALTH MANAGEMENT

Wealth Management Report Issue 46.indd 64 3/30/16 2:37 PM

Please note that Falcon Private Wealth Ltd. offers financial products or services only to Professional Clients who have sufficient financial experience and understanding of financial markets, products or transactions and any associated risks. The products or services will be available only to Professional Clients in line with the definition of the DFSA Conduct of Business Module. Falcon Private Wealth Ltd. is duly licensed and regulated by the Dubai Financial Services Authority (DFSA).

New Investment Opportunities For Entrepreneurs

FALCON PRIVATE WEALTH

www.falconprivatewealth.ae

Now servicing

from DIFC


in the region. In fact, we’re continuing to grow our business and hire talented bankers across the GCC. Given the current environment in the Middle East—depressed oil prices, the re-evaluation of assets in the region and, of course, the geopoliti-cal situation—our clients look to us more and more for advice beyond just investing to pursue opportunities in the market,” says Ali Janoudi, UBS’ Group Head Middle East and North Africa.

“The oil price fall and subsequent slow-down has made clients think about how they’ve invested and what they need to change. They’re talking to us about how they can diversify geographically and by asset class. We see a lot of opportuni-ties for clients in the region to rebalance their portfolios and position themselves to succeed in different market conditions.”

Even as regional economies come under pressure amidst an oil price rout, bankers say they are not seeing funds bleeding out.

“Though we do see a bit of liquidity tightening in the mar-ket, we have not seen any significant outflow from our high net worth (HNWI) clients due to this. However, the inflow of fresh funds has slowed a bit,” explains Gautam Duggal, head of wealth management for the U.A.E. and AME at Standard Chartered.

But he is quick to add that oil prices have not greatly af-fected Standard Chartered’s operations. “The impact due to the oil prices is a bit muted for us due to the diversity of clients that we have arising from the fact that the U.A.E. and specially Dubai are hubs for our clients across the Middle East, Africa and South Asia.”

OIL NO MORE Wealth managers are yet to hit a tough spot but wealth gen-eration in the region could already be experiencing a squeeze.

A Credit Suisse study noted a 2.2% drop in MENA region’s household wealth by mid-2015 while global household wealth fell by 4.7% during the same period, due to weakening asset values and a strengthening dollar.

“Lower oil prices are the new normal and this will put pressure on oil producing nations to rebuild budgets based on these new fundamentals,” notes Falcon Private Bank’s CIO David Pinkerton.

He adds that governments which were prudent enough to build sovereign wealth funds to diversify their economies are now better equipped to deal with the low oil price era. Nevertheless, they will have to come to terms with the new reality where oil revenues might not be the ultimate wealth generator.

“Such conditions (low oil revenues) mean that the future of wealth generation, previously driven by oil profit-funded infrastructure expansion will need to adapt to the new para-digm. There are still opportunities in these economies but the old model of riding the infrastructure expansion wave will have a period of probable consolidation. There are still many areas of growth that will drive wealth creation going forward be-cause there are still unmet needs in many of these markets and

countries. Helping entrepreneurs advance these concepts and finance these strategies as well as building wealth preservation protection is at the heart of our value proposition.”

Falling oil prices are definitely leaving their mark on the Gulf’s economies as infrastructure projects slow and possibly reflect on the region’s wealth levels. But the wealth creation could also be reaching a stabilization point after years of rapid growth, experts say.

“There is no doubt that the re-evaluation of assets in the region has an impact on wealth levels and the speed of wealth creation. At the same time, over the past 10 years, the cre-ation of wealth in the Middle East has been occurring at an incredibly rapid pace given the rise in local activity and the rises in commodity prices, so we’re seeing a consolidation in prices right now,” says Janoudi.

Despite that, bankers are optimistic about the economy holding up thanks to the diversification efforts put into groove by the governments.

Janoudi says: “While there is reliance on oil prices, coun-tries in the Middle East have been investing heavily in the re-gion over the last 10 years which has created more diversified industries than ever before.”

Bankers’ perspective is also something that is echoed by the HNWIs in the region. According to a wealth insight report by Emirates Investment Bank, nearly 83% of HNWIs were optimis-tic that the GCC’s economy will improve over the next five years, although they had a bleak view of the short-term prospects.

