#53 December by CPI Financial

DIFC THE BEST OF BOTH WORLDS

IF ONLY there was a place where finance and culture existed seamlessly. IF ONLY there was a place that was the key to emerging markets. Where FinTech companies, venture capital firms and accelerator programmes thrive. IF ONLY there was a place that was internationally recognised and independently regulated. IF ONLY there was an established leading financial centre for the Middle East, Africa and South Asia. Where nearly 24,000 professionals and 2,100 of the worldâ&#x20AC;&#x2122;s top companies work and live. There is. DIFC.

For more information difc.ae @difc

Contents ISSUE 53 | DECEMBER 2019

EDITOR'S LETTER

Greetings all,

elcome to the 53rd issue of WEALTH Arabia. I was so pleased to see the WEALTH Arabia Summit 2019 exceed even our wildest expectations. Our delegates throughout the day were passionately engaged, and in my conversations with them when I had a free moment, fewer than I'd like, attendees kept remarking on how much more they were enjoying the Summit than many older events in Dubai and around the world. It is always our aim to provide the best possible conversations and insights, and I believe we once again succeeded, but to hear how much the delegates got out of it is what makes doing this so fulfilling. I hope you enjoy the latest issue. From our recap of the event to insights into the world of Saudi Arabia's REITs, it is another excellent issue. For a personal favorite, turn to page 44 for a history of an artist who died nearly a hundred years ago, but is finally having his moment. Till next time,

William Mullally

NEWS & ANALYSIS The latest analysis from the investment world

OPINION The need to democratise investment

COVER INTERVIEW The evolution of fund management

INVESTMENT The path through 2020

WEALTH ARABIA SUMMIT 2019 The WEALTH Arabia Summit 2019 shed insight on a changing investment landscape

cpifinancial.net

Contents REAL ESTATE Inside Saudi Arabia's REITs

PRIVATE BANKING The future's bright for private banking in the region Should you be checking your private bank's cyber rating?

P.O. Box 502491, Dubai Media City, UAE Tel: +971 4 391 4681 Fax: +971 4 390 9576

CHAIRMAN

SALEH AL AKRABI CHIEF EXECUTIVE OFFICER

MOTORING One of the world's best-designed supercars takes on the Yas Marina Circuit

ART The ascent of Osman Hamdi Bey

NIGEL RODRIGUES nigel.rodrigues@cpifinancial.net Tel: +971 4 391 3722

EVENTS The WEALTH Arabia Summit 2019

CHIEF OPERATING OFFICER

SHERIF R. ELHUSSEINI sherif@cpifinancial.net Tel: +971 4 391 5419

EDITOR - WEALTH ARABIA

NAP ESTAMPADOR nap.estampador@cpifinancial.net Tel: +971 4 433 5320

NEWS EDITOR

GROUP BUSINESS DEVELOPMENT MANAGER

KUDA MUZORIWA kuda.muzoriwa@cpifinancial.net Tel: +971 4 391 3729 EDITORIAL

editorial@cpifinancial.net CHIEF DESIGNER

BUENAVENTURA JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719

COMMERCIAL DIRECTOR

WILLIAM MULLALLY william@cpifinancial.net Tel: +971 4 391 3718

SENIOR DESIGNER

FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724

ANDREW COVER andrew.cover@cpifinancial.net Tel: +971 4 391 3717 BUSINESS DEVELOPMENT EXECUTIVE

VISH SHETTY vish.shetty@cpifinancial.net Tel: +971 4 375 2526 ADVERTISING

sales@cpifinancial.net

DIGITAL MANAGER

DEOGENES E. ABEJUELA JR deo.abejuela@cpifinancial.net Tel: +971 4 391 3722 EVENTS MARKETING MANAGER

CRIS BALATBAT cris.balatbat@cpifinancial.net Tel: +971 4 391 3725 CONFERENCE PRODUCER

HITESHWAR BHAKHRI hitesh.bhakhri@cpifinancial.net Tel: +971 4 433 5322 FINANCE & DATA MANAGER

ZANEER MOHAMED zaneer.mohamedj@cpifinancial.net Tel: +971 4 391 3727 ADMIN EXECUTIVE

MARILYN BIDUYA marilyn@cpifinancial.net Tel: +971 4 391 4682

SALES EXECUTIVE

PAULO SANDE paulo.sande@cpifinancial.net Tel: +971 4 365 4538

enquiries@cpifinancial.net ©2019 CPI Financial. 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 editor.

WEALTH WARNING! 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.

Printed by Al Ghurair Printing & Publishing, Dubai, UAE

cpifinancial.net

PUBLISHED BY CPI FINANCIAL FZ LLC REGISTERED AT DUBAI MEDIA CITY, DUBAI, U.A.E.

NEWS & ANALYSIS

Norbert Rücker, Head of Economics & Next Generation Research, Julius Baer

The mood on oil markets is brightening. Oil prices settled above $65 per barrel this week largely on the back of the optimism with regard to the United States, China and trade. Some market observers revised their oil price projections for 2020 upwards, seeing improved prospects for oil demand. We believe that the fundamental outlook remains largely unchanged. The de-escalation on trade matters is unlikely to lift gasoline use. The more manufacturing-related diesel component of demand showed some weakness so far this year. However, the announced deal contains some hard nuts to crack such as the lofty and unfeasible expectations of Chinese agricultural or energy goods purchases. In sum, oil demand slowed for many reasons beyond trade. Meanwhile, the supply-side dynamics of the oil market are unchanged."

Steen Jakobsen, Chief Economist and CIO, Saxo Bank

il prices settled above $65 per barrel in late December as the US-China rapprochement on trade lifted the market mood.

audi Arabia’s Future Investment Initiative, dubbed ‘Davos in the Desert’ is a signal that Saudi Arabia is serious about bolstering inward investment.

There is no doubt that 'personal relationships' are almost as important as commercial links, but cementing the Future Investment Initiative and attracting top CEOs and politicians globally is a major signal of Saudi Arabia’s ambition and ability to attract both the global companies but also its investment. The recent inclusion of Saudi Arabia into the MSCI Emerging Market index has already generated $18 billion of inbound investment with at least $3 billion more expected this year. The MSCI inclusion, the global bond issuance of bonds from GCC countries has put the Middle East and specifically GCC on the map for investors, as the access to markets, the regulatory framework and increased openness is paramount for investors. That this whole strategy is validated by an impressive oil reserve, a tangible asset, of course makes the proposition more interesting and appealing and will benefit all of the GCC." cpifinancial.net

OPINION

The need to democratise investment T

William Mullally

he life of a financial journalist can be an odd one. It is our duty to be on the pulse of the financial industry and the latest market trends. Part of what makes this career most rewarding is that, as you see in every issue of Wealth Arabia we put out, we are able to speak to the top minds in the industry with often wildly divergent opinions and strategies, and end up coming to a better understanding of the breadth of opinions than perhaps many professionals who are set in their ways often do. That isn’t the odd part though. O d d e s t f o r m e i s t h a t , i n my conversations with lay people, I’m often treated as an economist or wealth manager myself, and often people— friends, family and strangers alike— come to me for investment advice. Conversations about investment with you our readers, who are often seasoned investors, are a bit different than conversations with people who have no financial literacy let alone an investment portfolio, as I often find. It is in these conversations that I often come up with questions of my own. For example, when someone who is looking to just start off their investment journey, especially someone who is not a high net worth individual themselves, I often have fewer answers. After all, the days of savings accounts with high interest rates seem to be

an anachronism of a bygone era. At this point, every person who wants to preserve their capital, from the richest to those just trying to save for a rainy day, will need to invest in some way if they want to just manage to outshoot inflation. While there are g reat bonds companies such as National Bonds in the UAE that I often point people to for a safe bet, or potentially a dabble in cryptocurrency for someone interested in a bit more risk, the services I often discuss are those of roboadvisory firms, which have truly democratised investment. To take Wahed Invest for example, brought to life by the CEO Junaid Wahedna and his team who I have spoken to for this publication, investors are able to buy in for as little as $100 dollars, and take out their money at any time. In many ways, this service is better than any savings account I can think of. This isn’t to say that this is a personal endorsement for one investment product, as that is not my aim here, but it does bring up an important thought—why aren’t there more options? While there are so many services aimed at high net worth individuals, investment services need to broaden their horizon, or services that aim at not only high net worth individuals but also average people will gobble up both groups.

