#39 - February 2017

ISSUE THIRTY NINE - FEBRUARY - MARCH 2017

ISSUE THIRTY NINE - FEBRUARY - MARCH 2017

The rise and fall of populism THE DEVELOPED WORLD HAS MUCH TO LEARN FROM THE DEVELOPING WORLD'S FAILED EXPERIMENTS

THE RISE AND FALL O POPULISM A CPI Financial Publication

MOTORING SETTING UP A CLASSIC CAR FUND 36 Cover 39.indd 24

LUXURY TRAVEL OMAN'S BAR AL JISSAH 46

HNWI INTERVIEW LEGENDARY ACTOR SAMUEL L. JACKSON

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CONTENTS

ISSUE THIRTY NINE - FEBRUARY - MARCH 2017

OPINION

Editor's

LETTER

Greetings, all

Welcome to the 39th issue of WEALTH Arabia. I hope you enjoy what is certainly our finest issue yet.

We’re filled this one to the brim with great stuff. HRH Prince Khaled bin Alwaleed bin Talal of KBW Investments was interviewed exclusively by us here at CPI Financial, and we also broke the story of the launch of their first Islamic fund. We’re thrilled to be able to bring you huge news from the biggest names in finance.

Beyond that, there are fascinating exclusive pieces of analysis from other global finance leaders, as well as our trademark mix of investment and lifestyle in the back half of our magazine, including a piece on how to turn your love of classic cars into an alternative investment fund. For pop culture lovers, flip to the last page for a megastar we were able to sit down with during his visit to the region.

Beyond that, there’s still much to explore. Real estate, designers, watches, and a perfect weekend away from home. I hope you enjoy it.

Till next time,

William Mullally 4

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A reason for optimism

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NEWS & ANALYSIS

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The latest analysis from the investment world

PRIVATE BANKING

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The rise and fall of populism Jersey Finance

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WEALTH MANAGEMENT

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Is bitcoin a safe haven for investors?

INVESTMENT

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So long bond bull market How to outperform in 2017 Risky business in 2017

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FUND PROFILE

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KBW launches Islamic fund

REAL ESTATE

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Hyatt Regency Creek Heights Residences

MOTORING

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The classic car fund Tesla finally lands in the Gulf

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Chairman Saleh F. Al Akrabi Chief Executive Officer ROBIN AMLÔT Managing Editor GEORGINA ENZER Chief Commercial Officer OMER HUSSAIN

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Editor, WEALTH Arabia WILLIAM MULLALLY William@cpifinancial.net Tel: +971 4 391 3718

Business Development Manager WEALTH Arabia DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 3752526

EDITORS MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716

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JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024

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Wearable art

LUXURY TRAVEL

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The perfect luxury weekend in Muscat

LUXURY PRODUCTS

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Tissot

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HNWI CHAT

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Sitting down with a Hollywood legend

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ISSUE THIRTY NINE - FEBRUARY - MARCH 2017

ISSUE THIRTY NINE - FEBRUARY - MARCH 2017

Head Office P.O. Box 502491, Dubai Media City Dubai, UAE Fax: +971 4 390 9756

The rise and fall of populism THE DEVELOPED WORLD HAS MUCH TO LEARN FROM THE DEVELOPING WORLD'S FAILED EXPERIMENTS

THE RISE AND FALL O POPULISM

WEALTH WARNING!

A CPI Financial Publication

MOTORING SETTING UP A CLASSIC CAR FUND 36

LUXURY TRAVEL OMAN'S BAR AL JISSAH 46

HNWI INTERVIEW LEGENDARY ACTOR SAMUEL L. JACKSON

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Remember, if you wish to act on any of the information you read in WEALTH Arabia, consider taking independent advice first. WEALTH Arabia is written for a general audience and the information contained herein may not be appropriate for your personal circumstances.

Don’t miss your copy of WEALTH Arabia. Subscribe now, full details at: www.wealtharabia.net and on Twitter @wealtharabia.

www.cpifinancial.net Registered at the Dubai Media City Printed by United Printing & Publishing – Abu Dhabi, UAE © 2017 CPI Financial FZ LLC All rights reserved. No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the Managing Editor.

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OPINION

A REASON FOR OPTIMISM I

t certainly depends on who you talk to, but log on to the rushing river of hot takes that is Twitter, turn on news or pick up a daily paper, and you will probably see less optimism than you’ve seen since the market crash last decade.

But the mood is largely driven by global politics, with uncertainty in how certain big moves from 2016 will play out in 2017 and beyond, and other huge moves set to take place later this year, that should have their own shockwaves.

But one person still draws from his bottomless well of optimism, Bill Gates, head of the Bill and Melinda Gates Foundation, and the world’s most famous HNWI. Even while the Middle East continues to face uncertainty due to commodity prices slumping in the last few years, Gates remains bullish on the region.

“I’m optimistic for the Middle East, and I would say a key reason is the energy of the youth, their interest in doing new things, including embracing technology.

If we look at some of the internet startups, some of the statistics about using the internet, you know a lot of these countries are right there connecting to each other and very much connecting up to the world,” said Gates.

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Innovation, which we have so often called for in this publication, will be driven by this next generation, according to Gates. The UAE and broader GCC seems to agree, signalling more and more that it will focus on sciences, leveraging the brilliance found in its country and the region beyond.

Gates echoes this trend by GCC governments. “It is great to see [them] reaching out to youth and making sure they are using the very best tools, and that is why I think despite the challenges of instability and other regional problems, I do think the Middle East—both economically and in terms of contributing to innovation in the world—will surprise people with the positive results.”

I’m inclined to agree with Gates myself. Though it’s hard to maintain optimism with so much uncertainty, there is so many young HNWI investors that I’ve met in the region who are committed to the region and in finding and investing in the true innovators in the tech space and beyond. It’s definitely not the doom and gloom that some might have you think—better days are coming to the GCC.

William Mullally

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NEWS & ANALYSIS

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omentum in Middle East equities is picking up, according to a new report from Credit Suisse.

James Stull & Dora Chan, King & Spalding Middle East

Fahd Iqbal, Head of Middle East Research at Credit Suisse

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he 2016 Fund Regulations that were enacted by the Emirates Securities and Commodities Authority impose substantial hurdles and costs for managers seeking to promote foreign funds in the UAE and have generally been subject to negative feedback, according a report by King & Spalding Middle East.

While the 2016 Regulations do provide clarity regarding the offering process for funds in the UAE, the loss of foreign fund private placement exemptions greatly increases the challenge for foreign funds that wish to fundraise in the UAE. The introduction of the reverse solicitation exemption is a positive development; however, unless the Emirates Securities and Commodities Authority issues the expected clarification and reintroduces the broader exemptions, foreign managers and issuers may reconsider the marketing of their products onshore in the UAE.�

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After a strong Q4 performance, we see near-term consolidation risks.

However, we also see further upside beyond a potential consolidation, as improving macro indicators are starting to feed through to earnings forecasts. Headwinds remain from weak job growth, fiscal austerity and (for some countries) a stronger dollar. We also see potential for geopolitical risks to increase under the Trump administration. We remain positive on the UAE and are buyers of Egypt on weakness; we take profit and downgrade Kuwait and Oman to neutral; we upgrade Saudi Arabia to neutral as it is no longer in a technical downtrend; we remain underweight on Qatar and Bahrain, though the former will likely see momentum continue in the short term.�

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The rise and fall of populism MICHAEL HASENSTAB, EXECUTIVE VICE PRESIDENT, PORTFOLIO MANAGER AND CHIEF INVESTMENT OFFICER,TEMPLETON GLOBAL MACRO, EXPLORES LATIN AMERICA’S FAILED EXPERIMENTS WITH POPULISM AND THE IMPORTANT LESSONS THOSE EXPERIENCES HAVE FOR THE DEVELOPED WORLD

POPULISM HAS BURST BACK INTO GLOBAL HEADLINES, BUT IT IS FAR FROM A NEW PHENOMENON.

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COVER INTERVIEW

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opulism has been on the rise across a wide range of countries in recent years. While populism can mean different things to different people, we use the term to describe policies that promise rapid solutions to problems, often economic in nature, without the pain that typically accompanies more orthodox prescriptions. Traditional policy advice has been to address macroeconomic imbalances using a macroeconomic toolkit consisting, but not restricted to, prudent fiscal and monetary policies, openness to trade, deregulation and a movement toward greater global economic integration.

