Ensnared by the huge losses suffered in the financial crisis, the Gulf's rich are no longer willing to leave their investment decisions entirely to the discretion of advisers, revealed a series of recent studies by global wealth managers in the region.
Increased risk aversion among high net worth individuals in the region is a common theme of all these studies. Global wealth managers believe demand for more control is a by-product of the higher risk aversion.
"When it comes to fin-ancial discipline, there is a desire for greater control when compared with other markets," said Soha Nashaat, CEO of Barclays Wealth, Middle East and North Africa.
Barclays recently conducted a detailed survey of investment behaviour by the Gulf's wealthy and found an increased emphasis on fin-ancial self-discipline and direct involvement in investment decisions.
"These results present an interesting challenge for the wealth management industry in the Middle East. Clearly, more needs to be done to help clients understand their financial personality and the benefits of using financial self-control strategies," said Nashat.
Regional trends in wealth management showed a very high proportion of cash and deposits, a low share of bonds and very few managed funds in the household portfolios, according to a recent Boston Consulting Group study.
While 56 per cent of GCC investors preferred to keep their investments in cash or very short term investments like bank deposits, 31 per cent preferred to invest in regional or home equity markets with 13 per cent opting to invest in bonds.
"The trend clearly shows the risk appetite of regional investors remains low. The asset allocation of GCC high net worth individuals (HNWI) remains overweight in cash and capital-protected products," said Dr. Sven-Olaf Vathje, partner and managing director at BCG Middle East.
Acccording to a study by Invesco Middle East Asset Management, the GCC's wealthy have relatively short time horizons for investments made in 2011, confirming the decline in risk appetite.
"Regional instability in 2011 is one of the major contributors to short investment time horizons and high risk-aversion among investors. But we expect a big change next year as stability returns to the region," said Nick Tolchard, Head of Invesco Middle East.
The Invesco study shows GCC investors have shied away from risk in 2011 with more than 27 per cent actually decreasing their risk exposure. Meanwhile, 32 per cent of institutional investors also decreased their risk exposure on funds significantly and a quarter of retail investors did the same.
Increased conservatism in asset allocation is evident in the strong preference for real estate and relatively more liquid assets. Despite the deep slump in the property sector across the region, real estate continues to be an important component of portfolios. Across the region, about 36 per cent of assets under management are exposed to property, according to Invesco.
"Property is clearly an important asset class for both institutional and individual investors in the region. We think the trend has a lot to do with the lack of alternative asset classes in the region," said Tolchard.
Barclays Wealth study showed that the UAE's wealthy have one of the highest levels of exposure to real estate in the region. The study showed that about 72 per cent of HNWIs surveyed in the UAE have investments in real estate. More than 40 per cent of the people surveyed believe real estate investments have great upward potential.
Studies also point to the increased emphasis on wealth preservation rather than wealth creation, which has prompted many to opt out of equities and remain tied to real estate, low yield sovereign and corporate bonds.
So far, the calculated investment approach has worked well for the region's wealthy. According to the recently published World Wealth Report 2010 by Merrill Lynch and Capgemini, the Middle East had one of the highest growth rates in the number of HNWIs with more than $1 million (Dh3.67 million) in wealth rising by 10.4 per cent to 440,000. The combined wealth of HNWIs increased 12.5 per cent last year to $1.7 trillion.
With the region's rich turning more conservative in their investment outlook and seeking more say in asset allocation, wealth managers are faced with the challenge of proving the sustainability of their strategies over a longer time frame.
"Many high net worth clients have clearly rethought their investment and life goals, and are now heavily weighing the amount of risk they are willing to assume in order to reach those goals. Wealth management firms will need to deliver an integrated response to HNWIs' complex post-crisis needs," said Tamer Rashad, Middle East head of Merrill Lynch Wealth Management.
From / Gulf News