SUPPORTED BY

ORGANISED BY

s r e k n a s r b o e t r a u v t u f inno & April 2020, Dubai, UAE

An exclusive gathering of the region’s top bankers and tech leaders to discuss the most pressing challenges of the new digital ﬁnancial landscape and identify the myriad opportunities presented by the new business frontier.

Contact for:

BANKER MIDDLE EAST INDUSTRY AWARDS 2019

Announcing the winners of the Banker Middle East Industry Awards 2019 The awards were bestowed at a gala dinner at the Ritz-Carlton DIFC in Dubai, honouring the top achievers in the region’s banking and financial industry from across the region

he Banker Middle East (BME) Industry Awards, the region’s most prestigious financial awards programme, announced the winners for its 2019 edition at a gala dinner at The Ritz-Carlton Hotel, DIFC, honouring the institutions that are driving the Middle East’s banking and financial industry forward. The Awards ceremony was attended by over 350 C-level executives, key decision-makers and thought leaders from 80 institutions across the Middle East. Banker Middle East is the longest-running and most widely-esteemed GCC-based banking publication, currently celebrating its 20th anniversary. The annual Awards programme, organised by Banker Middle East, benchmarks and promotes banking and financial excellence in the Middle East. It gives due recognition to the institutions that have navigated a challenging economic climate to continue the upwards trajectory of the industry, created innovative financial services and solutions to better serve their customers. 10

“Congratulations to all the winners and finalists of the BME Industry Awards. The awards programme recognises the ‘champions’ of the banking and financial industry, celebrating the success and achievements of the institutions who are playing a key role in the region’s development,” said Nigel Rodrigues, Founder and CEO of CPI Financial—the publisher of Banker Middle East. The 500 nominations and submissions from 32 categories were critically evaluated and mutually analysed by an esteemed panel of judges comprised of prominent industry experts from rating agencies, accountancy firms, and auditing institutions, leading to 120 shortlisted institutions. Winners were chosen through a rigorous evaluation of the entrants’ expertise in research and knowledge of the market, as well as assessment of all relevant company financial statements. In addition to the 32 categories, one special award and four individual awards were also announced at The BME Industry Awards. The Banker of the

BANKER BANKERMIDDLE MIDLLE EAST INDUSTRY AWARDS 2019

Year Award was conferred to Abdulhamid Saeed, Group CEO, First Abu Dhabi Bank; The Lifetime Achievement Award, meanwhile, was bestowed to H.E. Rasheed Al Maraj, Governor, Central Bank of Bahrain; the Leadership Excellence Award was presented to Dr. Adnan Chilwan, Group CEO, Dubai Islamic Bank; and the award for Outstanding Contribution to Banking & Finance was given to Steve Bertamini, CEO, Al Rajhi Bank. “The world is changing and adapting to advanced technologies. These innovations, which are transforming the banking and financial landscape, are

rooted in the constantly shifting demands of consumers. We believe that the best institutions consistently put their customers as their top priority, and actively demonstrate that commitment, beyond just words. We look forward to seeing the industry become much more innovative and adaptive to the needs of consumers in the future and the embracing of new technologies will show a very different banking landscape,” added Rodrigues. For comprehensive coverage of the Banker Middle East Industry Awards 2019, Banker Middle East will be publishing the Banker Middle East Industry Awards 2019 Winners Magazine in January 2020.

The full list of Banker Middle East Industry Awards 2019 winners: Best Bank in the Middle East The National Commercial Bank Best Retail Bank Mashreq Bank

Best Investment Bank (Conventional) Saudi Fransi Capital Best Investment Bank (Islamic) Dubai Islamic Bank

Fastest Growing Bank Warba Bank

Best Private Bank First Abu Dhabi Bank

Best Islamic Bank Dubai Islamic Bank

Best Wealth Management Firm Standard Chartered

Best Corporate Bank National Bank of Fujairah

Best CSR Programme BLOM Bank

Best SME Bank National Bank of Fujairah

Best Core Banking Service Provider Infosys Finacle

Best Investment Management Firm ADS Investment Solutions Best Private Equity Firm GFH Financial Group Best Trade Finance Institution Noor Bank Best Project Finance Institution Ahli Bank Kuwait Best Brokerage Solutions Provider Albilad Capital

Best User-Experience Innovator Kuwait Finance House - Bahrain Best Cybersecurity Provider Help AG

Dr. Adnan Chilwan Group CEO, Dubai Islamic Bank Banker of the Year Abdulhamid Saeed Group CEO, First Abu Dhabi Bank Outstanding Contribution to Banking & Finance Steve Bertamini CEO, Al Rajhi Bank Lifetime Achievement Award H.E. Rasheed Al Maraj Governor, Central Bank of Bahrain

Best Communications Infrastructure Provider Avaya Best Commercial Bank The National Commercial Bank Best Brand Positioning Liv Bank

Best Research & Consultancy Firm Century Financial Consultancy

Best Human Resource Development The National Commercial Bank

Best Ratings Agency S&P Global Ratings

Best Digital Transformation Provider Maveric Systems

Most Innovative Digital Banking Proposition Mashreq Bank

Leadership Excellence Award

Best Payment Solutions Provider Network International

Best Law Firm – Banking & Finance Al Tamimi & Company

Capital Market Transaction of the Year Albilad Capital

Individual Awards

Best REIT Manager Emirates REIT Special Achievement in Digital Innovation Warba Bank

Best Takaful Provider Noor Takaful cpifinancial.net

COVER INTERVIEW

The evolution of fund management Martine Ferland, President & CEO, Mercer speaks to WEALTH Arabia about the changing investment space, and how fund management is being transformed by a need for scale, ESG, and new technologies

COVER INTERVIEW

Martine Ferland cpifinancial.net

COVER INTERVIEW

ould you tell me more about the history of Mercer and your own personal background? Ferland: As you may know, Mercer will be 75 years old next year. It started in Vancouver, Canada with roots in pension plans. We’ve been involved with clients, helping them design, finance, measure the risks, address the risks, contribute, create the funds and backing the promises for years now. Very early in our history we understood there is a promise being made in these plans. We saw we needed to put funds against those to make sure that they were being met. Of course, legislative and regulatory came into the loop at some point to make sure these plans were well funded. Of course, we became experts on both sides of the ledger at that point, and we’ve developed expertise since then. It was from the beginning of the investment consulting aspect of our business that we built a deep and broad manager research capability to help us do this work and help our clients pick find the managers and funds that are good for them. About 15 years ago, our clients really wanted to outsource some of their decision-making around the picking of asset managers and funds, and we developed the capability to utilise the foundation of our consulting and research to help them with decision implementation. We work with clients on their investment philosophy, investment objectives, and investment mix and then we take over that on an outsourcing basis. We are the number one in the market for this. Having seen this demand in the market and the strength of our service, we now have also offered this expertise to non-pension funds— such as sovereign funds and more. We are closing the year with close to $300 billion under implementation. We are advising over $12 trillion of assets in terms of our investment consulting. Myself I’m an actuary by trade. I started as a pension actuary, and I’ve been working with clients on both sides on liability, management, and asset management for many more years than I care to count! 14

