UAE investors plan to put more money into less traditional asset classes as they seek more stable returns

• Private UAE investors plan to increase their holdings in private equity, hedge funds and derivatives in the next three years as they seek more stable return

• High net worth investors seek institutional-style products that give absolute returns*

• Fewer than half of UAE investors polled expressed confidence in their knowledge of personal finance; hedge funds and private equity are the least understood investment vehicles

A new global report published today by Barclays Wealth, entitled Barclays Wealth Insights: Risk, Return and Reward, reveals that investors with at least $100,000 in investable assets plan to put more money into alternative investments over the next three years, as they seek more absolute returns.

The report reveals a trend amongst these investors of an increasing appetite for financial products which help reduce volatility, such as derivatives, private equity and hedge funds, particularly in the Middle East and Asia. At the same time, there is a move away from equities, which suggests investors have more of an appetite for returns that are stable rather than driven by market movements.

The survey, based on a global sample of 790 respondents that includes 100 individuals from the UAE, shows that fewer of UAE's investors expect to invest in equities in the next three years (29 per cent), compared with the past three years (44 per cent). Investors also plan to cut their bond investments, with 11 per cent saying they will put money into debt in the next three years, down from 13 per cent when compared to statistics three years ago.

Conversely, more UAE investors plan to invest in hedge funds in the next three years (41 per cent), compared with the past three years (32 per cent), and in private equity funds (13 per cent, up from 7 per cent), according to the report. The UAE specific findings concur with overall global trends - with investors worldwide sharing an appetite for alternatives.

"Intuitively, absolute returns make a lot of sense and we see that more Middle Eastern investors are thinking in those terms," says Soha Nashaat, Managing Director and Head of Middle East at Barclays Wealth. "Assets like hedge funds, which are an early example of an absolute return investment, derivatives and structured financial products, can all be used to manage risk, reduce volatility and stabilise results. Shariah-compliant products are of particular interest, as they are viewed in absolute return terms as well. The region has seen huge development in the Islamic finance sector in recent years and this is rapidly filtering through to the asset management arena, where considerable product development is now taking place."

Knowledge gap

While investors in the UAE understand the importance of diversifying their assets, few have enough confidence in their financial knowledge to do this successfully, according to the report. Fewer than half of those surveyed were confident in their knowledge and understanding of key aspects of personal finance. Despite more investors saying they plan to invest in alternative investments, these vehicles were understood by the fewest people, revealing a need for more financial education and specialist advice. Only 5 per cent of respondents reported they are 'very confident' in their knowledge of hedge funds and only 12 per cent were 'very confident' in their knowledge of private equity funds.

Investors' lack of knowledge in hedge funds is explained by the leap in the number of funds and strategies on the market, according to the report there are some 10,000 hedge funds on the market globally. Assets have increased almost threefold in the past five years to $1.75 trillion, according to consultancy Hedge Fund Research.

Interestingly, the knowledge gap narrows the older and more affluent individuals are. This is because the financial sophistication of investors tends to increase with wealth, in part because they have more access to private bankers and wealth advisers.