Markaz, in the Private Banking Middle East Conference in Dubai

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Markaz, in the Private Banking Middle East Conference in Dubai 21 - Nov - 2006

Markaz announced that Middle East High Net worth clients face some unique challenges like wealth concentration and home bias. Are private bankers adequately geared to address these special concerns? This and other issues will were the highlights of a presentation by Mr. Manaf Al-Hajeri, General Manager of Kuwait Financial Center (“Markaz”) in the Private Banking Middle East conference that was held in Dubai (20th to 21st November). One of the most stylized facts in international finance is that investors overweight domestic securities in their portfolio investment due to psychological comfort of information advantage. Home bias was observed in a recent research done by Markaz on GCC equity funds. Mr. Manaf argues that home bias exists even with private clients in their asset allocation. Post 9/11, he believes that home bias must have increased in the Middle East (ME). Post-Saddam, home bias can definitely be noticed in Kuwait through increased inward investments by Kuwaitis. Such bias in investments brings us to another related issue i.e., Concentration risk. While diversification reduces portfolio risk, this does not work in the case of HNWI’s, who typically have concentrated portfolios. For majority of billionaires, their wealth is concentrated in directly owned or controlled business. However, they do have substantial liquid wealth that is being managed on a stand-alone basis. Even though advisors/private banks have priory knowledge of extent of concentrated holdings by their clients, they typically tend to structure investment policies or asset allocation for the liquid portion as if it is a stand-alone structure. Clients may want to keep their concentrated positions for strategic reasons. Regardless of reasons, concentrated positions typically erode future wealth generation opportunity. Hence, there is a need to manage this risk through reducing the holdings gradually over a period of time, portfolio risk approach, partnership Funds, borrowing, etc. As we are aware, asset class choices are very limited in ME relative to other parts of the world. This is especially true for alternative investments, towards which international HNWI’s are veering more often. HNWI’s may require cost-efficient asset allocation solution that takes care of special situations like home bias and concentration risk. Private banks, whether Swiss or regional, should take note of the following: HNWI’s are getting sophisticated. Selling in-house products under “wealth management” may no longer cut ice. Access to products is no longer perceived as a great value proposition by clients. It is the timely advice that matters. Regional private equity is developing as an important alternative for ME clients. HNWI’s are moving more towards family office models. Private Banks that can gear up to this challenge, especially regionally present, will have a definitive edge. Asset allocation advise has to incorporate regional opportunities in good measure and will have to be qualitative and sophisticated. The conference also addressed other issues like market segmentation, risk assessment, Islamic investment opportunities, succession planning, client loyalty, etc. Markaz is a gold sponsor for the event. Kuwait Financial Centre 'Markaz', with total assets under management of over KD1.25 billion as of September 30, 2006, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd. -Ends- Photo Caption: Manaf Alhajeri, General Manager of Kuwait Financial Centre “Markaz”