COVER INTERVIEW

Pension funds of small size are even being told by regulators that they should consider scaling up by joining other funds. That is clearly a trend, plus the cost of entry, plus the mainstreaming of technology. If you combine all of this, you probably have huge change in the way that asset management is being delivered in five years. — Martine Ferland, President & CEO, Mercer

From your perspective, how are you seeing technology impact investment? Ferland: Technology is impacting everything. Very often I get asked if we are a technology company, and I answer, who can afford not to be nowadays? It could be the backoffice of how we manage transactions, for example. We don’t pick assets per se but we manage funds. All of the automation that technology has brought us is something we see, and we see this from the stockbroker and the asset management side. When you look at the thousands of strategies out there to utilise AI to try to match our clients demand, need and priorities with the best funds for them you can see how this would become a very powerful way to augment the human side of the equation. We think in our business that we need to fuse the human creativity and understanding of the clients’ needs with technology to inform our insights so we can really provide our clients with the best advice. That’s where technology can really help us. Suzanne Lubbe, Senior Manager Research Consultant (UK), Mercer: Definitely technology is changing the investment industry, both from in the asset managers we speak to and also in the opportunities that they see. When we speak to managers, specifically systematic managers, this is an area where they use a lot of data and have for many years. Fundamental managers, the bottomup stock-picking types managers that speak to, are not as comfortable with big data sets but they are becoming more comfortable as there is the potential for new insights to be drawn from that data. The data is out there, but it’s about how people use it and how they interpret it. The tech is there, but it’s not a silver bullet. The managers still have to provide their own insights to it. Ferland: As CEO, you have to become a data specialist in the sense that data is the new oil. I truly believe, reading a lot about this, talking to peers across industries, data is in abundance, but driving insight that is actionable, insight that you can draw influence cpifinancial.net

COVER INTERVIEW

from and utilise for better impact is difficult. We see nuggets of this emerging in different fields, including the technology and investment fields, but it is still very early days. As we are also brokers, what we see emerging that is applicable to investment as well is that blockchain can accelerate the transaction side of investment and change it from making a decision one day and the trade being implemented four days later to immediate real-time transactions that can be trusted. The transactional aspect of investment, when money moves from fund A to fund B, you can see the application of blockchain there as well. Yaser AbuShaban, Senior Investments Consultant (Dubai), Mercer: Working with clients as a consultant, I think that technology has always been there, whether it was thirty years ago starting to integrate spreadsheets into our analysis or today using AI and working with biggest data sets. If the technology is there, clients become more demanding in utilising that technology and providing insights and output from the availability of that technology. We have to keep lockstep with it whether that’s using spreadsheets when they first came out or applying machine learning. With the availability of the speed of computing and the ability to do more complex processes, that has to be reflected in our work because clients are demanding it. How broad of a brush can you paint investment firms globally? Is there a big difference between what firms are doing in different markets? Lubbe: There isn’t necessarily regional specialisation or trends in terms of technology. It’s more around the way that they are structured. You might find that a small boutique firm might not get excited about data, but that’s partly because it’s expensive. I was chatting to a colleague earlier who had been speaking to a well-known machine learning fund, and they investigate 20 new data sets each quarter and that’s expensive. Most companies will not be alive to afford that. What we’re seeing 16

The data is out there, but it’s about how people use it and how they interpret it. The tech is there, but it’s not a silver bullet. The managers still have to provide their own insights to it. — Suzanne Lubbe, Senior Manager Research Consultant (UK), Mercer

is a separation between large companies who are doing a lot of investigation in to new data sets and technology and how they can use it, and more boutique more stock-selection-focused firms who are focused more on the nuances, such as culture or environmental, social and governance, which is important to us to. There’s a separation between those who have access to the data sets and can implement that technology, and those for whom it’s out of their budget. How dif ferent do you think investment will look in 20 years? Ferland: It’s difficult to predict the election next year, so imagine the state of the business in even five years. We’ve actually reduced our strategic planning to two plus two rather than five years, because things move so quickly. You can imagine that every company will become digitalised in a vast way within the next five to ten years. We have been working with the World Economic Forum to look at the world of work and how jobs will be impacted, life in the office and the gig economy, the same way we look at how 25 to 35 per cent of jobs will be made obsolete in the next five years, and more than 50 per cent of jobs will be vastly impacted and there for augmented in terms of the way that we work. We’ve seen it in terms of the older technology we’ve been using as the cost of entry goes lower and lower as the technology becomes more mainstream, and therefore more accessible to smaller firms. Another trend that we’re seeing is the impact of regulatory increases. We see a lot of consolidation coming in the asset world. It’s not only technology, but all of what’s available and what’s required is more and more expensive. They can’t all afford the research; they can’t all afford

the super technology systems that will give them insight needed to do a good job. It’s not just about technology, there’s a vaster programme of change. We certainly see, with asset owners and asset managers, consolidation. With pension funds, in the Australia, Netherlands, and coming to the UK as well is smaller funds, smaller banks, smaller wealth managers utilising outsourcing and third-parties in their supply chain more than ever before. Pension funds of small size are even being told by regulators that they should consider scaling up by joining other funds. That is clearly a trend, plus the cost of entry, plus the mainstreaming of technology. If you combine all of this, you probably have huge change in the way that asset management is being delivered in five years. Could you tell me about the funds that you oversee and the particular strategies there? Ferland: We cover the entire spectrum of asset classes, equities, bonds, and alternatives. We are strong in the alternative market as our clients were seeking, in the low-yield environment, some alpha, which are quite difficult to find nowadays. In places like Europe, we’ve been in negative interest rates for some time. I was visiting Latin America recently, and they are landing into a much lower yield environment and starting to look for better returns by diversifying the portfolio. We see an important move towards alternative investments in infrastructure, private markets and more. We have really come ahead of our clients on this, anticipating the trends in the US in the last year to supplement our important capability in that space. We are really a diversified shop. We have an open architecture as well. We don’t manage our funds, it’s always funds of funds, and that makes us very

COVER INTERVIEW

Yaser AbuShaban, Senior Investments Consultant (Dubai), Mercer

independent and we can bring the best to our clients with absolutely no biases in that way. We’ve also quite early on started to look at the impact of ESG, and therefore what would, in particular in a time of climate change, how different decisions you make on your portfolio might impact returns over time on the basis of different scenarios for how the climate will change. We are not experts in climate, but we are certainly experts in investment and can certainly look at how returns are impacted depending on decisions and different scenarios for how quickly the changes might or might not happen. Beyond climate, we’ve had an index to measure to which extent funds are following the rules around ESG, and how ESG connected they are. We are providing that index for clients to decide whether that’s important for them or not, but it’s out there enough for us that we can say it’s an important criteria to measure. AbuShaban: We are seeing both as important elements that are being considered by investors in the Middle

East. ESG has not been an important part of assessing investments historically for regional sovereigns, particularly in the sovereign wealth space, but it’s beginning to take more relevance and importance. On the alternative side, alternative markets are getting more attention because there are more investors, particularly some of the smaller pensions, endowments, and families, see a big run in public markets and that concerns them. They are seeking alternative sources of return and alternative asset classes which they see as a way to diversify away from the public markets. Lubbe: From a research perspective, all our ratings will have an ESG focus on them. We have been rating strategies on ESG for about ten years now on the extent that they integrate those considerations. When our clients do come for us asking for a manager who considers these things, we can provide that. That goes from ethical screening, which we do look at while it’s not the main part of the rating, right through to impact investing.