The impact due to the oil prices is a

bit muted for us due to the diversity

of clients that we have arising from

the fact that the U.A.E. and specially

Dubai are hubs for our clients across the

Middle East, Africa and South Asia.

Source: The Credit Suisse Research Institute

ESTIMATED TOTAL WEALTH

KINGDOM OF SAUDIA

$700 BILLIONUNITED ARAB EMIRATES

$600 BILLION

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FACTS


Wealth Management Report Issue 46.indd 66 3/31/16 11:45 AM

67APRIL 2016 FORBES MIDDLE EAST

A BULLISH VIEW

The demand for wealth management solutions is also forecast to grow as ultra-high net worth individuals look to reduce their risks as the investment climate in global and local economies become harder to navigate, bankers say.

“Given the current climate—commodity prices, geopolitical situation, a potential slowdown in Asia, particularly in China, QE in Europe, Brexit—our clients need expert advice on the financial questions they face in this changing environment,” says Janoudi.

“We’re seeing a high level of activity, particularly in our discretionary and advisory mandates.”

Falcon Private Bank’s Pinkerton says that lower oil prices will drive home the need for diversification amongst the entre-preneurs while drawing their attention to the need to preserve their wealth.

“In some respects when an economy is expanding and growing rapidly many entrepreneurs are drawn to reinvest a lot of their liquidity into their local business. Excess liquidity or bankable assets have to compete with high growth, high EBITDA alternatives. When these conditions change entre-preneurs are more inclined to accept lower returns offered in other asset classes and markets so they are more receptive to these wealth preservation and safety alternatives.”

Bankers are also confident that Dubai’s push to be a private banking hub could help whet the appetite for wealth manage-ment solutions.

“Dubai now is being positioned as a global wealth man-agement/private banking hub and is considered as an alternate to the traditional hubs like Geneva, Singapore and London. We do believe this trend will shape future client activity and the demand for WM solutions will grow,” notes Duggal.

STIFF COMPETITION According to a report by Boston Consulting Group, private wealth in the Middle East and Africa region is set to rise to an estimated $9 trillion in 2019 with the U.A.E. ($1 trillion) and Saudi Arabia ($2 trillion) as the largest markets.

A high-growth market for wealth managers, established international banks and local stalwarts have been engaged in a tough competition for the Gulf’s wealthy clients. Research shows that there are at least 60 private banks in the region, with the majority of them based in Dubai. But seasoned bank-ers are not fazed by this state of the market.

“Competition for gathering assets under management is an ever persistent condition in our industry and it will not abate,” says Pinkerton.

An intensive competition for the market share could also mean that the age of ‘briefcase banking’ - a term used to describe wealth managers based elsewhere flying in to serve

clients in the region—is well and truly on the decline. “We believe ‘suitcase banking’ is on a decline, this is evi-

dent from the fact that most of the large players in the WM/Private Banking industry have set up offices in the U.A.E./DIFC to cater to clients’ demand and are growing their relationship management/advisory teams out of Dubai,” says Duggal.

Bankers also say that such a model does not help cultivate trust among clients, a crucial factor when competition heats up.

“Fly-in advisors are like tourists,” says Pinkerton. “They are perceived to be only there for short-term profits or exploitations and not sincerely interested in building long term committed re-lationships. Most local entrepreneurs are smart enough to rec-ognize this and avoid the fly-in/ fly-out advisor unless he or she is supported by a local and committed long-term platform.”

With 76% of HNWIs, polled by the Emirates Investment Bank, opting to keep their assets closer to home this year, a local presence in the region could be beneficial to most wealth managers.

A high-growth market for wealth managers, established international banks and local stalwarts have been

engaged in a tough competition for the Gulf’s wealthy clients. Research shows that there are at least 60 private banks in the region, with the majority of them based in Dubai. But seasoned bankers

are not fazed by this state of the market.

QATAR$157,000

U.A.E.$144,000

KUWAIT$113,400

Source: The Credit Suisse Research Institute

AVERAGE WEALTHPER ADULT IN MID-2015

FACTS




TOUGHENINGREGULATIONS—BOON OR BANE?

In order to snag their share of wealth amassed in the region, private banks are eschewing established centres such as Geneva, London and Singapore for local hubs like Dubai and now even Abu Dhabi.

