Gulf leads world wealth growth

Asa Fitch

• Last Updated: June 24. 2008 10:43PM UAE / June 24. 2008 6:43PM GMT

Shoppers in the Mall of the Emirates in Dubai. The report found the UAE was the eighth-fastest growing nation in the world in terms of numbers of wealthy people. Getty

The number of high net worth individuals in the UAE rose by 15.3 per cent last year to 79,000. That means that one in 58 people in the UAE is a millionaire. This represents a combined wealth of US$91 billion (Dh334bn), according to a report released today.

The results, reported by Merrill Lynch in its annual World Wealth Report, underscore the rapid expansion of the upper class in the Middle East and the UAE, as oil prices reach record highs. They also highlight a growing base of potential clients for large global wealth management firms, many of which have moved into the region in recent years.

ING Investment Management, an arm of the Dutch bank, recently set up an asset management team in Dubai, for example, and will launch a number of funds that could be as big as $5bn in three years. Major players such as Merrill Lynch, Mellon Bank and Northern Trust, all from the US, also maintain wealth management operations in the UAE.

As a region, the Middle East represented the fastest growing base worldwide of wealthy people, defined by Merrill as people with at least $1 million (Dh3.75m) in investible assets, not including the value of their homes. Combined assets for high net worth individuals in the Middle East were expected to grow from $1.7 trillion (Dh6.25tn) last year to $3.4tn in 2012, an annual average rate of growth of 17.5 per cent.

The UAE was the eighth-fastest growing nation in the world in terms of numbers of wealthy people last year, just below Singapore; India had the world’s fastest growth rate at 22.7 per cent. By comparison, the number of high net worth individuals worldwide grew by about six per cent, to 10.1 million with a combined $40.7tn in assets.

“This is a true testament of the strength of the UAE market being driven not only by oil prices but by everything else that we see around us, in terms of real estate and so forth,” the director and head of Middle East global wealth management at Merrill, Amir Sadr, said today.

Large investment banks have been hit by the credit crunch in the past year, forcing them into billions of dollars in write-offs, so they have been focusing increasingly on emerging markets to buttress fee income generated from asset management.

Mr Sadr said Merrill’s plan in the region was to grow the bank’s wealth management arm in co-ordination with its investment banking operations, a strategy that was to be run by their newly appointed president of Middle East and North Africa operations, Fares Noujaim.

In addition to trends in the number and wealth of high net worth individuals, Merrill’s report looked at the ways in which these investors allocated their portfolios. As markets in developed nations have stagnated in the past year, the report found, wealthy investors had sought safety, allocating a greater portion of their portfolios to fixed income and cash.

They had also reduced their allocations to property and cut back on alternative assets such as hedge funds, derivatives and private equity.

Compared to other regions, wealthy people in the Middle East tended to allocate their portfolios more to property and alternative investments.

Investment properties made up 22 per cent of high net worth individuals’ portfolios in the Middle East, compared to just nine per cent in Latin America and 12 per cent in North America. And as rich investors in North America scaled down alternative investments to an average of five per cent of their portfolios, investors in the Middle East assigned about 12 per cent to them.

Green investing also emerged as a theme in this year’s report. About 20 per cent of wealthy investors in the Middle East allocated part of their portfolios to green technologies and alternative energy, the highest proportion of any region in the world.

Of those who invested in green technologies in the Middle East, two-thirds said they did so primarily because of the high potential returns and not from a sense of social responsibility. This contrasted with nearly 50 per cent of investors in green technologies in North America who did so primarily from social concern, while only 33 per cent saw profit potential as their primary reason.

The World Wealth Report has been released annually by Merrill Lynch, an investment bank based in New York City, in conjunction with the US consulting firm, Capgemini, for the past 12 years.

afitch@thenational.ae