John Craig, business development manager in Northern Trust’s Wealth Management Group, EMEA, gives his insights on key trends among Middle Eastern clients, such as increased interest in private equity and the resilient cachet of Switzerland as a jurisdiction.

The preponderance of oil-rich states in the Middle East region means that the region has long been associated with abundant wealth at both a sovereign and individual level. As such, wealth management firms rightly view the Middle East’s high net worth individuals as a key market segment and have developed tailored offerings for these clients accordingly. The growth of Islamic finance has been well noted, but aside from the increase in Shariah-compliant products and services there are now several other key trends emerging concerning Middle Eastern clients, as John Craig, business development manager in Northern Trust’s Wealth Management Group, EMEA, explained in a recent interview.

Increased interest in private equity

As for other markets, cash and liquid investments were a priority for Middle Eastern clients during the economic turmoil of the past year, however the first trend highlighted by Mr Craig is an increased interest in private equity among Middle Eastern clients in recent months. Private equity investment is of course nothing new in the region because as Mr Craig points out, the Middle East is characterised by its entrepreneurial nature, and investing in new ventures and ownership structures, whether in the GCC, MENA or internationally is fairly well developed among Northern Trust’s Middle Eastern clients. Private equity is however gaining increasing importance, according to Mr Craig, as openness towards the asset class is being given extra impetus through clients wanting to diversify away from a reliance on oil and petrochemicals, or away from a home market.

Perceived improved valuations are also driving Middle Eastern clients to increase their exposure to private equity, Mr Craig notes.  Private equity funds across the Middle East and North Africa are then one obvious potential beneficiary of this trend, particularly given their size: figures recently cited by UAE-based private equity firm Saffar Capital put the total assets of reporting private equity funds in the region at $24,894 billion. But despite such figures indicating the current and future potential of private equity funds in the Middle East, Mr Craig believes that the characteristics of the Middle Eastern investor are such that investing through funds may not have the right appeal. “Direct investment in acquisitions that meet the criteria of entrepreneurial ambition, diversification and favourable valuations may be given priority over investing in funds,” he said.

In other investment trends, Northern Trust is also seeing index-linked investments, currency hedging and investment transition management emerging as areas of heightened attractiveness, said Mr Craig. He also expects that the effective default of Dubai World will continue to drive continuing interest in non-real estate investment opportunities in the Middle East region.

An upsurge in female entrepreneurial clients

A second key trend highlighted by Mr Craig is that Northern Trust, like many other firms, is seeing increasing numbers of female entrepreneurs among its Middle Eastern client base. “We are witnessing the emergence of more wealthy, educated and economically and politically active women,” said Mr Craig. The driver for this upsurge, in his view, probably stems from inheritance and education, as well as other demographic aspects.

As the situation currently stands, the Middle East’s female entrepreneurs are regarded by many commentators as a largely underserved market – one that wealth managers are naturally keen to tap. However, while some firms are reacting to the upsurge in such clients by developing offerings specifically for women, Northern Trust prefers not to make such separation. “As an administrator and manager of assets, Northern Trust’s offering makes absolutely no distinction as to gender as our services are universally applicable,” said Mr Craig.

Switzerland is still key

In addition to highlighting trends towards private equity and female entrepreneurship in the Middle East, Mr Craig also gave interesting insights as to what Middle Eastern clients are not doing – namely shunning Switzerland as a prime wealth management hub, despite the centre’s recent troubles.

The past year has seen Switzerland’s status as a location for private banking slide somewhat amid a series of bruising tax rows. The Alpine state has come under increasing pressure from cash-strapped governments anxious to prise open Switzerland’s famed banking secrecy and claw back lost tax revenues. Amid issues such as the notorious tax evasion case between the US authorities and UBS, Switzerland has certainly had to make concessions with regards the sharing of client data related to tax irregularities, but contrary to what might be assumed, Switzerland’s appeal to Middle Eastern clients remains undimmed in Northern Trust’s view.

“Switzerland is a key market for the servicing of the assets of Middle Eastern families,” said Mr Craig, going on to explain this is principally due to the needs of the families in the region, which are driven by the need for safety and security of assets coupled with a desire for privacy and discretion. “To date, we have not detected any major shift in this attitude from Middle Eastern families,” said Mr Craig. Nor does a recent Swiss referendum decision to prohibit the building of minarets seem to be driving away Middle Eastern business, he said, although he concedes that, “this is a very recent event and only time will tell.”