Private wealth in the UAE is projected to post a compound annual growth rate (CAGR) of 10.7 per cent to reach an estimated $1 trillion in 2019, a study said.

Private wealth in the United Arab Emirates (UAE) showed solid growth in 2014 (8.4 per cent), according to the new report by global management consulting firm Boston Consulting Group (BCG), Global Wealth 2015: Winning the Growth Game, released today (June 16).

In the UAE, the growth of private wealth was driven mainly by equities. After all, between 2013 and 2014, the amount of wealth held in equities rose by 13.8 per cent across the nation, compared with 1.6 per cent for bonds, and 6.9 per cent for cash and deposits.

Based on BCG’s comprehensive study, the UAE is poised for further growth in the next five years, with the wealth breakdown anticipated to be 43 per cent in cash and deposits, 9 per cent in bonds, and 47 per cent in equities.

The Global Wealth 2015 report, BCG’s fifteenth annual study of the global wealth-management industry, addresses the current and future size of the market – notably the projection that the Asia-Pacific region (excluding Japan) will surpass North America as the wealthiest region in the world in 2016 – and explores the keys to profitability on the basis of extensive benchmarking of global players.

The report also examines the choices that institutions face regarding where to invest in their own businesses in order to achieve profitable growth and overall future excellence.

Overall, the analysis found that wealth managers must raise their games on numerous fronts and decide where to invest in their own businesses if they hope to ensure profitability through 2020.

“Potentially disruptive forces are everywhere,” said Markus Massi, a partner & managing director at BCG Middle East. “A more complex investing environment, highly demanding clients, technological evolution, tightening regulatory climate, and other trends are straining traditional models. As the pace and magnitude of change intensifies, wealth managers need to think more strategically.”

THE UAE IN FOCUS

Over the next five years, across the UAE, private wealth held in equities is expected to increase at a CAGR of 18.5 per cent. In parallel, bonds as well as cash and deposits will grow by 3.8 per cent and 6.2 per cent, respectively.

“In terms of wealth distribution, private wealth held by ultra-high-net-worth (UHNW) households (those with above $100 million) in the UAE grew by 9 per cent in 2014, on the back of dynamic equity markets and a growing economy,” added Massi.

“Private wealth held by the UHNW segment is set to soar by an impressive 21.1 per cent by 2019. Interestingly, in the UAE, the upper high-net-worth (HNW) segment (those with between $20 million and $100 million) witnessed the highest growth in 2014.”

Private wealth in that segment rose by a healthy 16.1 per cent in 2014. With a projected CAGR of 12 per cent over the next five years, this segment is expected to see continued growth. This will be triggered by both a large number of new households entering the segment and growth in average wealth per household.

In the UAE, private wealth held by the lower HNW segment (those with between $1 million and $20 million) grew at a slightly lower rate (9.1 per cent) in 2014. It is forecasted to grow by 12.9 per cent over the next five years.

“The total number of millionaire households (those with more than $1 million in private wealth) in the UAE increased by 5.5 per cent in 2014,” remarked Massi. “Looking ahead, it is set to grow another 5.3 per cent by 2019.”

SPOTLIGHT ON THE MEA REGION

Private wealth in the MEA region increased by more than 9 per cent to reach nearly $6 trillion in 2014. With a projected CAGR of 9 per cent, the region’s private wealth will rise to an estimated $9 trillion in 2019 with the UAE ($1 trillion) and Saudi Arabia ($2 trillion) as the largest markets.

While 2014 continued to see strong double-digit equity performance in the MEA, the year was also positive for onshore bonds with double-digit performance in the region.

In addition, the MEA region had the second-highest proportion of newly created wealth (44 per cent), with the balance of the increase in wealth attributable to the market performance of existing assets.

“Solid savings rates and continued GDP rises in oil-rich countries contributed to the newly created wealth, while existing asset performance was solid despite the region’s volatile developments,” said Massi. “Overall, across the region, the drivers of wealth growth will have significant implications for wealth managers in the years ahead.”

For example, to capture newly created wealth that is driven mainly by GDP growth and savings rates, wealth managers must strengthen their asset-gathering and client acquisition capabilities through differentiated offerings, tailoring them to specific regions and client segments.

To maximize the performance of existing assets, the focus will be on more creative investment strategies and product offerings, also customized by region and client segment. Moreover, following the high currency fluctuations witnessed in 2014, currency exposure will be a key consideration for future investment strategies.

In the MEA region, in 2014, the share of private wealth held in equities stood at 27 per cent – amongst the highest in the world. Similarly, the share of private wealth held in bonds was also quite high (21 per cent).

“Of course, most wealth managers are still grappling with traditional challenges such as how to attract new assets, generate new revenues, and manage costs,” explained Daniel Kessler, a BCG partner and a co-author of the report.

“Newer challenges include raising digital capabilities and coping with potentially disruptive new business models. Their priorities for investing in themselves have to be clear now.” – TradeArabia News Service