Swiss bank hopes to tap into winners of hot Middle East economy

Swiss private bank Julius Baer says the money it manages in the Mideast may double in the next couple of years amid the region's stellar economic growth.

Swiss private banks have been raising their profile in Dubai in the past couple of years as the DIFC becomes the region’s de facto financial hub. Gianluca Colla / Bloomberg

Julius Baer, the third-largest Swiss private bank by assets under management after UBS and Credit Suisse, is betting that the Middle East’s accelerated economic growth will help it double the assets it manages for the region’s wealthy in the next couple of years.

The region is the second-fastest growing for the bank after Asia, as governments spend on infrastructure including roads, airports and sea ports ahead of major global events being hosted such as Expo 2020 in Dubai and the 2022 Fifa World Cup in Qatar.

So far, a recent dip in oil prices has not dented the prospects of GDP growth as the governments sit on massive stockpiles of cash.

“There is wealth creation here,” said Remy Bersier, a member of Julius Baer’s executive board, at the bank’s Dubai International Financial Centre (DIFC) regional headquarters. “It’s growing at a fast rate, not just in the oil and gas sector but also non-oil orientated sectors are going to grow by 5 per cent GDP. There is potential, there is business. It’s almost as fast as Asian growth.

“If you look at the forecast of the region, a lot of wealth generation will continue here with all the related activities around Expo 2020, the Fifa World Cup in the region but you still have a lot of wealth creation in countries like Kuwait, Oman and Saudi Arabia.”

Swiss private banks have been raising their profile in Dubai in the past couple of years as the DIFC becomes the region’s de facto financial hub. The emirate has also become a safe haven amid political and economic turbulence in other emerging markets such as Russia and China, boosting the amount of cash flowing into the country into assets such as real estate and stocks.

Banks including Swissquote and La Cloche Wealth Management have opened doors at the DIFC in the past 18 months. Others such as Falcon Private Bank, the Swiss money manager owned by Abu Dhabi, are beefing up their capabilities here while closing offices in Hong Kong to focus on the super-rich in the Middle East, Africa and eastern Europe. There are about 58 private banks operating in the region, with the majority based in Dubai, according to Insight Discovery, a UAE-based consultancy.

These banks are also focusing on Dubai because the Arabian Gulf boasts some of the best-performing economies in a world struggling to boost GDP in the aftermath of the 2008 financial crisis.

According to a report on Thursday from Credit Suisse, the rise of wealth in the Arabian Gulf has outpaced global growth since 2000. In the Gulf, total wealth stood at US$1.719 trillion in 2014, up 4.75 per cent from last year, it said.

Total wealth in Saudi Arabia and UAE grew by 5 per cent, while Bahrain, Kuwait and Oman experienced 4 per cent growth from the same period last year, the bank said in a report.

That growth in recent years has come amid a rebound in regional economies triggered by increased government spending on infrastructure projects and buoyant oil prices. As a result, Gulf economies grew by more than 4 per cent last year. Julius Baer has 254 billion Swiss francs (Dh968.78bn) of assets under management, of which half comes from emerging markets, but Mr Bersier declined to say how much of that is sourced from the Middle East.

Its clients typically have at least $3m of investible assets.

Because the Middle East has often been a volatile part of the world in its recent history, with violent ups and downs and economic growth often coming with high rates of inflation, investors have regarded real estate as a safe haven investment. However, in recent years with interest rates on the US dollar close to zero, investors from the region are increasingly adding equities to their portfolios, said Mr Bersier.

“I remember my first trips to the Middle East 25 years ago, investments abroad were mainly real estate investments,” he said. “They were buying hotels or real estate in London. They were reluctant to make investments in equities in Europe where now they have entered slowly, but now you see more appetite for diversification. Private investors were reluctant. They were considering local shares to start with and shorter investments and fixed income.

“And now that fixed income return is close to zero, they have started to consider diversification. They are considering more and more the diversification into equities in the last three to five years.”

The bank is also still in acquisition mode after it bought the private banking operation of Merrill Lynch outside of the US in 2012. Mr Bersier would not be drawn into specifics, saying only that the bank had proven in the past that it could undertake acquisitions and that it would like to continue doing so. It would also continue to increase the size of its business in the region by hiring more people, he said.

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