I used to think that private banking was the financial services equivalent of shooting fish in a barrel.
All you had to do was acquire a wardrobe full of Savile Row suits and open up some posh offices; sit back with your hand-made Loakes on the desk and wait for the business to walk in through the door.
In the UAE, it seemed to me particularly easy. What potential local client wouldn’t want to hand over their petro dollars once they have seen that business card with a royal crest on it, or heard that impeccable English accent, perhaps with just a hint of Geneva?
Well, it turns out it’s not quite as simple as that, especially in this region, as a forthcoming analysis by research firm Insight Discovery shows.
Their report, Revealed – the mysterious world of private banking in the GCC, draws a picture of a highly competitive business, where costs are rising and not always covered, and where customers are increasingly discerning and demanding.
Analysis of the sector has been hampered in the past by one simple fact. One of the attractions of private banking has been precisely that it is private. Clients want discretion and privacy. The banks fall over themselves to offer them anonymity and secrecy.
It’s hard to get an overall picture in these circumstances.
But the new report cuts though some of the opacity. It reveals that 61 private banks operate in the region, with nearly half of them based in Dubai. In this respect, the emirate has truly become the Switzerland of the Middle East, as the regional hub for the private banking operations of the big international banks.
The rest are the private banking arms of local or regional financial institutions.
Many of these are registered in the Dubai International Financial Centre, and therefore subject to the Dubai Financial Services Authority rules that require them to disclose local accounts.
But even if they did agree to disclose their figures under DFSA regulations, it’s unlikely you would get a very accurate picture of their financial health.
The portfolios of wealthy locals are usually held outside the region, with the business being booked through offshore jurisdictions like Geneva, Singapore and Jersey. This is usually what customers want.
The range of assets under management by these institutions is considerable. Most executives book business of between US$30 million and $120m, but one lucky (unnamed but American-based) individual is responsible for around $10 billion of wealth.
Who are the customers?
The terminology of the business identifies “high net worth individuals” – let’s call them rich people – as anybody with more than $1m of investible assets, and research shows that the Middle East in 2012 was home to 500,000 such people, out of 12 million globally.
Both the number and the assets of rich people in the Middle East is growing, at around 8 per cent last year, faster than the global average and faster than the economies of their home countries. This is why the private bankers are here.
Unlike rich people in America, Europe or Asia, those in the Middle East are more likely to avoid equity investment, and go for a range of opportunities including cash-on-deposit, property, and other alternative investments such as commodities.
This is why the bankers have such a tough job. Keeping up with the demands of a sophisticated client who is fully aware of the spread of assets available, and demands a better return than equities, is much harder than just buying blue-chips in established markets. Regional clients want to see their wealth grow, rather than simply preserved.
Servicing this choosy market and requires a relatively big number of executives on the ground, and adds to the cost burden for the private banks.
Some have as many as 50 executives in the region. In addition to the big remuneration packages and high office costs, that makes for a hefty invoice from Savile Row.
So, not surprisingly, some have withdrawn from the business in recent years. Lloyds, Merrill Lynch and Morgan Stanley have all sold out of private banking in the region.
Nonetheless, the glittering prizes on offer mean that others will still try, especially if they feel they have identified an underexploited niche. Nedbank Private Wealth and Arbuthnot Latham are two recent new entrants.
But the newcomers will have to work harder in an increasingly tough environment. It is no longer just shooting fish in a barrel.
fkane@thenational.ae
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.”
COMPANY PROFILE
Name: Lamsa
Founder: Badr Ward
Launched: 2014
Employees: 60
Based: Abu Dhabi
Sector: EdTech
Funding to date: $15 million
A timeline of the Historical Dictionary of the Arabic Language
- 2018: Formal work begins
- November 2021: First 17 volumes launched
- November 2022: Additional 19 volumes released
- October 2023: Another 31 volumes released
- November 2024: All 127 volumes completed
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
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 banned).
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.
New Zealand 15 British & Irish Lions 15
New Zealand 15
Tries: Laumape, J Barrett
Conversions: B Barrett
Penalties: B Barrett
British & Irish Lions 15
Penalties: Farrell (4), Daly
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
FIGHT CARD
Sara El Bakkali v Anisha Kadka (Lightweight, female)
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SPECS%3A%20Polestar%203
%3Cp%3E%3Cstrong%3EEngine%3A%20%3C%2Fstrong%3ELong-range%20dual%20motor%20with%20400V%20battery%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E360kW%20%2F%20483bhp%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E840Nm%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3ESingle-speed%20automatic%3Cbr%3E%3Cstrong%3EMax%20touring%20range%3A%3C%2Fstrong%3E%20628km%3Cbr%3E%3Cstrong%3E0-100km%2Fh%3A%3C%2Fstrong%3E%204.7sec%3Cbr%3E%3Cstrong%3ETop%20speed%3A%3C%2Fstrong%3E%20210kph%20%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh360%2C000%3Cbr%3E%3Cstrong%3EOn%20sale%3A%20%3C%2Fstrong%3ESeptember%3Cbr%3E%3C%2Fp%3E%0A
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.