In the aftermath of the various global crises of the past decade, these traditional remedies are becoming dangerously unfashionable. This has been especially striking in some advanced economies. It contributed to the Brexit vote, where a majority of UK voters opted to take the country out of the European Union (EU) to limit immigration and re-establish a stronger degree of national control over policies and regulations. Populist and nationalist parties have gained popularity in several other EU countries, raising uncertainty for upcoming elections in 2017.

Populist elements have also been strong and vocal in the recent US presidential election on both the Republican and Democratic sides; they have advocated a more inward-looking and interventionist economic focus as well as a more isolationist approach to global trade, with proposals to impose high import tariffs, scrap or renegotiate trade treaties, and curb immigration. Sharp criticism of the North American Free Trade Agreement and of immigration from Mexico signalled a temptation for the United States to turn its back on Latin America. This would be damaging to the US economy, and especially ironic at a time when key Latin American economies are moving in the opposite direction, turning away from populist economic policies to embrace free-market and pro-business reforms.

We have analysed the experience of Latin American countries over the last several years.

We focused mainly on three countries that had embraced populist economic policies: Argentina, Brazil and Venezuela. The former two have recently reversed course, whereas the latter has not. We think comparing their experiences holds some valuable lessons for any policymakers currently at risk of being seduced by the sirens’ song of populism.

Of course, advanced economies are in a much stronger position than the countries covered in this commentary, in terms of both macroeconomic fundamentals and institutions. However, we believe that the economic consequences of misguided policies would be qualitatively similar.

In a situation where the temptation of protectionist policies, in particular, is strong, we believe therefore that this analysis can offer some useful guidance. In addition, we underscore the potential attractiveness of investment opportunities in Argentina and Brazil and, more generally, of countries with solid, orthodox macroeconomic policies.

THE SIRENS OF POPULISM

Exhibit 1 summarises the experiences of four Latin American countries, three of which (Argentina, Brazil and Venezuela) were lured into the trap of populist policies, whereas one was not (Colombia). All of these countries were hit to varying degrees by the end of the commodity supercycle, and their ability to sustain their respective policy frameworks was tested—those that turned to populism were found wanting. Exhibit 1 below provides a snapshot of the kinds of measures deployed by the more interventionist governments. ...cont. overleaf

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COVER INTERVIEW cont. from page 11

THE DAMAGE

In all three countries that followed populist policies, such policies have brought about significantly adverse consequences: inflation rose to high levels, the economic system was severely distorted, productivity growth suffered, manipulation of the exchange rate combined with high inflation caused a significant appreciation of the real exchange rate (which undermined competitiveness), and in some cases public debt expanded rapidly.

The damage that was inflicted on these economies by the drift away from prudent macro policies is in the process of being reversed in Argentina and Brazil; the experience of Venezuela, which has refused to follow this path, speaks for itself.

Exhibit two provides a snapshot of the damage suffered by the different countries, with Colombia being the outlier in that it maintained prudent policies.

REVERSING COURSE

In Argentina, the protracted deterioration in economic conditions eventually resulted in the ouster of Cristina Kirchner

by Mauricio Macri in November 2015.

President Macri was elected on a strong economic liberalisation platform. The new Government swiftly launched a broad range of reforms, including strengthening

institutions, tightening monetary policy, fiscally consolidating, normalising FX policy, and regularising international relationships. This strong and broad-ranging reform effort represents a clear departure from the past, and sends a strong signal to international investors that the Government is strongly committed to its new economic policy course—we think the willingness to immediately tackle many of the toughest challenges is the most convincing way of establishing credibility.

In Brazil, policy correction was forced upon the former president, Dilma Rousseff, as the market increasingly denied her the financing needed to continue on her unsustainable path and her popularity ratings plummeted. The new Brazilian Government, led by President Michel Temer, has pushed forward with the first steps toward fiscal consolidation, lowering the ceiling on public spending and readying a possible reform of social security. The Government has also begun to reverse the previous micro-management of the economy so as to reduce policy-induced distortions. One of the biggest steps was to begin deregulating administered prices in 2015. Faced with rising inflation and an economy still in recession, the central bank had to strike a difficult balance in 2015; after keeping the real interest rate stable through mid-2015, it

allowed it to creep up (even while starting to reduce nominal rates) to secure a decline in inflation in 2016. A more prudent monetary policy was also manifested in a reversal of the previous credit expansion.

In Colombia, despite the lack of any serious deterioration of policies, the Government has actually taken steps to tackle the inflation that resulted from exchange rate depreciation. Monetary policy was tightened; steps have been taken to consolidate the fiscal accounts further to address any potential impact from lower revenues on the back of lower oil prices; and finally, in parallel, negotiations with the Revolutionary Armed Forces of Colombia—People’s Army (FARC-EP) were pursued to end the long conflict with the guerrilla group, further strengthening and safeguarding the democratic institutions of the country.

Venezuela’s populist policies are still in full swing at the time of this writing.

The population now faces extremely harsh conditions, with high unemployment and a severe lack of food and other basic necessities. This has triggered protests and increased the risk to social stability but has not yet resulted in political change, much less in a policy correction. Exhibit three provides a summary of policy adjustments (or lack thereof) implemented by each country.

FORGING INTO THE DECADE AHEAD

Colombia’s policymaking stands as the mirror image to Venezuela—steadfast in its rejection of populism. It is notable that Colombia, having maintained prudent macro policies, only suffered from the increase in inflation brought about by the depreciation of the exchange rate. A starker contrast is hard to draw.

In both Argentina and Brazil, there are reasons to be optimistic, although the policy correction has just begun. While it will be crucial to maintain the momentum in the coming years, in both countries the most important factor—political commitment— appears to be in place, and if the new policies are maintained, we think the benefits will be substantial.

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SOUTH AMERICA'S POPULIST MOVEMENTS MET THEIR FAIR SHARE OF TROUBLES.

By contrast, it is hard for us to feel anything but pessimistic about the outlook for Venezuela. It simultaneously has greater oil reserves than Saudi Arabia and the world’s fastest contracting economy, inflation that is estimated to be heading toward 1,000 per cent, and shortages of food and medicine that are pushing the country toward a humanitarian crisis. It is difficult to come up with a more dire set of circumstances for a country.

These examples that we have drawn from Latin America have important lessons to offer the developed world. While we are not suggesting that the United States or the various countries in Europe that are flirting with populism are at risk of travelling down some of the extreme paths, these examples do offer a cautionary tale at a time when orthodox economic policy-making is at risk of falling increasingly out of favour.

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ADVERTORIAL

Jersey: Providing Stability and Certainty for

As clients in the GCC turn to financial centres outside the region for wealth preservation and succession planning, Jersey is providing services that directly meet their needs.

GCC Clients According to the most recent Capgemini World Wealth Report, wealth among high-net-worth individuals (HNWIs) in the Middle East reached an impressive 2.3$ trillion in 2015. There are now more than 600,000 HNWIs in the GCC, who are looking to keep their assets secure, with the right succession planning in place to preserve their wealth through the generations. It is notable, however, that increasing numbers of those HNWIs are looking outside of the region to achieve these aims.

One reason behind this shift is that, as families have grown in size, their wealth management has evolved to reflect their increasingly complex and international interests. That said, it’s impossible to ignore the impact of the region’s relatively unstable geopolitical and economic picture. Earlier last year, for example, oil prices sank so low that ratings agency Moody’s reported the states of the GCC faced twin fiscal and current account deficits for the first time in a decade.

It’s no surprise then that the GCC’s wealthiest families would seek to hand the planning and management of their affairs to a first-class, stable international finance centre (IFC).

International investment carries risks as well as the rewards of safety and security, and the right wealth structuring service will be able to identify the most appropriate investment options within the context of fluctuating market and regulatory landscapes. Wealth structuring can also navigate tax and regulatory requirements and provide a secure and flexible service to protect and grow those assets.

This is where Jersey holds a strong hand. It’s a secure jurisdiction that offers a flexible approach to private wealth management, built on more than 50 years’ international expertise, delivering trusts, as well as estate and succession planning. More recently Jersey’s innovative foundations and private trust companies have proven very popular, especially among those seeking greater control over their investment assets.

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The suitability of these products is one reason why Jersey has long been a preferred jurisdiction for private wealth management clients from the GCC. Additionally, the number of family offices in the GCC region is expected to double in the next eight years, a service which Jersey has been providing to GCC families for many years. The Island also has a longstanding relationship with many intermediaries and HNWIs in the region, offering appropriate regulation and a tight-knit network of professional firms. Furthermore, Jersey offers excellent market access into both London and the EU – it’s estimated that the Island’s finance industry facilitates around 670£ billion of foreign investment flows into those markets.

