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Thu 23 Aug 2007 10:40 AM

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The rise of the super-rich

Arabian Business talks to a regional private banker with a personal approach to dealing with his increasingly demanding clients.

Sharad Nair tells me something I will do my best to remember: "There are three people that a wealthy man will always surround himself with. That is his doctor, his lawyer and his private banker."

He imparts this knowledge with a grin. As a successful private banker with Swiss private bank, Bank Sarasin-Alpen (ME) he has had plenty of experience in the company of wealthy men.

He tells me another thing worth remembering. "The two main traits of human beings are greed and fear. The beauty is that greed is permanent but fear is temporary."

I am beginning to get the feeling that Nair is a bit more than a straightforward private banker. He is something of a psychologist with an astute sense of humanity's needs and desires, strengths and weaknesses.

And when it comes to tapping the wealth of the world's super-rich such insight is valuable.

We are sitting in Bank Sarasin-Alpen's slick offices in the Dubai International Financial Centre (DIFC). The aggressive air conditioning chills an atmosphere of quiet, calm diligence. An enhanced sense of secrecy pervades. Yet sporadically throughout the interview I see shapes through the frosted glass. There is talking, bantering and joking as shadows merge and reform in the corridors outside.

The two main traits of human beings are greed and fear. The beauty is that greed is permanent but fear is temporary.

My own time with Nair is punctuated by anecdotes from his rich career in private banking. All delivered with a smile and an infectious laugh. "I have been in private banking for over 12 years in the region, based in Dubai," he tells me. And for Nair experience and familiarity with the Gulf market is critical to anyone's performance as a successful wealth manager for the expanding population of gilded elite.

2006 saw accelerated growth in the two key drivers of wealth creation, GDP and market capitalisation. This has underpinned the rise of the wealthy. According to the Merrill Lynch and Capgemini 2007 World Wealth Report high net worth individuals' (HNWIs) wealth totalled US$37.2 trillion in 2006. This marks an 11.4% gain on 2005 figures. HNWI financial wealth is expected to reach US$51.6 trillion by 2011, with an annual growth rate of 6.8%.

Part of this growth has been in the accumulation of wealth by the world's richest people - the so-called ultra-HNWIs. The assets of these individuals are valued at more than US$30m each, and their ranks are swelling. 2006 saw an 11.3% growth in the number of ultra-HNWIs bringing their number to 94,970. Their total wealth accumulation rose to US$13.1 trillion.

As a result one thing is certain: there is plenty of room for growth in the Middle East's wealth management market. According to the IMF, in 2006 individuals throughout the GCC had US$1.5 trillion held in real estate, offshore securities and bank deposits. The findings of the 2007 World Wealth Report show that in the Middle East total HNWI wealth grew by 11.7% in 2006.

Over the same period the HNWI population grew by 11.9%. Wealth is increasingly dispersed across the region, but the growing number of banks offering private wealth management services have yet to fully exploit the Gulf's potential.

One reason for this, according to Nair, is a lack of in-depth regional knowledge. The banking environment in the Gulf is "quite different from any other environment," he notes, and this "makes it quite challenging." It is meeting this challenge that has shaped the landscape of the wealth management industry in the region over the past decade. A fundamental change that Nair has seen is the decision made by offshore private banks to move to the Gulf region.

"10 years ago some banks had local representative offices here with very minimal skeleton staff, three or four people," Nair explains. Others were suitcase bankers who would visit the region once a quarter. Private bankers from London and Switzerland flew out, conducted business and flew home. According to Nair, "it was obvious that there was a slight disconnection."
Bankers were used to meeting the older generations of money-makers, not the younger family members who were increasingly involved in family businesses in the Middle East. This led to a critical lack of understanding of the regional market, and an entirely different operating environment for bankers.

Nair highlights the disparity: "a country that is growing at a very fast pace does not behave in a similar way to a developed market. Most millionaires that you meet have made their first million in the last five to 10 years so their risk taking abilities are slightly different from those of the older generation."

What bankers from outside the region were capable of offering their Middle Eastern clients no longer reflected the demands of these clients. "The gaps were widening," concludes Nair. Banks realised they had to be onshore to grow their books and with the birth of the DIFC this became a real and attractive possibility.

No one would argue with the importance of the real estate development that has now become an iconic Dubai landmark. The government's decision to provide banks with the infrastructure to physically enter the Gulf market has been fundamental to promoting the growth of the financial services industry in the region.

In terms of personal wealth management, where face-to-face contact with the client is an important part of conducting business, the DIFC also acts as an ideal location from which to service the rest of the region. Talking of the importance of the centre in closing the gap between foreign wealth managers and their GCC clients, Nair comments, "a few years ago the government was very clever in finding that gap and giving this land to bridge it."

Most millionaires that you meet have made their first million in the last five to 10 years so their risk taking abilities are slightly different from those of the older generation.