Ferland: We’ve started to see regulars in the pension world requiring a certain portion of the funds in an ‘ESG’ way. In New Zealand and the Netherlands, we see requirements in that way as a barrier to entry. We manage one of the seven Kiwi funds that support the Kiwi state system. They review the seven asset managers every several years, and if you want to be considered for that position you have to have ESGcompliant assets. I was discussing with the EU regulator of pensions where they’re starting to stress-test pension funds across Europe. It’s not a requirement yet, but, if you read the tea leaves, it could become a requirement. It’s very much being discussed. Another aspect of technology is the element of privacy. That’s more the ethical side of technology, the echo chamber and the mass movements of algorithms and the algorithm themselves being fed biases by the humans that built them. There is some advanced thinking from economists trying to work out what CFOs are saying in coming up with a certain sentiment about where the economy or the business may be going. It’s all very early days, but we can see a machine getting a very bad mode at some point. We’ve seen that in other places than investment, so it’s something that we as specialists need to watch. I was in the Middle East recently, and the investments that governments are making across many of the places in the region would probably help support the advancement in the investment sphere as well. I don’t know if you see it on a day to day basis, but clearly digitalising the whole of the workforce, and raising the education level of all employees, will impact the investment market. I think it’s a great advantage. AbuShaban: We have an interest in integrating a lot of new technologies, and investment is a way of accessing those technologies. Particularly at the sovereign fund level, they will seek out opportunities to invest but they want to bring that technology back to create some technology transfer benefits from that investment. cpifinancial.net

INVESTMENT

The path through

2020 William Davies, EMEA CIO, Columbia Threadneedle Investments navigates the potential excitement that 2020 could bring, as well as the yearâ&#x20AC;&#x2122;s expected low growth

(PHOTO CREDIT: francescoch/iStock)

INVESTMENT

e are threatened with excitement in 2020, from civil unrest and ongoing trade wars to political upheaval and market volatility. We believe global economic expansion will continue at a slower, less even pace across regions. Against this backdrop of continued low growth, low interest rates and low inflation, we are aiming to tread a narrow path that balances risks to the upside—such as a sudden acceleration in growth—with risks to the downside, including the threat of a deeper recession. Our global approach and research intensity amid such an environment sees us wellpositioned to navigate these macro and market movements. MACRO In late summer we reached a critical point where leading indicators were at levels that have, historically, been

a precursor to recession in developed markets. Indeed, in recent history when the US Treasury yield curve has inverted recession has followed more often than not. But although one could argue that recession still looks likely, it is not a given and as we have moved through the year we have gained greater confidence around a more subtle slowdown, whether that is low but positive or small but negative growth. On a historical basis, when our proprietary recession indicator for the US reaches 30 per cent it is likely recession will occur—we reached 24 per cent in September but this risk

is now flattening out. As it stands, perhaps it does not matter a great deal if we do enter recession because it will likely be shallow. Germany narrowly avoided recession this year, for example, and there is no sign of panic in markets, at least while unemployment remains low. However, both hard and soft data are mixed: global PMIs have fallen; new factory orders in the US are deteriorating; German business expectations are poor; capital expenditure is down, so we are now standing at a crossroads. One path sees the industrial slowdown result in rising unemployment and a US consumer-led recession. The other sees the relatively full employment market propping up the consumer to the extent that it pulls the US out of its manufacturing slump (especially alongside a potentially more positive trade perspective) and embarks on a reflationary drive. Our base case is that there is unlikely to be an acceleration in growth and we are equally unlikely to see a deep recession. In that environment, the long-duration element of markets—be that in fixed income or equities—remains relatively attractive. Geopolitics continues to unnerve investors as trade wars and Brexit rumble on against the backdrop of a late-cycle economy, but secular growth trends will provide long-term opportunity regardless of whether we see slight positive or negative growth. cpifinancial.net

INVESTMENT

It is this narrow path between the two outcomes that we must tread as investors, and our current asset allocation positioning—aggressively neutral--sets us up to do this successfully. THE EXCITEMENT So where is the excitement? Or more accurately, what factors might upset the apple cart? Trade is taking the headlines but my focus is on something different: civil unrest, which is occurring across the world, even though the reasons in each region differ markedly. At the beginning of the year the Gilets Jaunes protests, which centred around government austerity measures, gained greater prominence. We have seen protests in Hong Kong, initially centred around the Extradition Treaty, which have the potential to escalate tensions between the US and China, certainly in the context of the ongoing trade war, and have already resulted in a reversal of policy. We have also seen unrest in Chile over a hike in rail fares and in Lebanon a banking crisis, and there are many more instances around the world. The question we must ask ourselves is whether protests that have inequality as a major factor will reach a tipping point? In Chile, we can look at the GINI coefficient measure of income inequality and conclude it is as high there as anywhere else. In the US we can also state with some confidence that inequality is stretched. But in so many places we look, unrest appears to be spreading. Could this atmosphere of protest morph into something more extreme? Clearly this would not be positive for markets. Inequality becoming stretched is in part a result of structural forces, such as underemployment (the rise of zero-hour contracts and a more flexible workforce), plummeting union membership, technology and disruption. The reaction to these forces is key and could even lead to a reversal of globalisation (given that globalisation has allowed corporates to source cheap labour from around the world). Indeed, this theme was 20

Share of global bond market value 100% 90% 80% 70% 60% 50%

United States 46% Europe 29%

40% 30% 20% 10% 0%

99 000 001 002 003 004 005 006 007 008 009 010 011 012 013 014 015 016 017 018 019 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Source: Bloomberg Barclays Bond Indicies, 2019

Europe

United States

Share of global yield 100% 90% United States 77%

80% 70% 60% 50% 40% 30% 20%

Europe 7%

10% 0%

99 000 001 002 003 004 005 006 007 008 009 010 011 012 013 014 015 016 017 018 019 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Source: Bloomberg Barclays Bond Indicies, 2019

harnessed by Donald Trump, whose election campaign was focused on protectionist policies designed to appeal to the domestic workforce, particularly in the steel and automotive industries. Trump’s trade war has carried the same populist flavour. Unemployment remains low and yet we are still seeing unrest. If we were to endure a recession and unemployment were to rise, the response from people on the street could be equally robust. What is more conceivable is that ongoing civil unrest brings about policy change targeted at specific demographic groups but which is also to the longterm detriment of investment returns and corporate profitability.

Europe

United States

So to Brexit, which will impact sentiment in and towards the UK, but is unlikely to move the dial on a global level and is arguably unlikely to result in a recession even if we get a perceived “unfavourable” outcome. While the Brexit outcome is important to the United Kingdom and its closest neighbours, the country contributes only three per cent to total world GDP. THREATS As stated, our base case is that we continue to see low growth, low rates and low inflation; within this, global growth will be low but positive or small but negative, rather than soaring or collapsing. But what are the threats to that view?