Of course the western world has its share of geopolitical uncertainty at the moment too – not least the fall-out from the UK’s vote in June last year to leave the EU. Because of its location between the UK and EU, Jersey finds itself with a front-row view of the ‘Brexit’ developments. The good news for investors is that while the UK’s referendum has generated a huge amount of uncertainty for the UK itself, Jersey’s position is unlikely to be affected. As a Crown Dependency it’s neither part of the UK nor the EU. The referendum vote doesn’t affect Jersey’s long-standing constitutional relationship with the UK, nor its rights to offer its services to EU markets, which are the result of independent bilateral negotiations.

This leaves Jersey in a prime position to provide wealth management services to HNWI clients from the GCC. The Island offers stability, independence and tax-neutrality, and robust, specialised regulation that acts as a quality filter, ensuring that funds comply with international standards and regulations. Jersey has long been commended by organisations including the World Bank and the OECD for its standards of transparency, and was commended by MONEYVAL in 2016, the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, for its anti-money

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laundering measures. MONEYVAL found Jersey to have a ‘mature and sophisticated regime for tackling money laundering and the financing of terrorism’, giving the jurisdiction the highest rating of any state it assessed.

Jersey’s expertise also extends to Islamic finance. The Island’s legal system hasn’t had to change in any way in order to accommodate Sharia-compliant products, and is flexible enough to accommodate the various nuances of different schools of Islam.

Any partnership with a wealth structuring provider has to focus on the long term, keeping assets safe and allowing them to grow.

Provisions should be tailored to the investor’s needs and goals, and the practitioners have to keep up-to-speed with changes to regulatory and tax environments, enabling the wealth structuring services to evolve alongside them.

Jersey’s offering balances product innovation with high standards of regulation, world-class legislation and vast expertise from a range of seasoned professionals. As such, the Island is perfectly placed to support the complex estate planning and investment ambitions of GCC investors, as they seek not only to minimise the threats that lie in the rapidly changing global financial picture, but to capitalise on the opportunities that are, without doubt, there too.

For further information on Jersey’s world-leading private wealth management services, contact either Cormac Sheedy or Richard Nunn, Jersey Finance Business Development Directors for the GCC. E: cormac.sheedy@jerseyfinance.je E: richard.nunn@jerseyfinance.je

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Is bitcoin the new safe haven for investors?

THE DIGITAL CURRENCY CONTINUES TO EVOLVE, AND INVESTORS NEED TO PAY ATTENTION, WRITES MARK LEIGH, CEO OF XTRADE

IS IT TIME FOR SKEPTICS TO FINALLY ACCEPT BITCOIN AS THEY ACCEPT OTHER CURRENCIES?

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WEALTH MANAGEMENT

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uring 2016, bitcoin investments realised unprecedented success earning superlative returns at well over 110 per cent, overwhelmingly surpassing all other publicly traded asset classes. The total market capitalisation was valued at more than $15 billion which now exceeds the 2013 peak and is at a record valuation in relation to the pound and euro, encouraging investors to explore this unconventional savings channel especially during these times of escalating geopolitical uncertainty.

Bitcoin is a form of digital currency that is created and held electronically. No one controls it and they are not printed like dollars, euros, dirhams and riyals. They are produced by people—and businesses— running computers all around the world, using software to solve mathematical problems.

Beyond this, it is the first example of a rapidly growing category of money known as cryptocurrency and can be used to make electronic purchases and can also be traded digitally via online trading platforms, just like other currencies. What makes it unique in relation to conventional money is that it is decentralised, meaning that no single institution controls the bitcoin network.

One of the key reasons as to why investments in bitcoin surged during 2016 was nervous Chinese investors responding to arbitrary Beijing authorities, whose latest tirade is against insurers’ stock purchases and leveraged buyouts. They were also concerned about government and corporate bond selloffs, particularly at the short-end of the curve, likely reflecting Wealth Management Product redemptions as well as the tightening of capital controls of the yuan that has squeezed renminbi availability in Hong Kong, driving up the three-month yuan HIBOR rate.

In addition, Chinese investors are also concerned about the continued decline of the yuan resulting from the usual data transparency, state-inspired asset bubbles, as well as potential interest rate increases, making bitcoin an interesting investment hedge for 2017. ...cont. overleaf

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INVESTMENT

cont. from page 17

From a global perspective, the unsettling political, security and economic events of late 2016 such as the volatility of the euro has motivated the replacement of centrist leaders with populist xenophobes and manifested itself in the inability of financial institutions and governments to cope with successive crises.

Furthermore, there is evidence of inflation rising from around the world.

Price pressure is intensifying in the euro zone, with, for example, manufacturing input costs rising at a 56-month record in November. Similarly, the rise in UK businesses’ costs over the past two months has been the steepest in over five-and-ahalf years.

Investments in bitcoin are a wellpositioned response to challenge the governing elites and their ‘mainstream’

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financial system. As it is traded in cyberspace and mined by code-breaking computers, it is further gaining popularity among some investors as an alternative safe-haven primarily because it exists outside government regulations and is less subject to monetary policy.

Recently, its natural safe-haven competitor gold has staggered for reasons not central in bitcoin valuation–such as rising USD and US interest rates.

Reputable organisations are also looking to add a digital offering to their portfolio. At the end of 2016, the Royal Mint and CME Group announced a gold and blockchain ‘solution’. The two parties will collaborate on a digital gold asset called Royal Mint Gold (RMG) and will ‘transform the way traders and investors trade, execute and settle gold’.

For traders, there is still uncertainty when it comes down to the legitimacy of bitcoin. However, companies such as Tesla Motors, Virgin Galactic, Dell as well as the Pizza Guys Restaurant company in Dubai, UAE are already accepting bitcoins as a form of payment and in the future, we would most likely see more global and local companies adopt this payment method.

Will bitcoin be a safe-haven for investors? Only time will tell. However given the direction it is taking, the fast paced adoption by world renowned organisations, and the rapid shift in consumer demand to use digital forms of payments as opposed to traditional paper currency, one can certainly state that at this moment in time, it is an investment that is worth contemplating.

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Wealth

NOVEMBER 2017 p16-18_Investment.indd 19 6 Wealth House Ad 2017.indd

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BONDS SHOULD BE WATCHED CLOSELY BY INVESTORS IN 2017.

SO LONG, bond bull market

KEY DRIVERS SHAPING BOND MARKETS HAVE CHANGED. KEEPING A GLOBAL PERSPECTIVE AND KNOWING WHICH MACRO SIGNALS TO WATCH FOR CAN HELP YOU PREPARE FOR CHANGES IN BOND YIELDS, WRITES JIM CIELINSKI, GLOBAL HEAD OF FIXED INCOME, COLUMBIA THREADNEEDLE INVESTMENTS

D

uring an unprecedented period of political change across the globe, from the UK referendum on EU membership to the election of Donald Trump and the Italian Referendum, 2016

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was a year where the key drivers shaping markets irrevocably changed.

It was a year of two halves. The bond rally in the beginning of the year was bigger than expected, with deflationary pulses

continuing to hit the market, reminding investors that geo-political risk was alive and well. This led to an impressive rally where, capped off by Brexit, ten-year gilt yields rallied from two per cent at the

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INVESTMENT

beginning of the year to nearly 0.5 per cent in July, before moving back to 1.5 per cent at year-end.

In hindsight, the extra dose of postBrexit quantitative easing looks increasingly like the last hurrah for monetary policy.

The odds are high that the sell-off in the latter half of the year was an inflexion point that marked the end of the longrunning bull market in bonds, triggered by a combination of extreme over-valuations colliding with the expectation that the rules going forward will be different.

In our view, the bond bubble was likely to burst, not because of a sudden acceleration in growth or inflation, but because a change in policy would change the rules and shatter the complacency.

The world is slowly adjusting to the idea that monetary policy will transition to stimulative fiscal policy. Trump’s victory appeared an unlikely place for this trend to

start, but it has set down a marker that will be difficult to contain.

The disenfranchised middle-class has voted—negative rates and quantitative easing are inadequate ways of raising their living standards. They want a new rule book. If the current political establishment is unwilling to rewrite the rules, they will soon be voted out of office in favour of someone who will. For some time, markets have become accustomed to thinking that any disappointing data on growth and inflation would be met by lower rates or quantitative easing.

But these tools have been increasingly used as last-ditch efforts to spark economic growth. As we reach the endgame for monetary policy, there is now an acknowledgement that central banks soaking up a dwindling supply of bonds has a number of detrimental side effects. More spending and tax cuts appear to be the way forward, yet fiscal stimulus is inflationary.