For Nair, successful private banking strategies depend not just on knowing your client. It doesn't even depend on knowing how he thinks, but on knowing how those around him think too. "Once you are on the ground you not only meet [the client], you meet his staff, his family members, his friends. People who think like him, who behave like him. You are far closer to the client."

Nair talks of a "comfort zone" created by trust. He emphasises, "my colleagues and I are sworn to secrecy and obviously we have to maintain very high levels of confidentiality. The trust element is vital."

It is only then that people will approach their private banker with the concerns that lurk at the back of their minds, such as whether they can protect their assets from the spendthrift second generation? There is a playful glint in Nair's eye as he voices the concerns of many of the region's rich.

Yet despite the ‘keep something for a rainy day' attitude towards wealth management that Nair sees in more mature clients they still, like their younger counterparts, have an appetite for risk. A defining characteristic of an emerging market.

"In the nineties we called it a tiger market, and a tiger always loves to hunt," laughs Nair. As a consequence the approach of wealth managers with polished models for asset allocation is not always applicable to Middle Eastern private banking and bespoke wealth management strategies.

Wealth management companies in the region need to accommodate clients who want to be actively involved in what their asset managers are doing. And yet Nair reminds me, despite his curiosity, that "the client is a layman. If they were financial experts they would be doing what we are doing."

But in the clandestine industry of private banking how do you really know where the money comes from? In a post-9/11 world this, according to Nair, is critical.

"My CEO in Switzerland would say if someone had won the lottery we would be very happy to receive them - an overnight millionaire." The ultimate transparent accumulation of wealth. But in a region where lottery winners tend not to be among those with personal asset management requirements, what are the client screening processes?

Striking a serious note, Nair begins: "first and foremost because we know this region and most of my colleagues have been operating here on the private banking and investment banking side, the clients we are looking at today are clients that we have known for several years. We have complete disclosures on them.

"Some people may believe that the market is quite illiquid when it comes to gathering information, but once you've been here for 10 or 15 years you know how to do it."

Nair cannot resist one more story. "In my earlier days of being in the wealth management industry at least once every three months we would have someone walking in with a suitcase of money asking, ‘can I?'" Without invoices or any details of where the money had come from he would be turned away - not always an easy thing for a private banker to do. With 9/11 came a much greater awareness of money laundering among industry professionals and their clients. "There is something known as bad money and good money." People understand the need to protect the system from the bad.

And what of other challenges that face the wealth management industry in the Gulf? It seems that many of the old problems persist. Nair sees "more and more banks coming in and several of them are relatively unknown in the market. Others are very well-known but have no experience of operating here."

An inadequate knowledge of the Middle Eastern marketplace appears to be a recurring theme. Imported bankers have not yet had a chance to adapt to their new surroundings. "One major challenge they are going to face is understanding this client base and winning their trust, which is the most difficult part of this business.

"Even if they are able to do that and get entry" continues Nair, "the second most difficult task is meeting clients' increasing demands in terms of products, variety and the services they demand."

For those banks that don't make the grade there is a new tranche of the world's wealthy starting to demand attention.

In Singapore, for example, it is now possible to get a private bank account opened for US$50,000. It is a strategy being adopted by some banks to identify the billionaires of tomorrow.

In the Gulf, however, the pressure on wealth managers to enter the realms of sub-affluent private banking is not yet apparent.

This is not surprising in an area where markets such as Qatar, Kuwait and Saudi Arabia are on your doorstep. Bank Sarasin-Alpen has just applied for a licence in Qatar and hopes to establish operations there in the coming weeks.

It is also actively seeking opportunities in Oman with a view to being operational in the Sultanate before the end of the year.

When I ask about Saudi Arabia however, arguably the biggest market for private banking in the Middle East region, Nair is less forthcoming.

Recognising the Kingdom's potential he nods calmly and tells me, "we have plans for Saudi of course." Somewhat cryptically he adds, "we will try to be onshore in some shape or form."

Given this man's ability to keep a secret I do not expect to hear any more about Bank Sarasin-Alpen's plans for Saudi Arabia's billions, for now.

But there is certainly no doubt that the oil-rich Kingdom is strongly seen as the goose that can lay a thousand golden eggs in the eyes of the world's leading private bankers.
Who do you trust?

Arabian Business asks the question, where would you put your money? Also, we take a look at some of the wealth management options in the region.

Bank Sarasin-Alpen

A subsidiary of Bank Sarasin & Co, Switzerland, Bank Sarasin-Alpen (ME) was an unknown brand in the region before launching operations in the DIFC in 2005. The firm has established both a private bank and investment bank in Dubai and remains one of a handful of institutions in the DIFC to hold these two operating licences.

Alpen Capital (ME) provides investment banking services to regional businesses and institutions, sharing offices with the private bank, Bank Sarasin-Alpen (ME). The two businesses also share a common CEO, Rohit Walia.

Dubai Islamic Bank

Taking advantage of the demand for Islamic compliant private wealth management services, DIB launched its private banking arm in April 2004. The bank offers specialised portfolio and investment consultation and advise and assists clients in the acquisition and management of local and international real estate.

