DUBAI, UAE, June 14: Millionaire households owned more than half of the wealth in the Middle East and Africa in 2009, and the percentage of assets under management (AuMs) owned by the established wealthy was the highest in the region, compared to the rest of the world, according to a new study by the Boston Consulting Group (BCG).
Findings from the study appear in BCG’s tenth annual Global Wealth report, titled Regaining Lost Ground: Resurgent Markets and New Opportunities, which was released recently.
“Assets under management in the Middle East and Africa rose by 13 percent in 2009 to reach $3.9 trillion in relation to $3.5 trillion in 2008. This development comes at the heels of a dip of 9 percent in 2008 in relation to 2007, when the assets under management were close to $3.8 trillion”, said Dr Sven-Olaf Vathje, Partner & Managing Director at BCG Middle East.
According to the study, Kuwait stood fourth in a world ranking of concentration of millionaire households (8.4). Qatar stood fifth (7.4) and the United Arab Emirates stood at sixth position (6.2).
In terms of asset classes, the biggest proportion of the wealth of Middle East and African households was held in cash and deposits (54 percent) followed by equities (25 percent) and bonds (21 percent) in 2009.
Cumulatively, the Middle East and Africa had a revenue pool of about $10 billion in 2009. A good portion of these revenues accrue in offshore financial centers, where roughly a third of Middle East and African wealth is booked. Switzerland and the UK (incl Channel Islands) are the most important offshore hubs, capturing more than 80 percent of offshore wealth.
“The GCC countries contribute almost half of the Middle East and African wealth. From a global perspective, the high concentration of wealth, the cash heaviness of portfolios, and a high share of offshore wealth - up to 45 percent in Kuwait - are almost unique features”, explains Vathje.
Trends in Global Wealth
Global wealth staged a remarkable comeback in 2009, increasing by 11.5 percent to $111.5 trillion, just short of the year-end peak set in 2007.
n North America posted the largest absolute gain in wealth at $4.6 trillion (15 percent), but the largest percentage gain — and the second largest in absolute terms — occurred in Asia-Pacific (excluding Japan), where wealth increased by 22 percent, or $3.1 trillion. That was nearly double the global rate.
n Latin America had the second-highest growth rate at 16 percent.
n Europe remained the wealthiest region. Its $37.1 trillion in AuM represented one-third of the world’s wealth. It was one of several regions where wealth surpassed its pre-crisis year-end peak.
n North America and Japan were the only regions where wealth remained below the year-end 2007 levels.
n North America accounted for about 40 percent of the $11.5 trillion increase in global wealth in 2009. Its wealth increased to $35.1 trillion.
Global wealth also became slightly more concentrated as it grew. Less than 1 percent of all households were millionaires, but they owned about 38 percent of the world’s wealth, up from about 36 percent in 2008.
n The number of millionaire households rose by about 14 percent in 2009, to 11.2 million — about where it stood at the end of 2007.
n The United States had by far the most millionaire households (4.7 million) followed by Japan, China, the United Kingdom, and Germany.
n Singapore saw the highest growth in millionaire households, up 35 percent, followed by 33 percent for Malaysia, 32 percent for Slovakia, and 31 percent for China.
Benchmarking Reveals a Slide in Performance
 “The recovery in global wealth — which virtually offset the 10 percent plunge in global AuM in 2008 — was driven by resurgent financial markets and increased savings. But the rebound in wealth should not be seen as a return to business as usual — client trust and wealth manager performance are still lower than they were before the global economic crisis”, says Douglas Beal, Partner & Managing Director at BCG Middle East.
To gauge the performance of wealth managers, BCG gathered data from 114 wealth-management institutions worldwide. The survey found that the industry slipped in 2009.
n Although participants’ AuM increased by an average of 14.3 percent in 2009, their revenues declined by an average of 7.3 percent, while their average revenue margin — measured by the return on assets (ROA) — fell by 12 basis points to 83 basis points.
n The average costs of participants declined by 3.2 percent in 2009, but it was not enough to offset the fall in revenues. As a result, the average cost-to-income ratio increased to 74.4 percent, up from 72.3 percent in 2008.
n As revenues fell and cost-to-income ratios rose, the average profitability of participants slid to 22 basis points in 2009 from 27 basis points in 2008.
“A host of factors contributed to the global decline in performance, including a drop in transactions, tougher price negotiations, and a migration of assets to lower-margin products”, explains Beal.
Vathje adds: “In the Middle East and Africa, many banks experienced a margin compression on deposits of wealthy households, driven by a strong competition for liquidity.
Wealth managers also suffered from the traditionally low portfolio share of risky assets and of managed products, compressing margins further. “
The Outlook for Wealth Managers
Looking ahead, BCG says that the pressures on growth and profitability will continue. To capitalize on the momentum of the nascent and somewhat fragile recovery, wealth managers need to improve their revenue margins and risk-management functions while making a concerted effort to attract and retain investors. Attention to fundamentals, rather than the supposed buoyancy of rising wealth, will ultimately set the best wealth managers apart from the crowd.
In addition, since more than a quarter of global AuM is controlled by women, wealth   managers are also advised to understand and address the customised needs of female  clients. In the Middle East, women are estimated to control more than 20 percent of  total AuM, amounting to close to $0.7 trillion. “Women often have a different risk  appetite, and both their investment objectives and service expectations are different  from men. Wealth managers that address the specific requirements of female investors may tap into a growing and loyal new client segment”, says Vathje. 
About The Boston Consulting Group 
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. BCG works with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and help grow profit and value. BCG’s customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 69 offices in 40  countries. 
BCG serves the Middle East from Abu Dhabi and Dubai. Our offices there play a key role in serving clients in the rapidly developing Gulf region as well as Middle East North Africa (MENA). To date BCG has successfully conducted assignments in the Middle East serving clients across a wide range of sectors, including government, financial services, energy, industrial goods, telecommunications, real estate and healthcare.