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BCG: Private wealth in UAE to see strongest growth in GCC over next five years

BCG: Private wealth in UAE to see strongest growth in GCC over next five years

Private wealth in the United Arab Emirates (UAE) witnessed robust growth in 2015 (10.2 per cent), according to a new report by The Boston Consulting Group (BCG), Global Wealth 2016: Navigating the New Client Landscape, being released today.

In the UAE, the growth of private wealth was driven primarily by cash and deposits. In fact, between 2014 and 2015, the amount of wealth held in cash and deposits increased by 16.7 per cent across the nation, compared with 0.7 per cent for bonds, and 3.8 per cent for equities.

Based on BCG’s in-depth study, the UAE is set to show solid growth in the next five years, with the wealth breakdown anticipated to be 19.2 per cent in equities, 12.1 per cent in cash and deposits, and 4.8 per cent in bonds.

This sixteenth annual study by BCG outlines the evolution of private wealth from both a global and regional perspective, addresses key industry trends, and explores evolving client needs—particularly those of underserved, nontraditional segments such as female investors and millennials, whose investment goals are not necessarily well-addressed by the standard, net-worth-based service approach.

“Segmentation approaches based mainly on wealth level continue to be used by the majority of wealth managers, neglect what clients are truly willing to pay for,” said Markus Massi, Partner & Managing Director of BCG Middle East’s Financial Services practice. “Such approaches no longer allow wealth managers to capitalise on the full potential of the market.”

Massi also added, “Local asset managers still provide a standard product programme with limited differentiation. International asset managers have embarked on a journey designed to tailor their offering around specific customer segments, leveraging increasingly digital opportunities. They use technology to offer additional communication channels and services to their customers and tap into big data to generate customer insights—so they can further customise their offering and make it more personal. Local wealth managers in the GCC are only now starting to recognise this opportunity, which could become a source of true differentiation.”

Over the next five years, wealth in the Middle East and Africa region is set to reach $11.8 trillion—and the UAE, Saudi Arabia, and Kuwait’s contribution will account for 22.7 per cent of that sum.

SPOTLIGHT ON THE UAE

In terms of wealth distribution, private wealth held by ultra-high-net-worth (UHNW) households (those with above $100 million) in the UAE grew slightly —by 6.3 per cent— in 2015. However, by 2020, private wealth held by this specific segment is expected to increase by a healthy 20 per cent.

In the UAE, private wealth held by the upper high-net-worth (HNW) segment (those with between $20 million and $100 million) grew at a rate of 11.8 per cent in 2015. It is projected to grow by 18.2 per cent over the next five years.

Interestingly, in the UAE, private wealth held by the lower HNW segment (those with between $1 million and $20 million) witnessed the highest growth in 2015. Private wealth in that segment soared by an impressive 13.6 per cent in 2015 and with a projected CAGR of 16.5 per cent over the next five years, this segment will continue to undergo significant growth.

The total number of millionaire households (those with more than $1 million in net investable assets) in the UAE went up by 8.5 per cent in 2015. Looking ahead, it is set to grow by another 7.9 per cent by 2020.

The findings of BCG’s report also revealed that, in 2015, for Middle East and Africa (MEA) wealth booked offshore, Switzerland (30 per cent) was the destination of choice, followed by the UK (23 per cent) and Dubai (18 per cent).

IN FOCUS: GLOBAL RESULTS

  • A Slowdown in Growth. Global private financial wealth grew by 5.2 per cent in 2015 to a total of $168 trillion, according to the report. The rise was less than a year earlier, when global wealth rose by more than seven per cent. All regions except Japan experienced slower growth than in 2014. Unlike in recent years, the bulk of global wealth growth in 2015 was driven by the creation of new wealth (such as rising household income) rather than by the performance of existing assets, as many equity and bond markets stayed flat or even fell. Assuming that equity markets regain momentum, private wealth globally is expected to rise at a compound annual growth rate of six per cent over the next five years to reach $224 trillion in 2020. The number of global millionaire households grew by six per cent in 2015, with several countries, particularly China and India, seeing large increases.
  • Offshore Wealth Management. The report says that private wealth booked in offshore centres grew by a modest three per cent in 2015 to almost $10 trillion. A key factor was the repatriation of offshore assets by investors in developed markets. Offshore wealth held by investors in North America, Western Europe, and Japan declined by more than three per cent in 2015. The annual growth of offshore wealth globally is expected to pick up through 2020, although at a lower rate than onshore wealth (5 per cent versus six per cent). Among offshore centres, Hong Kong and Singapore saw the strongest growth (around 10 per cent) in 2015. Offshore wealth booked in these domiciles is projected to grow at roughly 10 per cent annually through 2020, increasing their combined share of the world’s offshore assets from roughly 18 per cent in 2015 to 23 per cent in 2020. Switzerland remained the largest destination for offshore wealth in 2015, holding nearly one-quarter of all offshore assets globally.
  • Three Key Trends. According to a global BCG benchmarking survey, an annual feature of the report, average revenue and profit margins declined for wealth managers from 2012 to 2015. This development underlines the need for wealth managers to seize the opportunities stemming from three major trends that have altered—and will continue to alter—the industry: tightening regulation, accelerating digital innovation, and shifting needs in traditional client segments.
  • Nontraditional Client Segments. The report says that two nontraditional client groups whose investment needs and size (population-wise) merit special attention are female investors—whose success as corporate executives and entrepreneurs (in addition to being the beneficiaries of inheritances and legal settlements) have raised their wealth levels significantly—and millennials (people born between 1980 and 2000), whose overall wealth accumulation is rising steadily. In 2015, women held an estimated 30 per cent of global private wealth, with the share slightly higher in developed markets than in emerging ones. Yet just two per cent of wealth managers surveyed by BCG said they considered women a specific client segment—fully investigating their investment needs and how they wish to be served—and had adjusted their service models accordingly. Similarly, 50 per cent of wealth managers surveyed said they did not possess a clear view on how to address millennials in terms of service model, products, and overall approach.

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