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Lack of diversification is dangerous

September 2015

Rami Sayegh, Head of Private Banking Wealth Management, Bank of Sharjah, tells Wealth Monitor his clients have now less interests in traditional investments such as equities, bonds and mutual funds and they have started allocating more of their investments in tangible assets

Give us a brief about Bank of Sharjah’s wealth management services. What are your key value propositions?
In 2012, Bank of Sharjah and Commerzbank AG, one of the leading banks in Germany, signed a cooperation agreement to offer the best in wealth management and investment solutions to individual and corporate investors in the United Arab Emirates and the Middle East region. With our cooperation partner Commerzbank AG, we provide traditional and alternative investment opportunities tailored by a German bank, with a full access to our integrated capabilities at Bank of Sharjah. The cooperation reflects the best of both banks; the local bank flavour and client relationship offered by Bank of Sharjah and the international investment expertise and exposure of Commerzbank AG.

What types of wealth management solutions you’re providing through your partnership with Commerzbank International? How it is different from other international wealth management firms operating in the region?

We have structured our approach into Advisory Solutions and Investment Solutions which could be used separately or combined, with a trained and dedicated team, always available to ensure the highest level of personal service. The major difference to other international banks is that the client will have a banking relationship with a local Bank, Bank of Sharjah, and an exposure and access to international investment products and platform at Commerzbank. With our cooperation partner Commerzbank AG, we reflect the best of both banks, providing wide range of benefits such as: access to traditional and alternative investment opportunities tailored by a German bank in Luxembourg; exclusivity to open an offshore account in Luxembourg while managing the client relationship at Bank of Sharjah; onshore advisory service and access to all major world’s capital markets; direct access to physical and non-physical gold and other precious metal assets; attractive equity release and Lombard loans to utilise fixed assets and existing portfolio; and bespoke company structuring and succession planning.

How is the GCC wealth management industry facing up to the economic slowdown? Are wealth management firms feeling the pinch?

We are seeing less liquidity and clients are more cautious in investing. We have seen less interest in traditional investments such as equities, bonds and mutual funds where the underlying assets and financial mechanism is becoming less appealing. Clients started allocating more of their investments in tangible assets such as real estate and direct investments in industries and companies they are familiar with. The investment trend during this environment is to generate additional income from the assets of our clients. For example, structuring or granting leverage on clients’ existing assets such as real estate, gold or investment portfolio, create a new source of income for clients. We see growth in this area of business for wealth management.

A large number of Middle East investors are turning to offshore investment destinations such as Switzerland, Luxembourg, etc, for wealth management services. What according to you is the prime reason for that? Is it because local wealth management services offer plain vanilla products and there are limited investment options in the region, or for that matter local investments offer low yield on comparative basis?

The prime reasons are asset regional diversification and the benefits of Luxembourg as a booking center for Middle East Wealth:

• Politically and socially stable with a modern legal and regulatory framework.

• Strong culture of investor protection (banking privacy) and rigorous anti-money laundering policies.

• Tax efficient and one of the broadest treaty network available.

• Rated AAA by Fitch.

• First Private Banking centre in the Eurozone.

Is the investment pattern of wealthy expats v/s wealthy citizens in the region different from each other, in terms of their respective investment goals, risk appetite, etc?

Wealthy citizens look for international exposure so they can diversify from local markets exposure. They are already exposed to their region through their businesses, projects and real estate. They are interested to invest internationally but in conservative investments. Expats are interested in local investments be it in financial instruments or private equity and real estate.

How do you see real estate as an investment avenue compared with other asset classes in the region, especially given the fact that there are limited institutionalized mechanisms in the region to participate in this asset class?

Most of our clients have exposure to Real Estate in the region. It will always be the main interest for investors as it’s a tangible and common asset class. We at Bank of Sharjah do not focus on offering real estate products to our clients who are knowledgeable in this area, but we offer other asset class for asset diversification purpose.

What is the greatest investment risk in the current market scenario from a client perspective?

Lack of assets diversification is dangerous in the current economic environment. Diversification into different asset classes is recommended in addition to different sectors and regions. Reducing exposure to equities in sectors that are fundamentally expensive such as the technology and automotive sectors, building exposure in less risky assets such as precious metal will help the diversification process.

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