INVESTMENT

Where are the safe havens? Gene Tannuzzo, Deputy Global Head of Fixed Income

n terms of returns, 2019 was kind to investors with asset prices having generally risen. This is true of equities—with the FTSE World Index enjoying healthy double-digit growth (at the time of writing in mid-November)—and of fixed income, with global bond yields touching lows not seen for many decades, giving investors positive capital returns. Yet the economic backdrop was not so positive: growth slowed to its weakest pace since the financial crisis, with the International Monetary Fund predicting annual global GDP growth of just 3 per cent in 2019. There are reasons for this slowdown. We have seen a fall in business confidence and with it declining capital expenditure. 2019 has also been characterised by trade frictions—whether between US/Europe, US/ China or UK/Europe. These are not going to go away and we expect them to continue to weigh on bond markets in 2020. What could be different in 2020 is how central banks respond. There may be less room for monetary easing, particularly as some central banks reduced rates quite aggressively in 2019. The US Federal Reserve cut rates three times in 2019 and, with rates reduced to a range of 1.5 per cent to 1.75 per cent following October’s cut, few are predicting anywhere near as many, if any, cuts in 2020. NEW FORMS OF STIMULUS? Instead, 2020 may be the year that central bankers have to evaluate whether their policies of negative yields are working. The theme of the year could be one where central bankers question their policy tools and start to look to new alternatives to stimulus, such as targeted lending or targeted spending on infrastructure. We also think 2020 could be the year where more governments look to fiscal stimulus programmes to spur growth. We expect Christine Lagarde might, in her new role as head of the European Central Bank, lobby European governments to increase spending to boost their economies, a move which would impact bond markets. This possibility of increased government stimulus is a sign of growing recession risks in developed markets. We believe Germany, the US and the UK (depending

on the outcome of Brexit), are particularly at risk of recession in 2020. Political risk is also elevated with impending US elections and continuing turmoil in China and Hong Kong Against this backdrop, we think bond investors should seek out safe havens in 2020. This is a difficult task given widespread negative yields. Europe, for example, accounts for around 30 per cent of the global bond market by value but only seven per cent of its yield. INVESTING SELECTIVELY So, what should bond investors do? Given how yields have fallen further over the last year, it is even harder to find safe haven bonds with decent, or even positive, yields. German Bunds, which trade on negative yields, are a prime example of how there is often a cost to holding safe haven bonds. Default risks are also a growing concern. Given the uncertain economic backdrop, we see default risks rising in certain jurisdictions next year. We expect the default rate on US high yield bonds to climb to 3.8 per cent next year from 2 per cent currently, driven partly by problems in the energy sector. Investors should take note. Then there is risk of deleveraging in China. If this becomes disorganised it would affect all markets, but emerging market bonds would be particularly negatively affected. Amidst all these risks, we are on the lookout for alternative safe havens: investment-grade corporate bonds with low risks of default yet with decent positive yields. The consumer services sector is a good option. While there are heightened risks of industrial, trade and manufacturing weakness in 2020, this does not necessarily mean there will be a consumer recession. Indeed, only about half the time does a recession also lead to weakness in the consumer sector. With their footings of healthy income and modest leverage, the consumer sectors are in a strong position. In 2020 we will be searching out opportunities among asset- and mortgage-backed securities and domestically-focused telecoms, utilities and food and beverage companies, many of which are paying down debt and whose bonds offer positive yields.

cpifinancial.net

INVESTMENT

The trade war remains key and could go either way. While recent noise on trade has given us reason for a more cautiously optimistic stance, we are mindful that events can take a sudden and dramatic turn, aided by the speed with which social media proclamations can spread. That said, with the upcoming US elections in 2020 the President will want to ensure the economy is on form, as it is most definitely not in the interests of Trump to risk a recession between now and then—to paraphrase political strategist James Carville, “it’s all about the economy, stupid”. If anything, a swift trade war resolution is a risk to the upside for us, but should the rhetoric escalate once again and the situation deteriorate, it could equally result in under-investment and a hit to the downside. More generally, a risk to the upside could come in the shape of a sudden acceleration in growth. Some believe this is likely because costs to businesses are currently low, with interest or borrowing rates low, as well as commodity and specifically oil prices. Also, the trade disputes could dissipate, while governments may increase or prolong fiscal stimulus. In this environment corporates can find themselves awash with excess cash and look to reinvest it, simultaneously injecting a shot of adrenalin into the economy. However, at present US corporates have been buying back their own shares rather than embarking on capital expenditure sprees. Equally, those structural forces keeping unemployment low are unlikely to shift and cause a spike in unemployment that hits consumers in their wallets. Once again, we come back to the narrow path. But I like it when we can see stark risks to both the upside and downside, because it makes our centre ground positioning more likely to bear fruit. MARKETS, THEMES AND OPPORTUNITIES What does all this mean for markets and our positioning? There is a wide 22

dispersion of potential outcomes in 2020 that warrants us making smaller allocation tilts than we have done earlier on in the cycle, not least because late-cycle phases generally exhibit increased volatility. With that in mind, diversification should be prioritised amid the continued and significant uncertainty. We believe long-term secular growth trends will provide opportunities for investment. It is about finding truly quality companies with sustainably attractive returns at reasonable valuations, companies that will ride these trends that we see dominating economies: from cloud computing to changing demographics and capital light businesses. Quality companies can be found across industries and around the globe, with the top 10 per cent of firms capturing 80 per cent of economic profits. Worldwide public cloud services revenue has increased from $182 billion in 2018 to an expected $214 billion in 2019 and $331 billion by 2022, with growth exhibited by the likes of Alibaba in China and AWS and Azure in the US. As for demographics, we need only look to the explosive growth seen in Asia, where the number of people defined as middle class is now over 50 per cent; or to age distribution, where societies are ageing and changing the demand for products and services. We have seen an uptick in capital light companies that have high returns on capital (including the likes of Aon, IHS Markit and RELX) as well as those generating low returns or none at all. This has been due to the growth of service or knowledge-driven businesses which are very capital light but provide vital services to established companies such as software analysis and simulation. At the same time, disruptive innovation is occurring more rapidly with competitive forces eroding certain companies’ returns much faster. Looking at equity regions of the world in isolation, we have already discussed the US, which is more expensive than other areas but has potential for greater growth. Europe is cheaper but is saddled with a challenged banking system, while

in Japan valuations indicate areas of the market are cheap but it has unhelpful demographics which, while likely to change over the long term, will not change quick enough for us to benefit in 2020. So to China, where growth has undoubtedly slowed. This is not a problem per se as lower growth should be more sustainable. At a growth rate of around 6 per cent, consumption growth may remain attractive, but fixed asset investment may be more volatile. Indeed, consumption has been a stable contributor to China GDP in recent years and we do not see an industrial recession damaging that relationship in the short term, despite some areas of consumption, such as car sales, coming under pressure of late. There is inherently more growth in emerging markets than in other places over the long term, and the growing middle classes in Asia (especially India) remain key, but regionally we favour the US, for the sheer number of companies that have the potential for growth. This makes it a difficult market to be underweight in. On the fixed income side, ongoing uncertainty means opportunities will be as hard to find as they are in the equity universe, but quality or safe havens should again be a priority for investors. These may be rare, given the percentage of the bond universe that is yielding nothing or negatively, yet as with equities and other asset classes, our research intensity gives us the competitive edge and confidence we need to navigate markets successfully, albeit along a narrow path. For example, we remain overweight in credit, while our skew towards quality companies is also an ongoing investment focus for us. This narrow path, with risks to the upside and the downside, is a trail we’ve been following for the past decade. At some stage we will deviate from it one way or another, but currently we believe there remains a good chance of us continuing to follow the path of steady but low inflation, growth and interest rates.

