Private financial wealth in Middle East and Africa grew by 4.7 per cent in 2011, according to a new report by The Boston Consulting Group (BCG).
The report, entitled The Battle to Regain Strength: Global Wealth 2012, is BCG’s twelfth annual look at the global wealth-management industry and addresses the current size of the market, the state of offshore wealth, the performance levels of leading institutions, the emergence of alternative business models, and key trends that all players must adapt to.
According to the report, private financial wealth in Middle East and Africa grew to $4.5 trillion in 2011, up from $4.3 trillion in 2010, marking a 4.7 per cent increase. Furthermore, it is expected to grow by a compound annual growth rate (CAGR) of 6.6 per cent by 2016, to reach $6.1 trillion, largely as a result of continued strong GDP expansion in oil-rich countries.
Dr. Sven-Olaf Vathje, Partner and Managing Director at BCG Middle East said: “We see this growth despite the fact that Middle Eastern and African stock markets suffered from the political instability caused by the uprisings across the Arab world in 2011. Despite this, the region’s private wealth grew in 2011 driven by high savings rates and strong economic growth in commodity-rich countries such as Saudi Arabia and Qatar. The wealth held in bonds rose by 13.3 per cent, and cash and deposits grew by 5.1 per cent – only the amount of wealth held in equities decreased by 2.6 per cent, mostly driven by weak market performance.”
The BCG study also estimates that between 2011 and 2016, private financial wealth in the region will grow by a CAGR of 8 per cent for households worth more than $100 million, 8 per cent for households worth between $1-$100 million and 5 per cent for households worth less than $1 million.
"In 2011, Qatar, Kuwait, UAE and Bahrain were among the top ten countries in the world by proportion of millionaire households," Markus Massi, Partner and Managing Director at BCG Middle East added. “Qatar stood at second place with 14.3 per cent millionaire households; Kuwait came in third (11.8 per cent); the UAE came in sixth (5 per cent); and Bahrain stood at tenth place (3.2 per cent).”
In terms of proportion of $100 million-plus, ultra-high-net-worth (UHNW) households, Kuwait and Qatar each had 6 UHNW households per 100,000 households, while the UAE had 4 UHNW households per 100,000 households.
For private financial wealth originating from Middle East and Africa in 2011, Switzerland was the biggest offshore center attracting $0.56 trillion, followed by the UK drawing $0.33 trillion.
In fact, with over a third of all assets booked abroad in 2011, Middle East and Africa had the highest proportion of offshore wealth in the world. In terms of percentage of private wealth booked offshore, Kuwait (53 per cent) took the lead in the region, followed by UAE (52 per cent), Tunisia (45 per cent), Bahrain (37 per cent), Lebanon (34 per cent) and Morocco (30 per cent).
As a regional offshore financial center Dubai held assets worth $0.2 trillion with Saudi Arabia, Kuwait, India, Iran and Turkey as the top five sources of offshore wealth.
Market Sizing. Global private financial wealth grew by just 1.9 per cent in 2011 to a total of $122.8 trillion. In the BRIC countries, total private wealth increased by 18.5 per cent, compared with negative growth in North America (–0.9 per cent), Western Europe (–0.4 per cent), and Japan (–2.0 per cent).
In terms of household segments, the highest growth rate was in the UHNW segment, which saw its wealth rise by 3.6 per cent—compared with average growth of 1.7 per cent across all other segments.
Millionaires. Although the number of millionaire households decreased by a combined 182,000 in the United States and Japan, globally the number grew by 175,000 as many households crossed the millionaire threshold in developing economies, particularly China and India. The United States still had the largest number of millionaire households (5.1 million), followed by Japan (1.6 million) and China (1.4 million).
The report says that the highest density of millionaire households in 2011 was in Singapore—where more than 17 per cent of all households have private wealth of $1 million or higher.
Offshore Wealth. Offshore wealth increased to $7.8 trillion in 2011, up 2.7 per cent from the previous year. The increase was driven partly by a flight to safe havens by investors in politically unstable countries and partly by inflows from UHNW families based in rapidly developing economies.
Insights for wealth managers
Globally, the asset bases of wealth managers remained flat in 2011, compared with a gain of 11 per cent in 2010. The lack of growth was mainly attributable to the deterioration in market values, which was not offset by net new inflows. There was wide variation in how wealth managers fared across regions and performance categories.
Alternative Business Models. A handful of business models outside the mainstream—such as external asset managers, family offices, and online wealth managers—have taken advantage of the disruption caused by the financial crisis and the willingness of clients to consider new alternatives. According to the report, traditional wealth managers should aim not only to defend their turf but also to profit from evolving client preferences by adapting their own business models—borrowing different elements from those of unconventional competitors and making sure that they keep their finger on the pulse of what their clients want.
Key Trends. Numerous industry dynamics are affecting wealth managers. One theme, BCG says, is that emerging markets will fuel the growth of global wealth in the future. Players that hope to succeed in emerging markets must first define their strategies, operating models, and ambition levels—as well as recognize the pitfalls that have felled many attempts at expansion abroad. Another key trend is that the core economics of wealth managers will continue to be strained.
“We expect equity markets to remain volatile, and the risk appetite of private banking clients will be subdued,” said Vathje. “Therefore, wealth managers will need to continue their pricing initiatives, refocus on client discovery, master the ever-shifting regulatory environment, bolster risk management, manage costs, and find ways to use alternative business models to their advantage.”