The global economic slowdown and the shrinking fortunes of rich clients have shaken the wealth management industry to its core since the 2008 financial crisis.
Reflecting the uncertain outlook for the industry across the region and worldwide, Swiss Life International last month became the latest big player to announce it was withdrawing from the Dubai market.
Yet amid the gloom, financial services firms are looking at new opportunities within the GCC. Already HSBC and Barclays, two international banking giants, are bolstering their presence in the region in a bid to manage more cash from wealthy investors.
The National spoke separately to Francesca McDonagh, the Middle East and North Africa head of retail banking and wealth management at HSBC, and Rory Gilbert, the managing director and head of Middle East and North Africa for wealth and investment management at Barclays, about the challenges ahead.
As a bank how are you putting more focus on wealth management in this region?
Ms McDonagh Historically, wealth management has been a relatively small part of our business but that has changed. We have seen a lot of growth in the past 12 months coming from our wealth business. We have invested in our people so we now have over 160 HSBC Premier wealth accredited relationship managers in the region, the majority of whom are in the UAE. We recently launched discretionary management services, whereby a customer with at least $1m who doesn't have the desire, knowledge or time to invest their portfolio actively can give a discretionary mandate to HSBC asset management to manage their portfolio directly.
Mr Gilbert We've reinvigorated, reshaped and rebooted in the way we're approaching Mena [Middle East and North Africa region]. I took over this business 15 months ago and one of the observations I had was that we needed to be a bit more vigorous in the way we bring the whole range of offerings to the region. We're growing at double-digit rates in revenue and asset value terms and will continue to hire as the rate of the business supports taking on more people. We feel very strongly our commitment to the region is best understood by our investment in the region. We're building out a presence in each of the markets we work in and will keep doing that. We have hired a lot of people over the last 12 to 18 months and the challenge now is to understand how we bed them down and help them understand how to maximise the value they bring to their clients.
Who are your clients here?
Ms McDonagh In the UAE, we have quite significant sectors, so we have Emiratis and pan-Arab nationals, a very large base of western expats and a significant segment around non-resident Indians. We will see the western expat base grow through the acquisition of Lloyds Banking Group's business in the UAE. Lloyds' base in the UAE is approximately 7,000 customers who are typically expatriate with mass affluence. They will become an increasingly important part of our business in the Emirates.
Mr Gilbert We deal with a massive range of people, background and skills. We deal with nationals from the region but, as you know, there are very significant businesses and families that have been built by people who aren't from the area over many years. We enjoy working with people whether they're of Indian origin, western European origin or Emirati because it gives us an opportunity to lean about those clients and the grouping they come from. One thing I particularly enjoy about this region is that our clients are very investment savvy.
What sort of interest are you seeing from clients?
Ms McDonagh It varies. We see customers in the Middle East have an appetite for bonds, such as fixed income, government or corporate bonds. The low-interest rate environment and their low risk mean customers have preference for this.
Mr Gilbert What clients are looking for now is yield. In an environment where effectively interest rates are zero, it's very hard for clients to preserve their purchasing power without taking on some incremental risk. We're very keen on high-yield equities and high-yield bonds, and were very early on this call. We think clients need to look into areas they would not always have been comfortable to generate risk to achieve the yields they want.
Have you noticed any interesting investment trends since the global financial crisis in 2008 and the Arab Spring?
Ms McDonagh Some people have found it very hard to react and to know what information to use when they're going through the full cycle of an investment. We see that customers are increasingly looking to get trusted advice about their wealth management needs as opposed to just looking at the next hot product in the market.
There's been regional uncertainty, both politically and economically, but the euro crisis and global economic challenges have resulted in some of our customers in this part of the world looking to emerging markets, and to the Middle East for wealth solutions. Our businesses in more developed markets are a very important part of what HSBC does globally, but we do see the future growth coming increasingly from emerging markets.