This would be negative for bonds in a normal environment. Coming from a bubble-like starting point, it’s even more ominous.

With the collapse of long-dated interest rates in mid-2016, bond markets had been pricing in little inflation risk for at least the next decade. But with the rule change we expect, term premia is likely to normalise and the idea that investors should pricein permanent disinflation will fade into obscurity. In that environment, a continued sell-off in bonds is likely.

If all of Trump’s agenda becomes law, the bear market will have much further to run.

With this in mind, we believe investors should look out for three key signals that might tell us just how far bond yields might rise.

INFLATION EXPECTATIONS

If fiscal stimulus becomes the policy lever of choice, we would expect an inflationary

reaction. ‘Fiscal’ means more spending, which should boost growth as well as increasing deficits. Growth and inflation, if combined with deregulation (which we expect with a Trump presidency), spurs corporates to spend more and that can create a virtuous circle that is very bond-negative. But inflationary expectations are also a function of wage pressures and trade protectionism.

We’re at close to full employment in the US, and wage gains could start to push higher given that labour markets are tight and a high number of people that have left the workforce are not coming back. Wage pressures, along with fiscal stimulus and a more protectionist agenda (which is itself inflationary through trade tariffs and immigration), will see inflation expectations continue to rise from what are still depressed levels.

CHINA

China should be watched very closely.

Long-dated global rates reflect a decadelong series of capital outflows from China.

The central bank has purchased hundreds of billions of foreign bonds. This bondbuying programme is a function of years of over-investment in plants and equipment, which itself led to over-production and excess capacity. China’s capital outflows put immense downward pressure on global real rates and term premia.

China’s economy has been slowing. A savings glut, sluggish business investment and worries over potential devaluation in the yuan have all provided the impetus to move money offshore. But if the Chinese economy were to merely stabilise, it would provide yet another catalyst for bonds to sell off. A surprise reacceleration in China would force foreign flows to rapidly recede, leaving global government bonds without a key source of demand. Somewhat worrying is that there are some signs that this is happening, just as Donald Trump is set to enact some of his policy proposals, though this is something of a coincidence. ...cont. overleaf

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INVESTMENT

cont. from page 21

EUROPE AND GEO-POLITICS

What happens in Europe, from a geopolitical point of view, will be critical. In 2016, we have already seen the UK vote to leave the EU and the electorate reject the Italian prime minister Matteo Renzi’s referendum proposal. In 2017 we have elections in France and Germany, not to mention Article 50 being invoked.

A continued political shift to the right would imply that more populist policies will continue to be enacted. There are limits in Europe as to the scale of any tax cuts and increases in spending that can be delivered, because fiscal policy is limited by the Maastricht Treaty, which caps member state government deficits to three per cent of GDP (and public debt levels to 60 per cent). However, if populist parties who claim they will breach these rules are elected, this raises the risks surrounding the euro zone project.

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Ironically, in Europe, this is a recipe for higher rates overall, rather than lower rates.

The bond bubble is bursting. How spectacular will the sell-off be? That remains to be seen, as there are many deflationary forces still bubbling just beneath the surface, and a plethora of policy uncertainties. Trump will almost certainly succeed in getting tax cuts through and a scaled down version of his defence and infrastructure spending package passed. China is stabilising and with it comes less of a reliance on their easy monetary policy.

Capital outflows will likely diminish as the yuan reprices and the powerful force of central bank buying—either through investment or QE channels—will recede.

With respect to Europe it is very difficult to forecast, but it would be wrong to extrapolate what happened in the UK with Brexit (as well as the election of Donald

Trump and the Italian referendum).

Nonetheless, the previously unthinkable is now possible.

We believe inflation expectations will continue to rise from what are still depressed levels. The US economy is nearfull employment. Wage inflation coupled with even modest protectionism and the prolonged recovery should create elevated inflation expectations.

We envisage policy rates staying lower for some time in Europe as there is still enough uncertainty—not just geo-political risk, but also concerns over the strength of some economies in the region—for central banks to continue with a ‘lower for longer‘ policy. Rate rises are also unlikely in Japan, which leaves the US as something of a focal point. On the back of increasing wage pressures and fiscal spend, we expect rate hikes in 2017 to follow the December Fed hike. The tide has turned.

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06/02/2017 14:05 2/20/17 2:13 PM

SHIFTS CREATE OPPORTUNITIES FOR ACTIVE MANGERS AS ASSET PRICES VERY OFTEN GET MISPRICED AMID THE VOLATILITY.

How to outperform in 2017

ACTIVE INVESTMENT MANAGEMENT IN EQUITY MARKETS WILL BE KEY, WRITES HANS GOETTI, CHIEF STRATEGIST MIDDLE EAST & ASIA, BANQUE INTERNATIONALE À LUXEMBOURG 24

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PHOTO:SHUTTERSTOCK/DENPHUMI

A

s we saw in 2016 the dynamics in financial markets can change quickly and following the herd can be a dangerous investment strategy.

Those who were long risk assets and cyclical stocks at the beginning of last year were caught wrong footed as concerns over Brexit, a Chinese hard landing, sagging oil prices, and the solvency of European banks mounted.

As investors became more risk averse, defensive stocks started to rally and valuations of consumer staples, utilities

PRIVATE BANKING

and high dividend yield stocks moved into bubble territory.

In summer we saw the start of a big shift as a rotation into cyclicals and financials and out of defensive stocks and bond proxies became the dominant theme. This shift was sudden and took many investors by surprise as they got whipsawed by the change in tide.

We believe the story this year could be similar, as sudden shifts in market leadership and increased volatility are likely. The good news is that these shifts create opportunities for active mangers as asset prices very often get mispriced amid the volatility.

In our view, it is fair to expect more turbulence from a new and untested US administration as well as several elections in Europe. Equity markets will likely be more selective ideas-based than is normally the case, especially in light of the fact that a lot of good news has already been discounted in the euphoria following the Trump victory.

As for US equities the level of uncertainty surrounding what Donald Trump will or will not be able to do beyond his flurry of executive orders over the past week, leads us to believe that identifying investment themes that transcend hope and faith regardless of what policies will emerge from the White House or Congress will be key to outperformance this year.

LATE CYCLE SIGNS The first thing we should recognise is that the economic and market cycle is in a very mature stage. The economic expansion started almost eight years ago and up to now has lasted 50 per cent longer that the average cycle. This is not to say that a recession is around the corner, but we are seeing some classic characteristics of a late-cycle market and business cycle, such as an increase in mergers & acquisitions activity.

In addition, the drive for deregulation and corporate tax reform should give a boost to profits which should lead to an increase in capital spending, another late

cycle phenomena. There is a good chance for a shift that could persist throughout the year where companies that previously were rewarded for spending their cash flows on dividend payouts and share buybacks will now be facing a shareholder base applying more of a premium on businesses that divert more of their earnings towards capital spending.

INVESTMENT OPPORTUNITIES While financials have emerged as market leaders since the US election there are still opportunities in this space as US banks get further re-rated for less regulation and the benefits of higher short-term interest rates as the Fed continues to tighten policy.

Energy is a growing area of focus as price of oil is holding above $50 per barrel as the world is moving towards a balance of demand and supply for crude.

The consequence is a widening in profit margins for energy companies given the substantial cost reductions in the industry during the past three turbulent years.

Outside the US we are seeing opportunities in Japan amid signs of emerging domestic demand growth, the benefits of continued yen weakness and attractive equity valuations.

In summary we expect 2017 to be a very challenging year with higher volatility ahead. This will create investment opportunities in specific sectors and special situations.

In addition to higher volatility, we can also expect a flatter yield curve thanks to continued Fed tightening. We focus on sectors that outperform in a late economic and market cycle, prefer value over growth strategies with emphasis on valuations that are compelling in an overall market that is trading at the most expensive PE multiple in 15 years.

This year will be about special situations beneath the surface of the major averages. Active investment management will surpass passive management and money will likely be made based on classic value investing that focuses more on company fundaments rather than Trumponomics.

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Risky business in 2017 INVESTORS SHOULD BE KEEPING ABREAST OF RISKS TO THE PORTFOLIO THIS YEAR, WRITES VIKAS SENGPUTA, CHIEF INVESTMENT OFFICER AT GUARDIAN WEALTH MANAGEMENT UAE

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ot many things in the financial world are certain but investors can be sure of one thing—the

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landscape will be unpredictable and likely volatile in 2017. Events from last year have meant a shift in the way people are

investing and it is important for the UAE investor to keep up with the times and diversify accordingly.

