In the past decade, UAE has become a hub for international trade with organizations from across the world establishing their offices there. This has resulted in UAE becoming the favorite destination for investors from across the world. In fact, as of 2015, the High Net Worth individuals in UAE represent approximately 20% of the total ultra-wealthy population in the entire Middle East.
From the above figure it is clear that, there is increased demand for innovative investment solutions and the desire for gaining access to highly sophisticated investment products has also increased. Also, there is a general bent towards advisory mandates for discretionary or other types of asset management options. Overall, the HNW portfolio in UAE is well-balanced, with property and bonds accounting for the largest share of allocation followed by equities. However, the focus is expected to shift from properties towards equities in the coming five years. This is because, historic data reflects that, in the last three years the amount of private wealth held in equities grew by almost 13.8% as opposed to the 1.6% and 6.9% growth in bonds and other deposits respectively.
In the next five years, wealth in the UAE is expected to further grow and expand by 2020, with the breakdown anticipated to be 43% in deposits and cash, 9% in bonds and 47% in equities. In addition, in 2014, the upper HNW segment witnessed the highest growth at an estimated 16.1%. With a CAGR of 12% by the end of this decade, the segment is expected to rise further. Reasons behind this growth include both growth in the real purchasing power of average households and an increasing number of new households.
Figure: Comparison of UAE’s Private Wealth V/S Entire MEA Region (Source: Khaleejtimes.com)
Overall, the HNW portfolio in UAE is well-balanced, with property and bonds accounting for the largest share of allocation followed by equities. However, the focus is expected to shift from properties towards equities in the coming five years. This is because, historic data reflects that, in the last three years the amount of private wealth held in equities grew by almost 13.8% as opposed to the 1.6% and 6.9% growth in bonds and other deposits respectively.
Key Macroeconomic Trends Driving Growth in UAE Wealth Management Industry
The UAE has a highly diversified economy and was successfully able to sidestep any catastrophe that could have been caused by collapse in oil prices. From a purely economic outlook, the federation is expected to remain stable till 2020. Although low oil-prices have somewhat weakened the GDP growth, the government’s initiatives towards economic diversification will lead to promotion of non-oil growth. Dubai and Abu Dhabi will remain the center of all growth.
| UAE ECONOMIC SNAPSHOT | 2011 | 2012 | 2013 | 2014 | 2015 |
| Population (million) | 8.5 | 8.8 | 9.0 | 9.3 | 9.6 |
| GDP per capita (USD) | 40,072 | 41,685 | 41,980 | 42,067 | – |
| GDP (USD bn) | 341 | 365 | 379 | 391 | – |
| Economic Growth (GDP, annual variation in %) | 5.2 | 6.9 | 4.3 | 4.6 | 3.1 |
Table: UAE Economic Snapshot (Source: Focus-Economics. Com)
Some macroeconomic factors driving growth in UAE’s wealth management industry include:
- Increasing number of new households in the UAE, which in-return is driven by an increasing influx of expats.
- Increase in average household purchasing power along with increasing GDP per capita between 2011-2015.
- Decreasing unemployment rate over the period of 2011-2015.
- Growing number of High-Net-Worth individuals in the UAE including both locals and expats. The following figure gives a snapshot of how private wealth is increasing in the UAE:
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