Mr Gilbert One of the interesting things after the crisis was that clients who thought they were very tolerant of risk discovered it appearing in places that weren't anticipated. Consequently, they've become very risk-averse across a whole range of things. Our job is difficult as quite often clients prefer to deal with things they think they understand, but they unwittingly expose themselves to a lot more risk. For example, real estate.A lot of people think of real estate as a terrific, tangible investment but you can see that in this region and elsewhere, real estate, particularly when you add leverage, can get you into a situation that's very difficult to manage quite quickly.
The Arab Spring has boosted the UAE's status as a haven for investors in the region. Do you see any evidence of such a trend in wealth management?
Ms McDonagh When there has been political uncertainty in parts of Mena we have seen some customers look to have savings or deposits in the UAE. Typically, when they do that they go to a brand they recognise and trust and among our customer base we do have pan-Arab nationals and GCC nationals who want to have savings, investment or some deposit in the UAE. We also see a lot of people coming here to work, to invest, to educate or to have their family.
Mr Gilbert It's difficult to link cause and affect. But we have been really impressed by the way in which the UAE has flourished in the last few years. I'm aware anecdotally of a large number of people and families that have relocated their businesses because they see the UAE as somewhere that's stable, safe, governed extremely well, has a high level of transparency level. [There is] confidence about the future. To some extent, that sets it apart from other areas in the region, where there hasn't been that stability in the past few years, but it's difficult to draw conclusions that are definitive.
tarnold@thenational.ae
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
If you go
Flight connections to Ulaanbaatar are available through a variety of hubs, including Seoul and Beijing, with airlines including Mongolian Airlines and Korean Air. While some nationalities, such as Americans, don’t need a tourist visa for Mongolia, others, including UAE citizens, can obtain a visa on arrival, while others including UK citizens, need to obtain a visa in advance. Contact the Mongolian Embassy in the UAE for more information.
Nomadic Road offers expedition-style trips to Mongolia in January and August, and other destinations during most other months. Its nine-day August 2020 Mongolia trip will cost from $5,250 per person based on two sharing, including airport transfers, two nights’ hotel accommodation in Ulaanbaatar, vehicle rental, fuel, third party vehicle liability insurance, the services of a guide and support team, accommodation, food and entrance fees; nomadicroad.com
A fully guided three-day, two-night itinerary at Three Camel Lodge costs from $2,420 per person based on two sharing, including airport transfers, accommodation, meals and excursions including the Yol Valley and Flaming Cliffs. A return internal flight from Ulaanbaatar to Dalanzadgad costs $300 per person and the flight takes 90 minutes each way; threecamellodge.com
How to avoid crypto fraud
- Use unique usernames and passwords while enabling multi-factor authentication.
- Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
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Where to buy art books in the UAE
There are a number of speciality art bookshops in the UAE.
In Dubai, The Lighthouse at Dubai Design District has a wonderfully curated selection of art and design books. Alserkal Avenue runs a pop-up shop at their A4 space, and host the art-book fair Fully Booked during Art Week in March. The Third Line, also in Alserkal Avenue, has a strong book-publishing arm and sells copies at its gallery. Kinokuniya, at Dubai Mall, has some good offerings within its broad selection, and you never know what you will find at the House of Prose in Jumeirah. Finally, all of Gulf Photo Plus’s photo books are available for sale at their show.
In Abu Dhabi, Louvre Abu Dhabi has a beautiful selection of catalogues and art books, and Magrudy’s – across the Emirates, but particularly at their NYU Abu Dhabi site – has a great selection in art, fiction and cultural theory.
In Sharjah, the Sharjah Art Museum sells catalogues and art books at its museum shop, and the Sharjah Art Foundation has a bookshop that offers reads on art, theory and cultural history.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
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Other key dates
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Finals draw: December 2
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Finals (including semi-finals and third-placed game): June 5–9, 2019
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Euro 2020 play-off draw: November 22, 2019
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Euro 2020 play-offs: March 26–31, 2020
About Tenderd
Started: May 2018
Founder: Arjun Mohan
Based: Dubai
Size: 23 employees
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MATCH INFO
Barcelona 4 (Messi 23' pen, 45 1', 48', Busquets 85')
Celta Vigo 1 (Olaza 42')
