An advisor to 70 per cent wealthy Arab families in the Middle East, JPMorgan Private Bank believes that predominant family businesses are driving the regional economy. Besides a few problems such as succession and preservation of wealth, family businesses will continue to play an important role in the region, it opines.
"We should remember that capital markets are in their initial stages in the region and it is the family businesses that have been creating a lot of wealth. What we will see is an increase in capital markets but absolutely no decline in family run businesses," Steven Klemme, Managing Director at JPMorgan Private Bank and Market Manager for its activities in the Middle East told Emirates Business in an exclusive interview.
—We have seen different estimates of private wealth sloshing around in the region. How much private wealth do you reckon is there in the GCC today?
—We don't do any research. On the contrary, we take other people's research. As far as families are concerned we have around 10,000 of them in the region. Our largest market is Saudi Arabia, followed by Kuwait, UAE, Egypt and Qatar. It's difficult to give any figures because we target only ultra high net worth families and research is mainly done on high net worth families.
—How are you leveraging this enormous wealth?
—There are different ways – one is through local presence. We have been in the region since 1950s when The Chase Manhattan Bank, a forerunner of today's JPMorgan, opened an office in Beirut. After that we opened offices in Bahrain (1972) followed by one in Cairo in 1975. Riyadh and Dubai offices opened recently.
—Your website mentions you are an advisor to over 40 per cent of Forbes 400 wealthiest Americans. Do you have a similar figure for the GCC?
—For the region the figure is 70 per cent. I can't elaborate on this because of confidentiality. In fact, the elaboration is accidental. We did not look at the Forbes list to see which families we knew and which we didn't know. It happened by our normal marketing activities that assessed the level of people we served.
—While liquidity is a great opportunity for cash managers, it is also fuelling asset price inflation that may become difficult to manage in future. Please comment.
—We try to bring global opportunities into a family. If there are places where there is asset price inflation then we find a place where there is asset under-valuation. For example, infrastructure is something that is very interesting in the region. What we are trying to bring to our clients is infrastructure globally or with Asia focus. This region has an affinity towards Asia. We have a great deal of activities centring Asian infrastructure.
—What are the challenges of portfolio composition and management in an era of fast-moving markets? How often do you re-allocate the portfolio of your clients here and worldwide?
—We take a look at our portfolio allocation on a weekly basis. There is a formal committee and a global committee that takes a look at it on a weekly basis. There are daily valuations done by the under-lying portfolio managers. The challenges are that it is a big world with a lot of asset classes. In today's internet era information moves very quickly, even faster than you can make a decision.
—What are some of the hottest asset classes in the region today? Which are the emerging ones?
—Our clients are most interested in private equity, which is simply an idea of having private ownership. Our approach is that rather than analysing the best transactions someone may want to buy, we analyse the best money managers and try to be the best in class. Thus, we work with the top private equity firms in the world. On the other side of transactions, we help families in doing their own IPOs. Private client advisory (PCA), which we started two years ago, brings investment banking services to private bank families. Investment bankers tend to think more about transactions and private bankers focus more on families. PCA is a blend of the two and there is a family element in every piece of advice we give. So through PCA we help our clients with IPOs, bond-underwriting or a private placement etc.
—What kind of growth have you registered in the GCC in 2008?
—In the last five years we have seen growth in excess of 15 per cent. In the past three years we have doubled the number of resources. Today we have nearly 80 people focused on the GCC.
—How have the credit crunch and a slowdown in the West impacted private banking and investment here?
—I have not seen any impact of the global slowdown in the Middle East.
PROFILE: Steven Klemme, Managing Director, JP Morgan Private Bank
Steven Klemme is Managing Director at JPMorgan Private Bank and market manager for its activities in the Middle East. Klemme has been the leader of JPMorgan's Middle East team in Geneva since 2002 and in July 2006 he was promoted as the market manager for the region. He has been a member of the Private Bank Emea Management Committee since 2002.
Before joining JPMorgan in 1999 to lead its efforts in Saudi Arabia and then the Middle East in 2002, Klemme worked for Citibank as a private client banker for 14 years. From 1985 to 1993, he covered the Saudi and Kuwait markets from New York and from 1993 to 1999 he covered the Saudi and Qatar markets from Geneva.