Wealth of GCC high net worth individuals set to grow to $3.8 trillion by 2012 despite tougher markets (page 1 of 2)

In its report published today, The Future of Private Banking - A Wealth of Opportunity, Oliver Wyman has found that the bull run in stock markets and unprecedented wealth creation has driven a rapid 11% year-on-year growth in HNWI assets globally.

However, due to a tougher market environment, annual growth is expected to slow to 9% over the next five years.

Stefan Jaecklin, Partner and Head of the Wealth and Asset Management Practice at Oliver Wyman said:

"The combination of increased competition and more difficult market conditions has marked the beginning of a more challenging era for the global private banking industry. We expect growth rates to vary significantly by region, with the Middle East and Asia Pacific - except Japan - leading the pack. The strength of these emerging markets combined with the changing global environment will provide new opportunities for well-differentiated and increasingly global players to build a distinctive brand".

Oliver Wyman's analysis shows that an estimated 16% of HNWI wealth globally
was held offshore in 2007 (for the Middle East, we estimate 52% of HNW+ money to be held offshore).. However, this is countered by a strong trend amongst the GCC's richest to repatriate wealth and invest in regional assets. For a market that was historically served offshore, players are now having to hire teams to service clients onshore, with many foreign wealth management firms also increasing their coverage of the Middle East.

The report also highlighted that international regulatory pressure on tax avoidance will continue to increase, with the share of tax-driven offshore banking set to decline in coming years. A sustained trend towards "onshoring" of financial assets and tax-transparent offshore banking is likely to lead to a change in strategy both for private banks and for offshore centres themselves.

The scarcity of talent - skilled and experienced client relationship managers - is also a challenge in the Middle East, with dedicated on-the-ground coverage teams needed for billionaire families and top UHNWIs.

"In this region, the critical factor is no longer finding clients - millionaires are increasing quickly - but rather finding the skilled and experienced relationship managers to work in the market. A good client relationship manager is absolutely key for winning and retaining clients, especially in the Middle East which is highly relationship driven," said Mr Jaecklin.

As the global market environment gets tougher, Oliver Wyman expects that some of the strategic decisions taken by private banks will come under increasing scrutiny.

Decisions relating to geographic footprint, the choice of distribution model and the choice of corporate structure will become much more important.

Within distribution models, Oliver Wyman has found that client relationships in the European onshore private banking model on average create three to four times more value for shareholders than those in the traditional US broker/dealer model.

Mr Jaecklin added: "Wealth managers must develop a thorough understanding of their main value levers beyond just Assets under Management (AuM) Important areas for management attention include corporate structure, risk management systems, branding and positioning."

Further report findings

- Focus on entrepreneurs - Oliver Wyman highlights the growing importance of entrepreneurs, as opposed to "old money", in the client mix.