SUBSCRIBE NOW! WEALTH Arabia is a controlled circulation magazine delivered directly to specific, named HNWI individuals across the GCC. Institutions may also arrange bulk purchase orders of the magazine and its supplements to circulate among internal and external stakeholders. If you wish to arrange regular bulk deliveries, please contact subscriptions@cpifinancial.net for terms. Annual individual subscription (6 issues/year) US$60

CPI Financial, PO Box 502491, 1209 Shatha Tower,

To subscribe, fill inDubai, the order Dubaisimply Media City, UAE. form and return it, with your cheque for US$60 to: CPI Financial, PO Box 502491, 1209 Shatha Tower, Dubai Media City, Dubai, UAE. NAME POSITION COMPANY ADDRESS LINE 1 ADDRESS LINE 2 ADDRESS LINE 3 PO BOX ZIP/POSTAL CODE COUNTRY EMAIL ADDRESS

CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E. Tel: +971 (0) 4 391 4681 • Fax: +971 (0) 4 390 9576 www.cpifinancial.net

WEALTH ARABIA SUMMIT

The WEALTH Arabia Summit 2019 shed insight on a changing investment landscape A diverse array of 32 experts offered insights into the shifting global investment landscape at the fourth edition of the event

Niels Zilkens, Head of Arabian Gulf & NRI, UBS Global Wealth Management

WEALTH ARABIA SUMMIT

(PHOTOS CREDIT: Florante Magsakay/CPI Financial)

h e i nv e s t m e n t s p a c e continues to change. As technolog y transfor ms investment from both the inside out and the outside in, investors and wealth managers across the Middle East and around the world are grappling with the changing landscape. With high volatility, slow growth, and over a decade of low interest rates and growthfocused monetary policy, finding returns is harder than ever. Investors are looking for different strategies, alternative asset classes, and more concerned than ever before about how to secure both their future and the future of their families and loved ones. With those issues in mind, the fourth edition of the WEALTH Arabia Summit was a rousing success, attracting more attendees than ever before, who remained passionate and engaged throughout the day through the many keynote speeches, panel discussions and question and answer sessions.

Mahmoud Sulaiman, Director, Investra

Mishal Kanoo, Chairman, Kanoo Group

cpifinancial.net

WEALTH ARABIA SUMMIT

Held at the Mina Aâ&#x20AC;&#x2122;Salam Hotel in Madinat Jumeirah 19 November, more than 350 high-net worth individuals and their representatives listened to 32 thought leaders. The event was sponsored by Al Nabooda Automobiles, Lombard Odier, ADS Investment Solutions, CS Global Partner s. Exhibitors include ADIB, Century Financial, DED, Investera, and UBS. Since its inception in 2016, the summit has established itself as the premium forum bringing together the region's HNWIs, senior investment executives and service providers for actionable investment advice from the world's most informed. While individual investor are navigating a difficult terrain, global wealth grew during the past year by 2.6 percent to $360 trillion and wealth per adult reached a new record high

Amna Al Owais, Chief Registrar, DIFC Courts

WEALTH ARABIA SUMMIT

William Mullally, Editor, WEALTH Arabia

of $70,850, 1.2 percent above the level of mid-2018 with Switzerland topping the biggest gains in wealth per adult this year, according to a recent report by Credit Suisse. US, China, and Europe contributed the most towards global wealth growth with $3.8 trillion, $1.9 trillion and $1.1 trillion respectively, it said. Wi l l i a m M u l l a l l y, e d i t o r o f WEALTH Arabia and chairman of the WEALTH Arabia Summit delivered the opening remarks. This was followed by a presentation on the 2020 Vision by Christophe Lalandre, Executive Vice President, Middle East Team at Lombard Odier. The spending power of the growing ageing population will reach $15 trillion by 2020 that creates a great

opportunity for the investors and global economy, if tapped properly, according to Lalandre. The Retirement Visa initiative by the UAE government announced in 2018, is a great example that will benefit the UAE economy from the growing spending power of wealthy retirees. Global population tripled in 70 years, from 2.5 billion in 1950 to 7.5 billion in 2019, not only because more babies are born, but also due to the longevity of people as they now live longer than before. “Every day, 10,000 baby-boomers of the 1950s are retiring in the USA alone, who have a higher spending power than the young men and women who enter the job market,” said Lalandre.

“We are in an era of low-growth economic environment, and this will continue for a longer period. Although the global population is growing fast, the economy is not growing fast enough. Why? It’s not because the number of babies are growing too fast, but because the life expectancy is growing as well. People are living longer than before. “The increasing life expectancy of people will see more elderly people in the world, than younger ones. The number of older people is growing at three times than the number of young people in the world.” By 2030, the number of people in the US above the age of 60 will be equal to the number of people below 60. By 2050, the number of aged people will outnumber the younger ones by a large margin, he said. “Is this a challenge? Yes, it is. But it also provides a great opportunity for economies. Most of these retirees have more wealth than those replacing them in the job market. So, it is important to tap their wealth,” Lalandre says. “The UAE’s Retirement Visa is a great initiative that will attract lots of retirees to come and relocate to the UAE. This will help the local economy in many ways. This is a great example of how governments could tap the spending power of the ageing population. “The UAE and the GCC region, which has a large young population, will not suffer due to the growing ageing population. But the region could benefit from the Silver Economy by attracting the wealthy retirees and have them spend part of their wealth in the leisure facilities,” said Lalandre. In September 2018, the UAE Cabinet approved a law to provide retired residents over the age of 55 a long-term visa for a period of 5 years, with the possibility of renewal, if eligibility criteria is met. The new law is effective from this year. Lalandre cited the example of Nestle’s acquisition of Purina, the animal food producer, as an example of investment into the Silver Economy. cpifinancial.net

WEALTH ARABIA SUMMIT

Dr. Ryan Lemand, Senior Executive Officer and Board Director, ADS Investment Solutions

“When Nestle acquired Purina, most people were surprised at their decision. Now, it is a jewel in their crown and one of the fastest growing companies within the Nestle family. Most aging people live with pets at home, when their children go out. Animal food sector is thriving and will continue to grow due to this factor, Lalandre said. “Similarly, LVMH, owner of Luis Vuitton, invested in a hotel chain recently that caters to rich retirees. This is doing extremely well. So, going forward, the Silver Economy could contribute a great extent to the global economy. However, we need to look at the demographics as an advantage and not as a challenge. “Silver Economy is a core investment portfolio and it could spread across many sectors, such as healthcare, leisure industry, animal food, etc.” The emergence of the GCC as a rising destination for investments was also highlighted at the Summit. Investment opportunities in the region were presented by Dr Ryan Lemand, Senior Executive Officer and Board Director at ADS Investment Solutions. Lemand discussed economic policies and government initiatives being implemented to ensure GCC remains a safe haven for investments. 28

Christophe Lalandre, Executive Vice President, Middle East Team, Lombard Odier

Opportunities in real estate remain a top interest among HNWIs in MENA. The region is home to 7,130 HNWIs with a combined net worth of $1 trillion or a minimum of $30 million each in investable assets. More than 74 percent of HNWIs based in MENA own at least one home outside their country of residence, the highest in the world. As GCC real estate sector bounces back from a challenging decade, emerging markets are now attracting regional investors. The panel on real estate in the GCC in 2030 zeroed in on emerging opportunities backed by regulatory frameworks and was discussed by Amer Khansaheb, Managing Director at Khansaheb Investments; Murray Strang, Head of Dubai Office, Middle East, Savills; and Mansour Alsalem, Head of Real Estate Investment Funds, Albilad Capital. For real estate investment outside GCC, a dedicated panel discussion took place led by Racha Alkhawaja, Group Chief Distribution and Development Officer, Equitativa Group; Richard Bradstock, Head of Middle East, IP Global Ltd.; and Joseph Morris, Partner, Global Capital Markets, Knight Frank. Further on new opportunities for investments, it is worthy to note that