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PHOTO:SHUTTERSTOCK/ SNEHIT

DIDN’T ANYONE EVER TELL YOU NOT TO LOOK DOWN?

Already, global bond yields have bottomed-fixed income is falling and interest rates are going up, meaning people who took advantage earlier and bought low are now selling. This implies that credit and inflation-linked bonds will also be preferred over government bonds this year, partly because long-term US Treasuries are expected to post negative returns, with lots of volatility. These government bonds had not anticipated the sharp rise in inflation and interest rates that the US will see in 2017 and in the years ahead. Additionally, investors will prefer shorter-duration bonds that are less

INVESTMENT

sensitive to rising rates. These short-term bond yields are a lot easier to handle and give good returns. For the MENA investor, this means that traditional diversification and asset allocation of portfolios will be challenged. With oil prices going up, investors will be more attracted to equities within the GCC. Finally, gold prices are expected to remain low or fall further as interest rates in the US are predicted to be in an uptrend.

In worldwide markets, political uncertainty will continue to effect currencies in 2017. There is more negativity surrounding the pound, particularly after the Supreme Court’s ruling that Article 50 cannot be triggered without being approved by parliament— sending Theresa May’s timeline into chaos.

The UK’s central bank would prefer the British pound to fall because it is helping inflation and avoiding quantitative easing, plus a low pound is attracting international investments resulting in more UK production and more tourism. For expats in the GCC earning in dollar-pegged currencies, this means more amounts to put into UK assets.

Additionally, there are elections in both France and Germany this year. Germany is the fourth largest economy in the world and France is the sixth largest, meaning this will undoubtedly have a ripple effect on the rest of the world. Elections and financial policies favoured by the public vote will be considered a referendum on the euro currency and the interest of the people in those countries wanting to stay in the European Union. The results could have a potential domino effect to the rest of Europe meaning an uncertain future for the EU. Instability in Europe is going to put some downward pressure on the euro currency but quite noticeably against the safe-haven USD. Russia is also expected to come back from a Russian financial crisis it has been enduring for the past two to three years.

China’s currency could be responsible for a major global risk in 2017. Rising global interest rates and a stronger USD are leading to capital outflows and a drain

on the foreign exchange reserves, pushing the yuan lower. It will also continue its objective of stabilising growth and its hunger for buying commodities. All through these past few years of economic crises, China has always continued to see its GDP grow and kept purchasing commodities. This poses a credit bubble risk, caused by hefty lending to stateowned enterprises and local governments in China.

Yet trumping all of this is—well you guessed it—Trump. Mostly because there is uncertainty over his policies, however if his inaugural address and first week in office is anything to go by, he is set on his protectionist agenda, which is making some investors nervous. If his promise to be more domestically-focused is upheld, then this will likely lead to US-led reflation; increasing employment, employee wages, and helping the country’s GDP grow faster in 2017. The strengthening USDis good news for GCC countries with the peg, not least because of the strong currency, but because previous fears of changing the dollar-peg have been relieved by rising oil prices.

The deal by OPEC late last year to cut the output of oil supply from its members by 1.2 million barrels a day, has pushed up the floor of oil prices after two years of depressed rates. In the GCC this means less pressure on job cuts amongst companies impacted by oil, plus some of the infrastructure ideas that the local governments had put on hold can now be looked at, contributing to economic expansion. The news that some non-OPEC members such as Russia would also be cutting supply would have cemented a positive outlook for the oil economy this year, however the US has been resistant and it will be interesting to see how they and in particular, their gas-suppliers, will react to this in 2017.

The key to mitigating any risks to the portfolio is diversification and of course, not to panic and make irrational decisions.

Keep in regular touch with the CFO’s and remember it is often time in the market, rather than timing the market.

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INVESTMENT

KBW launches Islamic fund

IN AN EXCLUSIVE INTERVIEW, HRH PRINCE KHALED BIN ALWALEED BIN TALAL REVEALS THE FULL STORY BEHIND HIS INVESTMENT FIRM’S JUMP INTO THE SHARI’AH SPACE

Dubai Technology and Media Free Zone Authority

ISSUE 101

ISSUE 101 KBW LAUNCHES ISLAMIC FUND An exclusive with HRH Prince Khaled bin Alwaleed bin Talal

This interview first appeared as the cover story of Islamic Business & Finance: Issue 101.

KBW LAUNCHES ISLAMIC FUND AN EXCLUSIVE WITH HRH PRINCE KHALED BIN ALWALEED BIN TALAL

A CPI Financial Publication

PLUS:

TAKAFUL:

Takaful in Indonesia

SUKUK:

DUBAI:

Metito’s experience DIEDC’s updated in Africa strategy

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15/02/2017 14:45

Tell me about the history of KBW Investments.

I founded KBW Investments four years ago with the idea that it would act as the vehicle for most of my corporate investment activities, and that it would later act as the holding company or ‘parent’ company for entities that would work well in the Group’s overall portfolio.

KBW’s Group CEO Ahmed Alkhoshaibi proposed that we begin with investing in manufacturing via acquisition, and from there we began developing the schema that the Group follows until the present day.

In mid-January we launched our newest company, ARADA, in partnership with Basma Group and we’ll be announcing ARADA’s first development project shortly. Outside of KBW Investments,

I have my private investment activities in an angel capacity, and I’ve also solely founded KBW Ventures.

When did you start considering getting into the Shari’ahcompliant investment space? What interested you?

Crestmount Capital is KBW’s first movement in the Shari’ah-compliant investment space. I find the opportunities in Islamic finance interesting–there’s a lot to discover both professionally and personally. On a professional front, I found the fairness of it most appealing.

The extensive work that we’ve done in preparation of launching Crestmount Capital with Amanie Advisors has been really educational. Everything from the

issuances of Fatwas for funds and other Islamic financial instruments, to the process behind Shari’ah-compliance assessment to the recommendations on best practices—it was an exciting arena for me to be in as there was a learning curve in terms of processes and procedures; it was pretty much a new frontier altogether for our business.

From a personal perspective, it’s also about meeting new investors who I previously had no interaction with in a business respect.

Even the entities that we went with to help us hone our specialisation in best-in-class Islamic ...cont. overleaf

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HRH PRINCE KHALED BIN ALWALEED BIN TALAL, ONE OF THE MOST RESPECTED INVESTORS IN SAUDI ARABIA.

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INVESTMENT cont. from page 29

finance were different than who we typically work with. Crestmount Capital’s development, launch and successful execution served to really expand my knowledge base, and at the same time really hooked me on Islamic investing potential.

How did you settle upon this particular plan?

We decided to move forward on Islamic financial instruments when formulating plans on how best to diversify the KBW Investments portfolio. We already work in what is considered the more ‘mainstream’ investment arenas, so this gave us an additional value-added facet while providing a fresh avenue for overall company growth, diversification, and expansion. We decided on Crestmount Capital as the vehicle for our new Shari’ah-compliant investment fund so that it could operate as a standalone entity with autonomy, and simultaneously be fully in-line with the specific principles and needs of Islamic finance. Crestmount’s Shari’ah Supervisory Board, all of whom are renowned scholars across various disciplines in Islamic economics and finance, are the widely-acknowledged architects of the actual Islamic financial structures. We feel that having such strong figures vetting Crestmount operations and instruments is key, and to successfully go that route we needed to have a full enterprise dedicated solely to it.

Tell me more about PietyTHP Developments.

PietyTHP Developments is based in Australia, and will be delivering the projects that Crestmount Fund I will be investing in. The projects targeted for the capital are new high density, residential developments developed by Piety Investments, the largest Shari’ah compliant developer outside of the GCC and Asia. PietyTHP Developments is a joint venture between Piety and the property arm of Lembaga Tabung Haji of Malaysia. Lembaga Tabung Haji, Malaysia’s largest Islamic fund manager, has more than 50 years of experience in deposits, Hajj services and operations, and investments.

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What work went into setting it up?

To launch Crestmount, first we had to justify launching Crestmount. That meant some heavy research into whether or not it was viable, sustainable, and worthwhile. After the initial research was undertaken and that we were sure we could clear the barriers to entry and add value, we became confident market-wise.

We then began to look into respective fund structures and what avenues best suited our existing knowledge base and access levels. Once we had a working model, we went into deep legal and financial preparations, and sought out Amanie Advisors based on their extensive industry recommendations and demonstrated delivery with both theoretical and practical experience.

Tell me more about the Fund itself. How is it structured, and what kind of returns can investors expect?