Dubai International Financial Center, the emirate’s finan-cial freezone that was setup in 2004, has about 1,445 regis-tered firms as of 2015. Out of this, 408 belong to the financial services sector. Meanwhile Abu Dhabi Global Markets which ‘opened for business’ last year too has been successful in bag-ging the U.K.’s Aberdeen Asset Management and Australian investment bank Macquarie Capital as its tenants. Both the freezones have their own set of rules and regulators to govern the companies within them.

Although these freezones have definitely attracted more foreign banks and wealth management firms to operate from the region, authorities have gone the extra mile to ensure that the market is well regulated. Such a move has also been heavy on the pockets for some investment banks as they juggle with the legislation of various global hubs. In April 2015, German lender Deutsche Bank was fined $8.4 million by the DIFC regu-lator Dubai Financial Services Authority (DFSA) for “serious con-traventions” by the bank’s private wealth management unit. The bank was also penalized for misleading DFSA with false information. Although the fine was the largest handed out by

DFSA, it was definitely not the last. Soon after, the regulator penalized United Investment Bank and Arqaam Capital with a fine of $56,000 and $50,000 respectively for not adhering to anti-money laundering regulations. In November, another inter-national bank ABN Amro was slapped on a penalty of $640,000 for not putting in place safeguards against money laundering.

These penalties have not discouraged bankers but have only reinforced Dubai’s ambitions to be a global wealth manage-ment hub. Duggal says that such steps highlight the strength of the emirate’s regulatory environment, which he notes is “a prerequisite for the growth of financial services industry.”

Pinkerton agrees as he says: “All of these conditions are im-perative to make the local conditions for banking and wealth management strong, competitive and perceived to be at the highest of international standards. Banks that have operated under these standards globally and have existing infrastructure that adopt high standards in process will succeed and the local banks not accustomed to these standards will have to either invest into their infrastructure or they will be forced to leave voluntarily or involuntarily.”

As private banks battle out a climate of toughening regula-tions and stiff competition, the mood among the major play-ers is upbeat. However, considering the region’s dependence on oil revenues it will be prudent to wait and see how crude prices play out. But regardless of HNWIs’ decision to preserve or grow their wealth, it seems to be a win-win situation for wealth managers in 2016.

Many international private banks have started

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PBG has been expanding its Dubai presence. What plans do you have for the region?Paragon Business Group (PBG) has been trading in the Middle East and South East Asia from its Dubai office since April 2012. In December 2015, we applied for the Australia Financial Services License AFSL - Managed Funds License in Foreign Investment Property Development Fund called Paragon Premium Investments Fund. Our head office is in Melbourne, Australia and currently we are in the process of opening our representative office in DIFC.

Our main focus in the region is to create awareness in the local market of the lucrative residential and commer-cial property development funds investment into Australia’s property market. This is to attract potential clients to invest in our products in Australia in order to qualify for potential investment visa streams, diversification of wealth and risk management of asset portfolio.

What, would you describe, as PBG’s biggest strength and how will this help you in your operations in the region?PBG has about 15 years of experience in banking and finance in Australia. In addition, as the chairman of the group and Paragon Premium Investments Fund, I speak six languages including English, Dari, Pashtu, Farsi, Hindi and Urdu. This multilingual capability makes its us attractive to South Asian clients who use Dubai as a hub for their foreign investments, especially for asset diversification.

One of the services offered by PBG is immigration services. How has that grown over the last few years considering the rising interest in immigration, especially from Asia?Australia has a successful High Net Worth Investment Program 188C that has been popular, especially in China with its AUD $5,000,000 per application minimum investment into the approved streams. PBG also has an office in Shanghai and has been quite successful in attracting clientele as part of the investment stream noted above. We are also seeing increased

interest from Dubai for this product. We, at PBG, have an ap-proved investment product since the inception of the visa in November 2014 by the State Government of Victoria, Federal Government Guidelines of Approved investment vehicles with Ministry of Immigration and Border Security Australia. PBG also has its own Immigration Consultancy approved and registered with Migration Agents Registration Authority. This is important for financial firms to carry out their due dili-gence. Our consultancy will help carry out the due diligence process for clients interested in PBG’s potential investment visa streams.

