I was invited last week to speak to members of a corporate pension plan in Dubai. Their employer had been making annual contributions on behalf of its employees at one month's pay for each completed year of employment. Most of the attendees had two or three months of salary invested on their behalf, but others had built up five or six months of salary in contributions.
I was asked to advise on how each member should invest their money. On the face of it, the task looked pretty easy. There were only three investments to choose from: a balanced US dollar multi-asset fund with about 40 per cent in equities, a growth-orientated US dollar multi-asset fund with about 60 per cent in equities and a US dollar cash deposit account.
If any of the pension-plan members had been reading my column over the past 12 months, they would have been fully aware of the advice that I was about to give:
a) If members are in a position to take a long-term view and are not too bothered about short-term volatility, then they should invest 100 per cent into the growth-orientated fund;
b) If they are concerned about short-term volatility, but are willing to take a little risk in expectation of a bit of growth, then they should invest 100 per cent into the balanced fund; and
c) If they have short-term needs (for instance, they intend to leave their current employment in the next 12 months and want to take out the money for a specific need), then they should capitalise on recent performance and switch to cash.
This advice seemed particularly appropriate since equity markets have been performing well this year. In fact, 2012 has seen the best start to a year for equity markets since 1991. There is no guarantee, of course, that this will continue, but most financial experts are forecasting more growth.
Technically, we are in a bull run because equity markets have risen 20 per cent since October last year. But in view of the inherent risks, nobody is bold enough to suggest that this impressive performance will continue at this high rate for much longer.
The euphoria in world stock markets is stoked by several factors. Improving economic data from the US, especially in regard to the creation of new jobs, has been a contributing factor. So has corporate moves in the US to deleverage and European government policies to encourage or enforce austerity.
But the key influential event has been the decision by the European Central Bank to provide cheap loans to commercial banks throughout Europe. Confidence has returned and fear of sovereign default has subsided.
Having pointed this out to the assembled attendees, I was surprised to hear how many were still concerned about the "short-term" growth prospects of their holdings.
One was so concerned that she wanted to put most of her money into the only asset class that she was willing to trust - cash - and, if at all possible, could I please arrange Swiss francs? This concern was prompted by the perceived view that investment in a blend of equities and bonds was doomed to failure.
She had been investing for five or six years and had suffered the effects of the credit crisis, when equity markets fell dramatically from their peak in October 2007 and in 2011, when equity markets fell back on fears of sovereign-debt issues in the US and, especially, in Europe.
Her 2011 contribution had suffered also from bad timing - her annual contribution was made in February, when equity markets peaked. Others in the room were happy with their investment, especially those who started in February 2009, when markets bottomed out.
Timing is an issue, especially in the short term, but if you believe in capitalism and man's inherent pursuit of profit, then you should not ignore the higher growth potential that is offered by equities - in the long term.
"Black Swan" events that are impossible to predict, such as the Japanese tsunami that shut off supply of components to the world, the Arab Spring that forced up the price of oil, the Greek debt issue, which frightened the world's banks, and the collapse of Lehman Brothers, which frightened everybody, will always be there in some shape or form and will have an immediate effect.
But in the long term, the effects of these events will diminish as the long-term trend prevails.
With regard to the Swiss franc strategy, using forecasts from Barclays on future currency exchange rates, and assuming 3 per cent inflation, I estimated that switching the member's investments to this currency would erode her purchasing power in US dollars by more than 20 per cent over the next 12 months - and that excludes the potential gain from a more sensible investment in equities and bonds.
I am happy to say that most of the members saw the logic in the arguments presented above and opted for options a or b, or a mixture of the two.
Bill Davey is a wealth manager at Mondial-Financial Partners in Dubai. Contact him at bill.davey@mondialdubai.com.
pf@thenational.ae
COMPANY%20PROFILE
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'Gold'
Director:Anthony Hayes
Stars:Zaf Efron, Anthony Hayes
Rating:3/5
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.”
BEETLEJUICE BEETLEJUICE
Starring: Winona Ryder, Michael Keaton, Jenny Ortega
Director: Tim Burton
Rating: 3/5
Company%20profile
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Banned items
Dubai Police has also issued a list of banned items at the ground on Sunday. These include:
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Political flags or banners
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Bikes, skateboards or scooters
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
What can you do?
Document everything immediately; including dates, times, locations and witnesses
Seek professional advice from a legal expert
You can report an incident to HR or an immediate supervisor
You can use the Ministry of Human Resources and Emiratisation’s dedicated hotline
In criminal cases, you can contact the police for additional support
MATCH INFO
What: India v Afghanistan, first Test
When: Starts Thursday
Where: M Chinnaswamy Stadium, Bengalaru
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
2025 Fifa Club World Cup groups
Group A: Palmeiras, Porto, Al Ahly, Inter Miami.
Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.
Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.
Group D: Flamengo, ES Tunis, Chelsea, Leon.
Group E: River Plate, Urawa, Monterrey, Inter Milan.
Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.
Group G: Manchester City, Wydad, Al Ain, Juventus.
Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.
Honeymoonish
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The biog
Name: Salem Alkarbi
Age: 32
Favourite Al Wasl player: Alexandre Oliveira
First started supporting Al Wasl: 7
Biggest rival: Al Nasr
RESULT
Manchester United 1 Brighton and Hove Albion 0
Man United: Dunk (66' og)
Man of the Match: Shane Duffy (Brighton)
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
Specs
Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
On sale: Now
Price: From Dh158,000 (Cooper), Dh168,000 (Aceman), Dh190,000 (Countryman)
COMPANY PROFILE
Initial investment: Undisclosed
Investment stage: Series A
Investors: Core42
Current number of staff: 47
2019 Asian Cup final
Japan v Qatar
Friday, 6pm
Zayed Sports City Stadium, Abu Dhabi
Election pledges on migration
CDU: "Now is the time to control the German borders and enforce strict border rejections"
SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