Crestmount Fund I, a closed-ended Shari’ah-compliant real estate private equity fund, is structured as a Cayman Islands entity. It will fund five identified under-development residential projects in Sydney, Australia, through Shari'ahcompliant commodity Murabahah agreements. Crestmount Fund I is expected to generate a return ranging between 15-20 per cent per annum. In terms of the company parameters, and the Fund itself, every base was analysed to ensure that we had our investors’ best interests at the forefront of our value proposition.

We’ve engaged KPMG as Crestmount’s auditors, given their respected stance in the Islamic financial marketplace, to ensure full transparency and detailed externallygenerated overviews. Out of the ‘Big Four’, we felt that KPMG would be the most suitable for our present needs, and that they would see to Crestmount’s business meticulously. Legally, we’ve taken extra steps by bringing King & Spalding on board to assist us with the overall structure—this was one of the best decisions we’ve made thus far as it really helped us hone our position. We also engaged an additional firm, King & Wood Mallesons, to help us

HRH PRINCE KHALED BIN ALWALEED BIN TALAL

shape and define our structure as a best-fit scenario within Australian legal framework as Fund I’s capital is deployed in that market. We’ve opted for heavy-hitters across the board for Crestmount, as we’re in this for the long-term.

How has the market responded to the fund thus far?

We were very comfortable going to market and privately circulating Crestmount Fund I. The response was a very quick and simple confirmation of our initial findings: there is interest in Islamic investment instruments so long as the Fund itself looks to deliver on its promises and at an advantageous rate within a better-than-average turnaround time. We’re very happy with this early success, but we’ll be taking our time before we take on a second leg—we won’t be rushing. With Fund I, we were able to deploy the capital into a project that was

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Are you certain to have more Islamic activities in the future? What ‘consistent milestones’ are you aiming to hit?

We launched a full company dedicated to pursuing our ambitions in the Islamic finance arena. Crestmount Fund I was a great experience, and gives us a good platform to build on. We’d like to continue to source the right opportunities matched with the right investors.

isn’t. I think in investment circles an echo chamber exists—the type of investors you end up interacting with are based on the types of investments you make. So, if you’re into a certain type of fund or a certain investment class, you typically meet those who echo your existing interests. Through launching Crestmount, and subsequently Crestmount Fund I, we were exposed to a different set of market players and market influencers. We learned a great deal about Islamic financial hubs, and when and how the deal flow itself is actually occurring.

What did you learn about the Islamic investment space through the process of setting up this fund?

A salient takeaway is that not only is the appetite for Islamic investment opportunities strong, it’s much more pervasive than we first thought. Initially, the idea was floated that it was a ‘niche’ which it

What have you found to be the main benefits of the Shari’ah-compliant structure?

The main benefit to participating in the Islamic financial marketplace is the fairness and ethics involved, in my opinion. By not investing in prohibited areas, you aren’t contributing to potential pitfalls in society—that’s always a plus. Is it a benefit?

secure and promised good results that more than satisfied our investors.

Sure, you’re able to put your money into businesses that still turn a profit while remaining aligned with your own personal moral compass; that, to me, is a win-win situation from both commercial and ethical perspectives depending on what value system you choose to adopt.

How great are the opportunities for Islamic finance and investment, in your view?

In my opinion, the activity is really very attractive and the potential for growth is limitless. We are committed to Crestmount for the long-term, and we have gone the extra mile to work with the strongest and most relevant entities across industries to ensure that it made a surefooted market entry, together with a stable future roadmap.

If we thought there was a ceiling to where Crestmount could go and what it could do, we wouldn’t have created a standalone company with its own structure and resources.

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REAL ESTATE

Hyatt Regency Creek Heights Residences WASL ASSET MANAGEMENT GROUP’S VISION OF MODERN RESIDENTIAL LIVING

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asl Asset Management Group, one of the largest real estate management companies in Dubai, has made a successful foray into Dubai’s competitive freehold real estate

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sector, with its luxury Hyatt Regency Creek Heights Residences. The Creek Heights project is the culmination of wasl’s three decades of experience in the construction, development and management of hotel

and leisure property, and is also the fruit of its close partnership with Hyatt, the renowned global hospitality company.

Creek Heights has attracted healthy interest since its launch, with its prime

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HYATT REGENCY CREEK HEIGHTS HOTEL & RESIDENCES

location, cutting-edge design, stateof-the-art facilities and freehold status serving as major attractions for investors and buyers. All units released in phase 1 are now sold-out, while

further units are being offered for both sale and leasing.

The ambitious development covers a total land area of 180,000 square feet and a built up area of 2.2 million square feet,

comprising two towers that are home to luxury furnished apartments and a fivestar Hyatt Regency Dubai Creek Heights hotel. It is strategically situated at the heart of the city in Dubai Creek–a location that ...cont. overleaf

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REAL ESTATE

MASTER BEDROOM OF A TWO BEDROOM APARTMENT

HUE TERRACE (34TH FLOOR)

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HOTEL LOBBY LOUNGE

cont. from page 33

offers a unique contrast between the towering Burj Khalifa and modern Downtown area. Residents and hotel guests can journey between the oldest and newest areas of the city within 10 minutes, while also benefiting from easy access to the scenic Creek Park and Dubai International airport. It is an ideal home for Dubai’s cosmopolitan, multi-cultural population.

The 43-floor Hyatt Regency Dubai Creek Heights Residences

tower consists of 405 luxury units, including elegant studios, one, two and three-bedroom apartments, and super luxury penthouses. Each unit has been immaculately crafted and designed with modern luxury in mind, incorporating striking architectural features, interior engravings, bespoke furnishings, topof-the-range fixtures and tasteful dĂŠcor.

Practical concerns are also addressed, with each unit assigned its own basement parking bay. Down to the carefully chosen

cutlery, each apartment offers a highly stylish vision of residential living.

Residents may use the luxury facilities of the five-star Hyatt Regency Dubai Creek Heights hotel, including six dining venues and NYSA Spa & Club.

In addition to offering luxury and comfort of services provided by Hyatt Regency Dubai Creek Heights Hotel, the development offers buyers the benefit of purchasing fullyfurnished properties.

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THE BIRTH OF THE CLASSIC CAR FUND Far from being just a hobby for the HNWI, classic car collecting has turned into an alternative asset class all its own, writes Bobby Rahkit, CEO and Founder, Inside Consulting Partners

H

istorically, a Classic Car Fund could be quantified as someone’s private collection. Over the past fifteen years we have seen a significant evolution in classic cars, which have deservedly become a separate investment asset class. By any standards, classic cars have outperformed both conventional and alternative assets by a meaningful margin.

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This begs the question—why in a world of dynamic entrepreneurs and investors, hasn’t a portfolio of rare and historic cars been assembled and unitised for yield hungry investors? Surely this would be the ultimate ‘investment of passion’, the trophy investment product every leading investment house would want in their product tool bag to differentiate

themselves and take something new to their clients.

To understand the absence of a fund product in the global investor product space, we need to look into the nature of the classic car as a quantifiable asset class and strip away the passion that surrounds these rare automotive artefacts to look at the underlying characteristics of the

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2003 ENZO FERRARI ONE OF 399 MADE – ORIGINAL LIST PRICE GBP 400,000 WHEN NEW, VALUE TODAY GBP 2,750,000.00

SOURCE: KNIGHT FRANK

...cont. overleaf

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1964 ASTON MARTIN DB5 VALUE 2005 VALUE GBP 235,000 2017 VALUE GBP 895,000

cont. from page 37

product itself. A more objective assessment will reveal the challenges of structuring the elusive car fund product.

The first characteristic of a classic car or even a modern car is that, unlike equities and even alternatives such as gold, cars attract a customs tariff and vehicle registration duties as they pass from one jurisdiction to another.

For example, a rare car bought in the US, an Enzo Ferrari destined to be placed into a fund product in the UK, attracts not only 10 per cent CCT (Common Customs Tariff) as it enters the EU but also 20 per cent VAT. That is 30 per cent in potential upside yield immediately paid away to the UK Tax Authority, HMRC, before you even account for any appreciation in value.

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Secondly, it is difficult to quantify how you would quantify and measure the performance of your fund against other investments. The appreciation in value is hypothetical as it is worth only what someone will pay for the underlying assets as there is no market maker or exchangetraded solution you can use to assess the performance of your investments.

Liquidity becomes a third challenge.

Once you have assembled your choice selection of the rarest and most desirable cars with a view to their appreciation in value, over, say, a five-year closed ended period, how do you overcome the obstacle of the fees required to administer the portfolio? On top of the management fees

there are custodial fees which are quite high; storage, maintenance, insurance etc. As a result, the structure and liquidity of a classic car fund is not suited to the conventional fund product as there is no mechanism to cover running costs.

