Since the onset of the Covid-19 pandemic, the wealth management landscape has shifted across the Middle East region.
Besides demand for personalised investment solutions, clients are increasingly seeking services that will simplify management of their wealth.
Many families are now looking for investments that consider environmental, social and governance (ESG) factors. In fact, “Shifting Horizons,” an inaugural family office study by BNY Mellon Wealth Management recently revealed in countries other than the US, more than one-third (35 per cent) of family office executives feel the current generation is more focused on ESG and responsible investments, a level twice as high as in the US. (18 per cent). We are beginning to see some initial signs of interest in ESG within the Middle East.
One of the prominent trends in the investment market is the intensified focus of sustainable and impact investing, which is increasingly becoming a part of investors’ wider asset allocation. Sustainability remains at the top of the agenda in the region and ESG investment considerations have grown substantially over recent years.
Impact and responsible investing allow families to align a portion of their portfolio to investments that are ethical, sustainable and good for humanity. This generates both financial returns and positive societal impact, which supports meaningful change aligned with specific family values.
In the region, there is also an increase in the creation of formalised family office structures and governance activities. Informal structures, like ‘virtual family offices’ are evolving into more formal, staffed family office entities. The formal family office structures bring a higher level of efficiency, an increased focus on achieving a family’s goals and objectives, and a mechanism to create more formal management of the family’s wealth-related activities.
Family governance, transitioning wealth and succession planning are all facilitated by a formal family office structure.
As significant wealth goes through intergenerational transfer, the investment approach families seek is also changing. Younger generations are increasingly looking for ways to make a positive environmental impact and are looking for responsible investing strategies and advice, contributing to the sustainability of the family legacy. There is decreasing demand for product- or transaction-driven investing and increasing demand for discretionary investment management and outsourced chief investment officer (OCIO) services.
Another key trend that is emerging in the current landscape is a focus on building complex, institutional-like asset allocation models. Sophisticated asset allocation plans bring appropriate diversification to a family’s assets, and when coupled with the right investment solutions, allow families to navigate through the increasing market volatility.
As an investment manager, it is imperative to not only avoid a product focus, but to tailor investments toward the unique needs, goals and objectives of each client. In general, clients broadly diversify across asset classes and include alternative investments in their portfolios for additional diversification in non-correlated assets. A well-drafted investment policy statement defining asset allocation metrics and investment goals helps guide how to implement and manage the investments with a laser focus on each client’s unique needs and objectives.
There is an increased sophistication in how families operate in the Middle East, including master global custodian services and the effective use of leverage. Consolidated reporting, investment performance analytics and efficient management of execution are just a few of the advantages families seek when moving to a master global custodian. The ability to consolidate the leverage of assets that are being managed across multiple investment managers through one loan structure at the master global custodian account level is appealing efficiency.
Digitalisation and new technologies also continue to emerge and sweep across many sectors, and the wealth management industry is no exception. The pandemic accelerated trends in technology and innovation, which resulted in shifts in consumer behaviour. Consumers moved toward using mobile apps and online tools, which made accessing and monitoring their banking, investing and overall wealth portfolios easier, faster and more efficient.
While the outlook for the market remains uncertain and volatile due to a number of geopolitical and public policy issues paired up against financial markets cross currents, the trends that have emerged out of the pandemic will likely continue to guide investor activity in the medium term.
Diversification, data and insights and alternative investments will be a huge factor in maintaining a solid portfolio. This includes diversifying fixed income holdings, expanding the mix of equities and adding alternative asset classes, such as private investments. Furthermore, while maintaining a solid return on investment is crucial, delivering impact and investing in funds that support the planet and society is going to remain relevant for investors in the region, which will continue to help investors build and protect their wealth.
Shadi Alnasr is a senior client strategist, Global Family Office International at BNY Mellon Wealth Management