MENA wealth clients are keen to include socially responsible investing or sustainable investing, as well as alternative investments in their portfolios. This shift in alternative investment was discussed by Alex Gemici, Chairman and CEO, Greenstone Equity Partners, while the discussion on sustainable investment aligned with UN’s ESG was led by Niels Zilkens, Head of Arabian Gulf and NRI, UBS Global Wealth Management. Disruptive technolog y has encroached multiple sectors and industries, including wealth management. The recent years have seen investors not only diversifying their interest but reinventing the way they invest. Providing the big shift are young wealth investors who are techsavvy and are influential in breaking the traditional business mindset by appreciating new market value and channels for investments. Particular interest in this area was presented at the Summit by Mahmoud Sulaiman, Director of Investera, to understand how disruptive technology is reshaping the investment landscape. A separate panel discussion delved deeper on tokenisation of assets to be led by Ruslan Gavrilyuk, Founder &

WEALTH ARABIA SUMMIT

CEO, TaaS Capital Fund; Tom Bicknell, Partner, Pinsent Masons LLP; CharlesHenry Monchau, Managing Director, CIO & Head of Investments, Al Mal Capital; and Stephan Horvath, Partners, Burj Financial and Founder of Ideations, with Adrianus Schoorl, Local Partners, White & Case LLP as moderator. The Summit tackled the rousing investor interest following the success of Careem and Souq. Panelists Hans Henrik Christensen, VP, Dubai Technology Entrepreneur Campus; Walid Hanna, Founder & CEO, Middle East Venture Partners; and Angus Peterson, Partner, Iris Capital (STC Venture) led the discussion on investing in start-ups and how to identify its exponential growth potential, with Mirna Sleiman, CEO, Fintech Galaxy, as moderator. Investorslao gained insights on how to spot the next unicorn, presented by Mishal Kanoo, Chairman, The Kanoo Group. The GCC, home to 75 to 100 single family offices, is not immune to the issues and pitfalls of managing a family office. H.E. Zulfiquar Ghadiyali, CEO,

Mishal Kanoo in conversation with Kuda Muzoriwa, News Editor, CPI Financial

The UAE and the GCC region, which has a large young population, will not suffer due to the growing ageing population. But the region could benefit from the Silver Economy by attracting the wealthy retirees and have them spend part of their wealth in the leisure facilities. — Christophe Lalandre

Private Office of H.H. Sheikh Tahnoon Bin Saeed Bin Tahnoon Al Nahyan led the discussion on this topic along with Anton Gans, Founder & Managing Partner, Zenith Family Office; Adil Al Zarooni, Chief Executive Officer, Al Zarooni Emirates Investments; and Abhishek Sharma, Founder & CEO, Foundation Holdings. The imminent entry of young generation taking the business reign is seen as an internal threat among the older generation and wealth advisors. The Summit also held a panel discussion to present ways to bridge generational gap

combining wisdom and fresh approach in business to ensure smooth transition and protection of wealth and legacy for the next generation. Dr. Anuraag Guglaani, Partner, Organization Transformation & Expansion Advisory, MB Group; Zoe Cousens, Wealth Management Consultant, Castellet Consulting Ltd.; Shadi Al Nasr, SVP-Head of Sadara Wealth Management, United Arab Bank; and Amna Al Owais, Chief Registrar, DIFC Courts had a passionate and personal discussion on succession, wills and inheritance. According to a report released by Knight Frank, the global UHNWI population will continue to increase and reach 22 percent within five years, with an impressive increase of 15 percent in selected GCC countries. A general overview of global wealth distribution was presented by David Awit, Senior Director, MEA & APAC, Wealth-X. “The WEALTH Arabia Summit 2019 followed its tradition of not only providing networking opportunities, but of sharing a deeper understanding on key issues. The objective of the Summit was to go beyond wealth creation through traditional channels, expounding on wealth movement to capture emerging opportunities, expanding legacy and sustaining wealth. I was blown away by the passion in the room, which exceeded even my lofty expectations. The high net worth individuals of the GCC are hungry for frank and substantive discussions of these topics from a diverse array of voices, which is exactly what our Summit provided in spades,” William Mullally said. cpifinancial.net

REAL ESTATE

Inside Saudi Arabia’s REITs Real Estate Investment Trusts in Saudi Arabia have seen a huge growth in number, but prices have moderated

EITs, or Real Estate Investment Trusts, continue to grow in the GCC. Since the listing of the first REIT on the Tadawul in late 2016, the number of REITs listed on the stock exchange has hit 17, with a total market capitalisation of $3.7 billion as at early November 2019. This is a substantial increase compared to Q1 2018 where the market consisted of 12 REITs with a $2.3 billion market capitalisation, according to figures from Knight Frank. However, as fast as things have been moving, do not expect that pace to continue. “As expected we are seeing a slowdown in listings, with the vast majority of activity taking place in 2018 and not 2019. In 2018 nine new REITs were listed compared to just one listing to date in 2019. From a regulatory perspective, the Saudi Arabian Capital Market Authority (CMA) has proven to be generally proactive in addressing the various regulatory challenges facing the market,” said Saudi Suleymani, Partner, Saudi Arabia. “A key proposed regulatory change that we had identified in our last review is the increase in the minimum capital requirement for new funds from SAR 100 million to SAR 500 million. A strong and flexible regulatory framework, which has proven to be favourable for the development of REIT markets in more mature jurisdictions, will remain a key objective in the governance of the 30

REIT market in Saudi Arabia. Earlier this year, the inclusion of selected Saudi-based REITs in the FTSE EPRA Nareit Emerging Index was announced,” Suleymani concluded. The FTSE EPRA Nareit Global Real Estate Index Series is specialised in REITs and real estate companies and is designed as a performancetracking tool for both developed and emerging markets. Knight Frank expects the inclusion of Saudi REITs in this global real estate benchmark to have a favourable impact on the market by further aligning the regulatory guidelines governing their listing and operations with international best practices. Furthermore, the inclusion is seen as an important step towards increasing transparency, improving corporate governance and incentivising accessibility of foreign investors to Saudi capital markets while broadening the investor base. “Generally, this falls in line with the recent inclusion of the Tadawul All Share Index in global benchmark indices including the MSCI Emerging Markets Index and the FTSE Russell Emerging Markets Index. From a valuation perspective, Saudi-based REITs have seen their price to net asset value (NAV) narrow over the past two years with REITs currently trading at an average of nine per cent discount to NAV, a figure that is in line with more mature markets. On a positive note, the index tracking the performance of Saudi REITs showed healthy

performance in the first ten months of 2019, following a significant drop in 2018,” said Suleymani. The index rose by over five per cent during the first 10 months of 2019, indicating that the market performance of Saudi REITs is likely turning the corner following a correction phase that has offset initial buoyancy.

The evolution of the global REITs market 1960-1980 United States, Taiwan, The Netherlands, New Zealand, Australia

1981-2000 Canada, Brazil, Belgium, Turkey, Greece, Singapore, Japan

2001-2010 South Korea, France, Hong Kong, Bulgaria, Malaysia, Thailand, United Arab Emirates (Dubai), Germany, Italy, United Kingdom, Pakistan, Spain, Costa Rica, Finland, Philippines, Mexico

2011-2019 Hungary, South Africa, Ireland, India, Kenya, Bahrain, Vietnam, Saudi Arabia, Oman, Portugal Sources: National Association of Real Estate Investment Trusts (NAREIT)

REAL ESTATE

Portfolio allocation of listed REITs as of Q4 2019 (1)

Perfo

Geographic diversification within Saudi Arabia

1 city

24% 20% 10% >1 city

76%

0% -10%

> 1 city

-20%

1 city

-30%

Thematic vs. diversified investment approach

-40%

18%

-50%

1 city

82%

Source Diversified

Note:

Thematic

Sources: Knight Frank Research, Tadawul Notes: (1) ) Based on the portfolio allocation of Saudi-based REITs as at November 01, 2019