Which is PBG’s fastest growing service/s and why is it so? Do you have any plans to expand your service offerings?The current and exciting chapter in PBG is the commencement of Paragon Premium Investment Fund that provides 6% PA AUD guaranteed returns. The investors hold the titled securi-ties under trust as principal guarantee for the investments and their investments are not pooled by adopting IDPS Investor Direct Portfolio Service, which gives better asset protection to investors while the returns per annum are very competitive for foreign investors. This has attracted a lot of non-visa HNWI’s in Middle East and private families to this product. It is also a safe and sound investment product that wealth managers and foreign investment advisors could provide their clients with. With such potential, we are hoping to grow our presence and services further in the region.

FORBES MIDDLE EAST // PARAGON BUSINESS GROUP

Investing Right

Paragon Business Group is looking to woo Middle East’s ultra-wealthy to invest in Australia's investor

friendly market, says the company’s Managing Director Alande Mustafa Safi.

Alande Mustafa Safi, Managing Director, Paragon Business Group

Advertorial issue 46 English.indd 69 3/30/16 12:07 PM

How important a market is the Middle East for Centaur and what is the scope for growth you see for your company in this market?We are headquartered in Dubai because it is an ideal location to service clients in both the Middle East, and across multiple international jurisdictions. The UAE has proven to be the per-fect hub to manage our portfolio companies and investments across multiple regions with varying time zones. The region also has a strong pool of talent from which we can build our team and which is constantly growing on a monthly basis.

The business of Centaur is to provide international asset management and investment advisory services, and invest-ment structuring for individuals, advisors, fund sub-advisory clients, institutions and other divisions, portfolio companies or subsidiaries of the wider Centaur Group. Although most of our investment and portfolio companies are outside the Middle East, we consider the region to be crucial to the group’s expan-sion plans. Dubai is the world’s busiest international passenger hub and this access to international markets combined with the communication infrastructure available in the region and the favorable tax regime will see Centaur remain in the region for the long term.

Which is your fastest growing service/arm within your port-folio and why is it so?We aim to grow our assets under management on the wealth management side to $3 billion by 2017 and mining and natural resources’ assets under management to $2 billion by early 2018. The two sectors that are growing at a rapid pace are the min-ing and natural resources and investment management/advi-sory. Our core focus within our mining and natural resources portfolio is coal mining in South Africa, and our primary ex-pansion plans for our investment management and advisory portfolio consists of acquiring wealth management companies in the UAE, South Africa and the UK. We are expanding these parts of the group at an exponential rate via acquisitions. We are also expanding the number of funds and bonds we manage on our platforms and have further launches planned through-out 2016.

What would you describe as Centaur’s strength and what sets it apart from other players in the market?Part of our strength lies in our diversity, scale, and the caliber of our people. Centaur has the ability to source transactions/investments, conduct all of the due diligence and investment analysis in house, structure transactions/investments pre-dominantly in house and invest a mix of proprietary capital and third party capital into such transactions/investments as a mixture of debt and equity.

Centaur Group reportedly spends about an average of 900 man hours on due diligence before investing in a project. Has this importance the company places on due diligence helped increase your appeal among potential/existing clients? Due diligence is the absolute key to any transaction or invest-ment. We have industry-leading in house legal and financial teams at a group level, and each subsidiary or investment has its own resources who report into the group head office. Investors expect this attention to detail and we are transparent with investors based on their requirements and/or knowledge level. Investors mainly come via referral or introduction from wealth managers, asset managers, accountants, lawyers or fi-nancial advisors. They expect that their advisor will have al-ready conducted due diligence on Centaur and the underlying investment products prior to recommending the investment to the client. This model allows us to provide full due diligence to the companies or individuals who refer or introduce clients to Centaur, and then the advisor can digest the information and pass on the relevant parts to the actual client.

FORBES MIDDLE EAST // CENTAUR GROUP

By LeapsAnd BoundsCentaur Group has charted out an ambitious

plan to grow its assets under management, says Daniel Mcgowan, Group CEO, Centaur Group

Daniel Mcgowan,Group CEO, Centaur Group

Advertorial issue 46 English.indd 70 3/31/16 5:12 PM

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Enter into a world of visionary leadership, thriving connectivity, and breath-taking architecture. Fostered by an internationally recognised legal and regulatory framework, Dubai International Financial Centre is home to a vibrant community of highly-skilled talent and leading global organisations. An established global hub for financial services with over a decade of achievements, we have built the ideal platform to help your business grow.

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