Billionaire’s playground

Every eighteen households per 100,000 in Saudi Arabia have more than $100m of assets under management, The Boston Consulting Group (BCG) said in its annual report on global wealth. The world’s largest oil exporter topped households in Switzerland (ten households) and Hong Kong (nine households) in this year’s list. Saudi Arabia isn’t alone. Three other Gulf states, Kuwait, Qatar and the UAE, all appear in the top ten, ranked at fourth, seven and tenth in the world, respectively. Not to be left in the shadows is the region’s millionaire households or those with assets of $1m or more. Qatar has the world’s third highest concentration of millionaires by market share, behind Singapore and Switzerland, while Kuwait and the UAE come in at fifth and six, respectively.

“Given the demographics and overall wealth of these petroleum-rich countries we would expect a higher proportion of UHNW households than in other parts of the world. Growth in assets under management also reflects the strong fundamentals of the region, driven by continuing strong petroleum prices,” says Dr Sven-Olaf Vathje, partner and managing director at The Boston Consulting Group, Middle East.

Gulf states weren’t the only countries that saw their assets under management swell in size. Global wealth increased eight percent to $121.8 trillion in 2010 with the strongest growth in Asia Pacific (excluding Japan) and the Middle East and Africa, according to BCG.

The USA topped this year list for number of households with more than $100m of assets under management (2,692) as well as the highest proportion of millionaire households in the world (5,220). In 2010, Japan ranked second in terms of millionaires per 1,000 households while Germany came in second in terms of number UHNW households globally.

If this year’s wealth report is anything to go by, the economic downturn — at least for the super rich — was just a blip. Global assets are set to increase at a compound rate of six percent over the next several years as most economies move out of recession and emerging markets ramp up their infrastructure spending plans.

Wealth in the Middle East and Africa is expected to reach $6.7 trillion by 2015, says BGC. The Gulf’s aggressive economic plans coupled with its vast oil wealth are expected to be the two biggest drivers of household wealth. Oil prices, the backbone of the Gulf’s economy, have increased over 54 percent to $114 a barrel in the last year, in spite of a small decline in April due to the political turmoil.

Large family-owned conglomerates — some of the biggest employers in the region — are set to become the biggest beneficiaries of government spending sprees, predicts Markus Massi, partner and managing director of The Boston Consulting Group, Middle East. “The underlying economic development — meaning all of the investment with the government that has already started — [will be a driver]. Most of the HNWI have private corporations, which obviously will benefit from that investment activity so a lot of the wealth will be created through economic development,” he explains.

Female wealth, which accounted for 22 percent of the assets under management in the Middle East last year, is significant, says BGC. Female investors in the region ranked fifth globally in terms of wealth, holding around $0.7 trillion in assets under management and not far behind their counterparts in North America (where women hold 33 percent of the total wealth), Australia and New Zealand (31 percent), Asia (29 percent) and Western Europe (26 percent).

The majority of this female wealth might be the result of family ties but that certainly doesn’t mean women are resting on their laurels. Wealthy Middle Eastern women are particularly savvy when it comes to structuring their investment portfolios, often choosing to take on a greater role with their wealth managers than their male counterparts, says Massi.

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“Female investors are quite sophisticated. They are really eager to understand what they are investing in and to understand what kind of asset classes they are going into compared to some other groups [of investors],” he says.

Significantly increasing wealth and immature banking practices in comparison to more mature markets such as Western Europe and the United States means international private banks are ramping up their investment in the region in a bid to capture a slice of this lucrative pie. Lombard Odier, Julius Baer and Falcon Private Bank are just three Swiss private banks to have set up offices in the Gulf in the last few years. Lombard Odier, one of the world’s oldest private banks, recently said it hoped to increase its global assets under management in the Middle East from ten to 20 percent within three to five years — a clear sign of the region’s growing prominence in private banking.

Regional lenders are also looking at more stable forms of revenue and opening specialist wealth management divisions. The UAE’s largest bank in terms of assets under management, Emirates NBD, and Kuwait Finance House have both established specialist private banking divisions. The UAE’s Bank of Sharjah in March said it would join forces with France’s biggest lender BNP Paribas to tap into this growing segment through a possible 50-50 joint venture.

“You see a lot of banks in the UAE but also the other GCC countries that are investing actively into wealth management. It’s pretty clear why that’s the case [as] it’s a very stable source of revenue if you do it right,” says Massi.

“Many banks have seen their investment banking revenues and corporate banking revenues go through some rollercoaster rides over the last couple of years so the desire to participate in this global business is very strong,” he adds.

Wealth might be growing across the world but one aspect that sets this region apart from its counterparts in more mature markets is the preferences that the Middle East’s super rich have in terms of investment. Wealthy investors from the Gulf, for example, typically look to short-term options such as cash and deposits while those in North America place a higher emphasis on equities, says BCG.

Portfolios in the region comprise 56 percent of assets under management in cash, thirteen percent in deposits and 31 percent in equities while those in the US comprise 34 percent in cash, 22 percent in deposits and 44 percent in equities, according to the wealth report.

Although the economic downturn has played some role in this cautious approach, Gulf investors have always been drawn to short-term assets, says Massi. “To a certain extent they have become more cautious [because of the downturn] but when you compare the asset composition in the past — three to five years ago — they always have been more on the liquid part than the other regions,” he says.

 “It will change over time but most likely we see the trend probably rather from one generation to the other generation so within the next two to three years,” he adds.

Exercising further caution is the sector and geographical areas investors prefer, which typically mirror the region’s economic strengths. The oil and gas sector, for example, tops regional preferences for sectors to invest in followed by industrial manufacturing and healthcare and education. Geographically investors feel most comfortable investing in the markets they feel most at home in, with the GCC being the first location of choice followed by India and SEA/China while favoured asset classes are real estate, capital-protected products, and GCC equities respectively, says BCG.

“Being in an emerging market and experiencing how much growth and investment opportunities in emerging markets, investors believe and feel comfortable with the story that also India and China are going through a similar state of development, and therefore will offer significant investment opportunities. They think ‘I have seen it in my own country, I believe that the other countries will have a similar opportunity,’” explains Massi.

North Africa is becoming of increasing importance, he adds. “When you talk to entrepreneurs, most of them are watching the development in North Africa quite closely because they know that there will be some investment opportunities,” he says.

Whether they are exercising caution or not, this region certainly appears to be doing something right.