So is the classic car fund a thing of myth and legend? We believe not. The market has evolved over the last ten years and there are ways and means to overcome these obstacles.

Firstly, if we look at jurisdictional issues and tariffs, there are locations for such a product which by their very nature will be flexible and proactive in supporting this type of asset class. The British Channel Islands are a case in point.

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MOTORING

1958 PORSCHE 356 SPEEDSTER VALUE 2007 GBP 90,000 VALUE 2017 GBP 400,000

On the door step of the EU but not part of it, Jersey for example is effectively at the heart of Europe where many of these classic cars are traded, but in the example of tariffs outlined above, no taxes would in fact apply. Choosing the correct stable and dynamic jurisdictional environment for the location of the product is key.

Secondly, the development of robust performance metrics will also aid the development of these funds. The Historic Automobile Group International, founded

by Dietrich Hatlapa, a former investment banker and Hardeep Sohanpal, an expert on Hedge Fund publications and reporting, is regarded as the de facto measure for the performance of classic cars.

Finally, liquidity is also an important part of the process. In our opinion, it provides a significant opportunity.

Investment-grade classic cars are rarefied beasts, often with an entry level cost of $500,000 and above, as a minimum.

Often fragile and restored to concours condition, they are not really cars ready for road use. Yes, they are still cars and there are myriad events which now support their ownership. The Goodwood Revival, Le Mans Historique, Monte Carlo Classic, Mille Miglia are just a few of events where these cars can be shown, campaigned and presented to the public at large to admire. But that said, below this investment grade strata there is a whole world of, shall we say, ‘commodity’ classics. They are also slowly but consistently growing in value and for which there is an almost inexhaustible demand from enthusiasts all over the world.

To set up a fund you will by necessity have to put all the resources in place to store the cars safely and securely. It is therefore not a step too far to evolve your fund offering across two tiers of

operation, split 70/30 in terms of funds allocated. There would be a buy-to-hold strategy where you would seek out the ‘best of the best’ high-end collector’s cars on behalf of the investors, which would be safely stored away in your tax-neutral bonded warehouse, with a showroom at the front.

The second tier would be a buy-totrade strategy. Here, you would use 30 per cent of your allocated funds to buy and sell some of the best commodity classic cars for which there is an insatiable demand. This would generate the upside alpha and easily create a revenue stream to cover the costs of administering the investment product.

Imagine as a fund investor, also actually owning one of the most exclusive classic car showrooms in the world. Tie in some form of participation with investors and you have a product that would have significant appeal.

As a result, we saw this opportunity and together with Le Riche Automobiles have developed an investable product that is currently being used by a number of family offices in the Middle East.

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MOTORING

TESLA FINALLY LANDS IN THE GULF

LEFT: THE MODEL X, THE SPORT UTILITY VEHICLE, SHOULD PROVE TO BE POPULAR WITH GCC DRIVERS. RIGHT: THE MODEL S, THE CHEAPER OF THE TWO MODELS, AVAILABLE SOON IN THE UAE.

Prices start from AED 275,000 for Model S and AED 344,000 for Model X

T

esla has quickly turned the electric car from a dirty word in the motoring world to one of the most desired in the world. Thanks to the vision of founder Elon Musk, Tesla has proved that a car can be both true luxury and technologically innovative, as highend motoring finally zooms out of the 20th century.

Until now, Tesla has been a motoring story that hasn’t been more than a tale of fairway lands in the GCC.

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Though some HNWIs have been rumoured to have imported their own from the US, it wasn’t possible to buy one properly in the UAE and beyond.

That is, until now. In February, Tesla announced it will be taking online orders for Model S and Model X in the UAE. Customers in the UAE can now visit the online design studio to customise and order the Tesla vehicle that best suits their lifestyle. First orders of Model S

and Model X vehicles are expected to be delivered in Dubai this summer, according to a statement from Tesla.

The launch of the UAE’s dedicated online platform will be supported by a popup store in The Dubai Mall, Tesla Ranger service and a service centre, which is now under construction near Interchange Two of Sheikh Zayed Road and set to open in July. The store will provide an opportunity for customers to experience Tesla and learn about the benefits of Tesla ownership.

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In addition to Dubai, Tesla will open a store and service centre in Abu Dhabi next year.

“Tesla has designed the most sophisticated electric vehicle charging network in the world, the Supercharger and Destination charging network, so owners can travel wherever and whenever they want,” said the statement, To support that claim, Tesla has opened two Supercharging locations at The Last Exit in Jebel Ali and in Masdar City, allowing drivers to recharge their vehicles in minutes rather than hours. By the end of 2017, Tesla will open five additional

Supercharger locations, enabling long distance travel across every route into and out of the country.

Some of the infrastructure needed for Tesla is available now. The UAE is already home to a number of Tesla’s Destination chargers, which are available at 26 locations across the UAE, including hotels and shopping malls. Tesla will add more than 50 additional Destination charging locations by the end of 2017.

The Model S, the cheaper of the two models, has an industry-leading range of up to 632 km, “designed from the ground up to be the safest, most exhilarating car

on the road,” said Tesla. “Model S delivers unparalleled performance through Tesla’s unique, all-electric powertrain and accelerates from zero to 100 kph in just 2.7 seconds.”

Model X, the sport utility vehicle, has similar aims, claiming to be the safest, fastest and most capable on the road. With standard all-wheel drive and up to 565 km of range (NEDC) on a single charge, “Model X fits an active lifestyle and includes ample seating for seven adults and all of their gear. Model X is incredibly fast, accelerating from zero to 100 kph in as quickly as 3.1 seconds,” said Tesla.

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LUXURY FASHION

Wearable ART

HOW CUSTOMISATION IS CHANGING LUXURY FASHION, WRITES UAE DESIGNER MARIA IQBAL

I

am an artist. My canvas is luxury fashion items. Most people are shocked that I get paid to paint on an extravagantly expensive Hermes bag. Or a couture leather jacket the next day, followed by Manolo Blahnik shoes. All in a day’s work.

Luckily for me, art has seeped into multiple facets of fashion—from garments to accessories. Luxury brands collaborate with famous artists to create limited edition items evoking street art, graffiti, or whatever the artist is known for. What was once the domain of a few brave and avant garde types is now a staple in the closet of every fashionista and influencer. Being understated is passé.

Individual customisation—which I provide—takes it a step further. The business of customised luxury is about creating unique pieces that no one else will have except for you. However this service is available only to those who can afford it— which actually adds to its appeal since it’s a status symbol to “transform” couture, which is already expensive to begin with.

What also adds to the attraction of personalisation is that in today’s “selfieobsessed” society, it’s perfectly OK—in fact applauded—to literally wear your name on your back. It’s not considered gauche to express yourself and your actions on your clothing. This trend is leading to a beautiful thing in my opinion—you can make a powerful statement with your personalised outfit because your clothes are an extension of your feelings and philosophies. We are living in a very unique climate right now with the political tensions regarding human

PERSONALISED LEATHER JACKET. PRIVATE COMMISSION.

MOTORCYCLE HELMET TRANSFORMATION. THE WORLD IS MY CANVAS!

MY SIGNATURE ART CLUTCH, FEATURING VOGUE EDITOR, ANNA WINTOUR.

CUSTOMISED MANOLO BLAHNIK SHOES .

PRIVATE COMMISSION

SNOWHITE HANDBAG FROM THE FAIRYTALE POP COLLECTION.

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A PEEK INTO MARIA IQBAL’S WORLD OF POP ART CLUTCHES AND LIMITED EDITION CUSHIONS.

rights. This is very inspiring and exciting to me; to be able to influence and be a part of the movement through my art–albeit in a fashionable way.

Some of my clients are people whose dressing rooms are bigger than your whole house, and I’m grateful for their trust in me. They are paving the way for an innovative world of fashion and art, and blurring the lines of what is art. Art used to just hang on the walls. When you are not wearing your art—because the reality is that fashionistas will only wear their outfits once— you can hang the dress on the wall, or

display your bag on your mantle. The juxtaposition with the human body not only makes a statement that not only can you wear it in your own way, but it creates a deeper connection with you and your art—something you will cherish forever.

This trend is not limited to women; globally, men are just as open to customised luxury, which started out mainly with their footwear before the paint splattered onto the rest of their wardrobe, so to speak. Locally in the UAE, men are very proud and conscious of their looks and just as interested in being flamboyant and attracting attention as their female counterparts.

