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Middle East's Wealthy Drawn To Alternative Investments - Study

Stephen Little, Reporter, London, 3 June 2013

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Wealthy families in the Middle East are increasingly turning to alternative investments and want to play a more active role in managing their money, according to a new report.

The study, Beyond Convention, was produced by London-based research firm Campden Wealth and the Qatar Financial Centre Authority, and was based on interviews with 47 ultra high net worth individuals from the Gulf Co-operation Council countries, as well as Lebanon, Syria and Egypt. The research was carried out in the fourth quarter of 2012 and early 2013.

The report found that Middle East investors expressed a preference for alternative investments such as hedge funds and private equity. In terms of asset allocation, 67 per cent of respondents said that hedge funds were important or very important and 69 per cent said that private equity was important or very important.

Middle East investors also mirrored their peer group elsewhere in the world by expecting to earn high returns on relatively low-risk investments. 

The global trend towards more active involvement in the management of portfolios among UHNW individuals is also noticeable in the Middle East, with 46 per cent of participants describing themselves as very active in the management of their assets.

The report also revealed that more than 60 per cent of respondents said they pursued wealth creation rather than wealth preservation as an investment goal, which its authors said suggested that few would be content with less than 8 per cent growth on their investments annually.

Among other findings, 60 per cent of respondents said that they now scrutinised their relationship with their private banks and wealth managers much more closely than they had done a year before.

The report also found that nearly 40 per cent of respondents said that they had an excellent relationship with their private banker or wealth manager, with only 7 per cent saying it was poor.

Over half (55 per cent) of the respondents said they intended to continue to invest their money in the Middle East at the expense of other regions in the world, with financial centres such as Doha being increasingly seen as safe havens to deposit money.

Africa also figured prominently among investment destinations outside the Middle East amid a wider preference for emerging markets over developed ones.

The report highlighted how the multi-family office model has not yet gained critical mass in the Middle East. This is largely due to factors hindering their rise in other emerging markets, such as a lack of trust to pool money with other families in such a structure.

However, Campden estimates that just as large sums of money have poured into the financial centres of Dubai and Qatar during the Arab Spring, rather than going to Switzerland or other financial centres outside of the region, so too will family offices be increasingly located in these centres.

“This research makes compelling reading for all those interested in helping to develop a vibrant location for single family offices. It demonstrates the importance of the new regulations governing single family offices which the QFC Authority issued last year. These regulations offer new opportunities for family offices to establish and manage their affairs more professionally," said David Dhanoo, chief legal officer and board secretary of the QFC Authority.

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