DIB also offers exclusive accounts for women and female private banking relationship managers through its Johara-branded accounts. Formed in 1975, DIB claims the unique distinction of being the world's first fully fledged Islamic bank. The bank's Fatwa and Sharia supervisory board is chaired by Dr Hussain Hamid Hassan.

Superfund

Superfund describes itself as ‘the future of investing' through managed futures funds aimed at achieving high absolute returns from diversified portfolios. Formerly known as Quadriga, the company was set up by Christian Baha in Vienna in 1995. The company launched its first fund in 1996 and in 2006 Superfund opened its office in Dubai.

Collectively, Superfund companies have total assets of approximately US$1.6bn under management. A defining feature of the company's investment policy is maintaining a low correlation to stocks, bonds and other hedge fund strategies.

Hedge funds and managed futures have traditionally drawn interest from high net worth individuals and institutional investors. However, through companies like Superfund these investment options are now increasingly open to retail investors.

Amwal

Doha-based Amwal was founded in 1998 and is among the leading investment banking, asset management and wealth management firms in Qatar. Under the patronage of HH Sheikha Mozah bint Nasser Al Misnad it was the first investment company to be licensed by the Central Bank of Qatar.

Amwal also counts a number of other ‘firsts' in its history. It was the first to launch an investment portfolio in Qatar, its Al Mahfatha Portfolio; the first to launch a Qatar-registered mutual fund for Qataris and expatriates investing in the Doha Securities Market; and the company underwrote the first non-Qatari IPO in the country.

A spin-off from the Qatar Ladies' Investment Company, HH Sheikha Hanadi bint Nasser bin Khalid Al Thani is Amwal's vice-chairperson and managing director. Dubai-based investment bank Shuaa Capital holds a 47% stake in Amwal.

Algebra Capital

A relative newcomer to the UAE financial services scene, Algebra Capital established itself in the DIFC in November 2006. Ziad Makkawi, formerly CEO of Dubai Bank, is the company's founder, chairman and CEO.

Focusing solely on asset management for institutional investors and high net worth clients, Algebra specialises in emerging markets across the Middle East, North Africa and emerging Asian regions.

Algebra's products comprise public equity funds, fixed income funds and private equity funds.

Abraaj Capital

UAE-based Abraaj was established in 2002 and specialises in private equity and direct investment in the Middle East, North Africa and South Asia region.

Chaired by HH Abdulrahman Ali Al Turki, and under the management of CEO Arif Masood Naqvi, Abraaj manages assets worth more than US$4bn, including seven private equity funds. Among these is a Sharia-compliant fund worth US$2bn.

The firm identifies itself as a pioneer of the institutionalising private equity practice in the region and is associated with several well-known names across the Middle East. More recently Abraaj became the largest shareholder in Egyptian investment bank EFG-Hermes in 2006.

In March 2007 it became a co-founding shareholder of UAE's Air Arabia and in 2004 entered the retail sector by acquiring a stake in the Spinney's chain of supermarkets .

Mirabaud

Mirabaud is another Swiss asset management firm seeking to cash in on the private wealth management market in the Gulf. A wholly-owned subsidiary of one of Switzerland's oldest banks, Mirabaud (Middle East) opened its Dubai office in June 2007.

In addition to asset management services the bank offers clients bespoke services in private banking, institutional asset management and fund management. It is also active in alternative investment management, brokerage and custody. Mirabaud has more than US$18bn of assets under management.

Markaz

Also known as the Kuwait Financial Centre, Markaz was established in 1974 and listed on the Kuwait Stock Exchange in 1997. In the first half of 2007, Markaz launched its IPO and pre-IPO programme which participates in IPOs and pre-IPOs predominantly focused on Emerging Markets. Markaz is also in the process of launching an Islamic Money Market Fund sometime in 2007.

Asset management services offered by the company include investment advisory services, GCC and international investments, and private equities. Assets under management as of 30 June 2007 amounted to US$4.86bn.

Citi Private Bank

Citigroup is one of several international giants of the banking industry to enter the Gulf market with private banking services in the form of Citi Private Bank, based in Abu Dhabi.

Wealth management services on offer include real estate, trust and fiduciary and aircraft financing. In terms of wealth advisory services, the bank prizes itself on its art advisory service set up in 1979. Other wealth advisory services comprise the family advisory practice, multiple residence and farm advisory service, and philanthropic services.

Ithmar Capital

A Dubai-based, GCC focused private equity firm, Ithmar Capital was established in 2003. From its headquarters in Dubai and an office in London, Ithmar Capital targets exceptional growth capital and buyout opportunities throughout the GCC, providing the region represents a strategic market for the overseas companies.

The firm manages two funds: Ithmar Fund I, a US$70m fully-invested fund; and Ithmar Fund II launched in September 2005. Ithmar is the first regional private equity specialist that has entered into a strategic alliance with a global private equity fund. In April 2006, 3i committed US$15m to the Ithmar Fund II.

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