It’s a very special time to be an artist.

Traditionally we were divided into fine artists and commercial artists. Fine artists worked with galleries and displayed their creations in spaces that temporarily came alive at the duration of a show—to sell a piece that would be added to a private collection. Commercial artists were largely motivated by money and considered ‘sellouts’ and not true to the craft of their art, which was really not art but a pretty picture to entertain the masses. Things started blending over the last half-century thanks to innovators like Andy Warhol who made it cool to combine the two worlds. Various urban artists continued the fusion of high art and commerce. However the two worlds ...cont. overleaf

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LUXURY FASHION

INSIDE THE ARTIST’S STUDIO, A COLORFUL JUXTAPOSITION OF VIBRANT DESIGN AND PURE FUN.

cont. from page 43

were still very much divided when I decided to end my 10-year career in advertising and become a full-time artist not so long ago.

I faced an inner struggle in terms of which direction to choose. Fortunately, I didn’t have to. Customised art-to-wear is high art and yet it’s as commercial as it gets. I get a thrill that people carry my work through the intricacies of their daily lives.

The momentum builds around the social aspect of my work. Whether you like the art or not, that’s not the point. Art is very subjective. Not everyone ‘get’s it’ when it comes to customised wearable art, but what everyone will agree on is that you have to be fearless, and a little mad to take paint and markers to your expensive possessions.

This act in itself makes you stand out in the sea of similar Chanels and LVs. My clients elicit shock and admiration for their act of rebellion, especially if they’ve managed to portray themselves in accordance to the highest echelons of social media.

Instagram and Snapchat have changed the game completely, because of the instant gratification and appreciation from followers and ‘wannabes’. What you post— what you are wearing and how you are wearing it—can take you from obscurity

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to fame. The competition is high, and one factor that can elevate you quickly is being unique and expensively so. It’s nice to own your look and wear your high street clothing in a special way but let’s face it, there’s no replacement for sky-high price tags of luxury fashion combined with customisation. The ‘likes’ multiply exponentially when you wear something that no one can ever afford because only you have it.

Luxury fashion brands have responded by not only encouraging artists to paint on their goods in special collaborations over the years, but they are actually creating whole collections that look like the clothes and accessories are dipped in paint and rolled down the runway like colourful splotches. Dolce & Gabbana, Prada, and Gucci to name a few, are sending models down the runway with hand-painted scribbles and portraits on the garments over the past few seasons. These might not be customised for every person, since they have to be produced as collections but when you walk into a room the impression is well—a walking piece of art.

And that’s how wearable art that started out of demand for personal customisation has changed luxury fashion!

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THE ICONIC AFGHAN GIRL GETS A POP ART MAKEOVER.

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THE PERFECT LUXURY WEEKEND IN MUSCAT

Here Hereare aretwo twoperfect perfectdays daysin inone oneof ofthe theworld’s world’sfinest finestdestinations, destinations,the theBar BarAl AlJissah Jissah Resort Resort& &Spa, Spa,including includingthe theShangri ShangriLa, La,in inthe theSultanate Sultanateof ofOman Oman

DAY1

At the Bandar Hotel, have lunch overlooking the sea, at Circles.We recommend ordering a seafood pasta dish, which are light yet flavourful, with freshness you can taste.

A first class flight int transfer via the hotelo Muscat International Airport, a the Bar Al Jissah Re ’s private Bentley to drop you off at unparalleled views sort and Spa, a gorgeous spot with of the Arabian sea.

Explore the sea for yourself with Bar Al Jissah’s many options, including a banana boat, jet skis, kayaking, wake boarding, or, a morning dolphin watching trip to see the spinner dolphins that populate the Arabian Sea.

Spend your evening having fresh seafood on the beach at Bait al Bahr, a traditional Omani meal of the highest quality cooked in the traditional manner with the utmost care.

...cont. overleaf Visit the site’s Omani Heritage Village, the first of its kind in Oman, which provides a first-hand glimpse of a traditional Omani WWW.WEALTHARABIA.NET rural lifestyle.

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LUXURY TRAVEL

Take a morning hike to the Al Hajar Mountains, an ancient area largely untouched, where you can quietly explore hidden coves near the beach or climb high to look out onto the horizon —just be careful of the turtles that migrate through the area!

DAY2

IMAGE: SHUTTERSTOCK/PHILIP LANGE

Travel to the city centre of Muscat to explore the historic souks, finding hidden treasures where you least expect them.

IMAGE: SHUTTERS TO

CK/ JPRICHARD

IMAGE: SHUTTERSTOCK/ ANDREA IZZOTTI

to the sea.

Turtles migrating

Have a special lunch prepared by the ex emplary and friendly staff of the Bar Al Jissah on the beach during your hike, where yo u can gaze out onto the sea and relax with your lov ed ones.

Spend the afternoon at Al Mazaar, a one-of-a-kind educainment centre. Do some art in the ArtBox, jump on a trampoline in the SpringBox, learn about local culture, take a workshop or see a concert in the amphitheatre.

Have your final meal of the day at Shahrazad, a renowned restaurant featuring authentic Moroccan, Lebanese and Omani cuisine in a refined setting, while also enjoying its nightly live entertainment.

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LUXURY PRODUCTS

LUXURY to wear to the track

THE STUNNING TISSOT T-RACE MOTOGP AUTOMATIC LIMITED EDITION 2017

WINNING STYLE

Since the luxury watchmaker Tissot was founded in Switzerland by Charles-Félicien Tissot and his son Charles-Émile Tisso in 1853, the brand has become synonymous with bringing high-end quality to the world of sport. That trend continues with the brand’s latest offering, the Tissot T-Race MotoGP Automatic Limited Edition 2017, a result of a partnership between Tissot and MotoGP. Coming in a rose gold PVD case, its golden attributes emphasise some of the iconic bike features of the watch such as the dashboard counters on the carbonlike dial, the footrest pushers and the rear suspension rode illustrated in the bracelet’s attachment to the case. The dynamism and speed the watch is inspired by are reflected in the tyre-tread bracelet.

POWERFUL ENGINE

Want to peek under the hood? Peer in the back to see the gear system, visible through the transparent rim-like backcase. The brake-disc, as well as having its place on the bezel, is also portrayed on the oscillating mass, with the lines illustrating further tyre treads. As a special edition, only 2017 watches will be made.

FEATURES

TISSOT T-RACE MOTOGP AUTOMATIC LIMITED EDITION 2017

48

• Swiss made • Automatic movement • 316L stainless steel case with rose gold and black PVD coating with engraved see-through caseback • Anti-clockwise rotating bezel • Scratch-resistant sapphire crystal • Water-resistant up to a pressure of 10 bar (100 m / 330 ft) • Silicone strap with folding clasp with push-buttons • Bicolour execution is PVD coating • Limited edition of 2017 pieces • Helmet presentation box • Dimensions: 45mm - 47.25mm

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TISSOT T-RACE MOTOGP AUTOMATIC LIMITED EDITION 2017

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ISSUE ISSUE THIRTY THIRTY SEVEN NINE - -FEBRUARY OCTOBER - - MARCH DECEMBER 20172016

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Sitting down with a Hollywood legend

IMAGE: SHUTTERSTOCK/TINSELTOWN

HNWI CHAT

SAMUEL L. JACKSON, WINNER OF THE LIFETIME ACHIEVEMENT AWARD AT DUBAI INTERNATIONAL FILM FESTIVAL 2016 What do you like about Dubai?

I enjoy Dubai—I enjoy the peace of it. I don’t feel any jeopardy. The first time I went to South Africa, I knew it was dangerous—somewhere you can’t walk around by yourself. I feel I can walk around here by myself. If I want to go do something, I can just go do it. I don’t have to worry about anything here. I don’t have to worry about logistics so I can feel safe.

Are you interested in golfing in Dubai?

I would love to try golfing in Dubai. Not Trump’s course though, I’m good.

Do you plan to go to India any time soon?

I like Bollywood movies, actually. I can’t say any of it, but I can hang out.

Are you looking for a new home outside the US? Not really. Everyone thinks I am, but I’m not.

Does acting still excite you?

Acting is something that I think about all the time. I constantly get up, want to do it, and always want to search for projects, imagining myself in a script or not inside of it. It’s always close to my heart. I love telling a story.

Do you get tired of people quoting your lines?

Actors can go their whole careers and nobody can quote anything they’ve ever said. But I say things, and people want to repeat it. I don’t mind that at all.

EVGENY KUZIN Have you ever had a Royale with cheese?

I don’t tend to eat at McDonalds.

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