â&#x20AC;&#x153;Going forward we should expect spreads between higher and lower quality REITs to widen given the greater availability of financial information enabling investors to increase their focus on fundamentals such as the quality of the underlying portfolio and the stability of the cash flows. The growing depth of the market is offering a more favourable platform for investors willing to adopt a long-term investment approach while taking advantage of the portfolio diversification benefits offered by REITs,â&#x20AC;? said Suleymani. cpifinancial.net

REAL ESTATE Portfolio allocation of listed REITs as of Q4 2019 (1)

Performance of Saudi REITs from listing date until 01/11/2019 (1)

-11%

Average Performance

20% 10% 0% -10% -20% -30%

Al Khabeer REIT

Mefic REIT

Swicorp Wabel REIT

Bonyan REIT

SEDCO Capital REIT

Derayah REIT

Al Rajhi REIT

Jadwa REIT Saudi

Mashaar REIT

Al Ahli REIT

Mulkia REIT

Musharaka REIT

Almaather REIT

Taleem REIT

Al Jazira REIT

-50%

Jadwa REIT Alharamain

-40%

Riyadh REIT

Geographic diversification within Saudilevel Arabia “Moreover, the increased of competition in the market is considered to be a trigger for the 1 city adoption of best-in-class 24% practices by REIT management teams. Diversified REITs are consolidating their dominance on the market as opposed to thematic REITs due to a structural >1 city 76%grade real estate lack of institutional stock. This trend contrasts with more mature markets where there is a greater prevalence> of 1 citythematic REITs, allowing investors to gain exposure Thematic vs. diversified investment approach to specific asset classes in line with individual risk/return profiles.” Following a phase 18%of rapid expansion, the pace of REIT listings on the Tadawul has started to lose momentum in 2019, 1 city which should be an indication of the trend that will be shaping the upcoming phase. The limited number 82%of approvals that are currently in the pipeline indicates that the listing momentum will remain Diversified moderate, in line with what has occurred throughoutSources: 2019.Knight Frank Research, Tadawul Notes: (1) ) Based the portfolio allocation of From Q1 2018 to onNovember 2019, Saudi-based REITs as at November 01, 2019 the market capitalisation of REITs in Saudi Arabia grew 61 per cent. However, during 2019, there were no major developments in the regulatory or listing activities in the GCC REIT markets outside of Saudi Arabia. The most recent development has been the implementation of a regulatory framework for the use and listing of REITs in Oman in January 2018, hence joining the UAE, Saudi Arabia and Bahrain as GCC countries with established listed REIT regulations. In June 2019, the inclusion of selected Saudi-based REITs in the FTSE EPRA Nareit Emerging Market Index was announced after all required criteria for the inclusion were met. The FTSE EPRA Nareit Global Real Estate Index Series is a property index specialised in REITs and real estate companies and is designed as a performance-tracking tool for both developed and emerging markets. As at 31 October 2019, there were six Saudi-based REITs in the FTSE EPRA Nareit Emerging Index with a combined market capitalisation of almost USD 1.4 billion, these REITs account for 0.7 per cent of the index. The reclassification

Sources: Knight Frank Research, Macrobond Note:

(1) REITs are presented in this graph chronologically based on their listing

2019 YTD performance: REITs vs. Real Estate vs. Tadawul All Share Index (1)

5.20% REIT’s Index

-7.50% Real Estate Index

0.60% Tadawul All Share Index

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

-0.00%

2.00%

4.00%

6.00%

Sources: Knight Frank Research, Tadawul website Notes:

(1) YTD performance based on November

of Saudi Arabia as an eligible market for the FTSE EPRA Nareit series represents an important step in the development of the REIT market in the Kingdom and in the government’s drive to increase transparency and visibility around real estate markets, according to Knight Frank.

The Saudi Arabian listed REIT market is characterised by a large dominance of non-thematic REITs, accounting for around 80 per cent of listed REITs as at Q3 2019. This compares to circa 70 per cent in Knight Frank’s previous Q1 2018 review given that the large majority of

REAL ESTATE

Dividend yields of Saudi-based REITs TTM Dividend Per Share

Market price (in SAR) as

Estimated Dividend

(in SAR)

at 01/11/2019

Yield %

Riyadh REIT

0.52

7.96

6.5%

Al Jazira Mawten REIT

0.50

12.00

4.2%

Jadwa REIT Alharamain

0.54

7.69

7.0%

Taleem REIT

0.64

10.68

6.0%

Al Almaather REIT

0.64

8.08

7.9%

Musharaka REIT

0.72

8.25

8.8%

Mulkia REIT

0.68

8.76

7.8%

Al Ahli REIT

0.65

8.44

7.7%

Mashaar REIT

0.52

7.53

6.9%

Jadwa REIT Saudi

0.72

10.00

7.2%

Al Rajhi REIT

0.63

8.90

7.1%

Derayah REIT

0.75

9.30

8.0%

SEDCO Capital REIT

0.65

8.40

7.7%

Bonyan REIT

0.75

9.18

8.1% 8.6%

Swicorp Wabel REIT

0.67

7.82

Mefic REIT

0.60

7.80

7.8%

Al Khabeer REIT

0.80

10.20

7.9%

KSA REITS Dividend Yield priced at 01/11/2011

7.3%

KSA REITS Dividend Yield priced at 10/04/2011

6.1%

Sources: Knight Frank Research, Tadawul website, FTSE, MSCI Note:

- REITs are presented in this table chronologically based on their listing date on the Tadawul - TTM Dividends for these REITs have been estimated by annualising most recent payouts. - Index factsheets, priced at October 31, 2019

newly listed REITs have an exposure to more than one asset class. This is partly the result of a limited stock of institutional grade assets that can be placed within REIT structures which have the ability to provide investors with a long-term sustainable income. A greater prevalence of thematic REITs is common in more mature markets, enabling investors to gain exposure to specific real estate sectors. The share of thematic real estate companies and REITs in the FTSE/EPRA. NAREIT Global index and in the MSCI World REITs Index, according to Knight Frank, stood at 65 per cent and 91 per cent respectively as at 31 October 2019. “Although the blended approach provides investors with important long-term diversification benefits, the thematic approach can better match an investor’s risk profile. This is particularly important for investors

seeking exposure to non-cyclical, defensive sectors such as healthcare and education. "In terms of geographic diversification, the number of listed REITs where assets are spread across more than one city in the Kingdom has been steadily increasing and now currently stands around 76 per cent. This compares with just 50 per cent of total REITs in our Q1 2018 review,” said Stefan Burch, Partner, Saudi Arabia. “We have also seen REITs starting to invest outside of Saudi Arabia, where Saudi REITs are able to invest up to 25 per cent of their capital in international markets. Recent examples include Riyadh REITs partial acquisition of an office building in Washington D.C., USA and Bonyan and MEFIC REITs’ acquisition of residential assets in Dubai,” said Suleymani.

Following initial buoyancy there has been a significant price moderation starting late 2017. “The REIT index has dropped by approximately 30 per cent in 2018 in the context of a softening real estate backdrop despite the Tadawul gaining nearly nine per cent in the same period supported by the inclusion story and a regain in confidence among investors. Most REITs have pared back early gains and are currently trading below listing price. The average performance of Saudi-based REITs from listing date until 01/11/2019 stands at -11 per cent. On a positive note, the REIT index rose by approximately five per cent so far in 2019 pointing to the fact that the market performance of Saudi REITs is likely turning the corner following a correction phase that has offset initial buoyancy,” said Burch. The initial trend for trading at a premium to NAV was mainly attributable to large amounts of capital seeking exposure to income producing real estate. During the past two years, pricing has moved closer in line with mature markets and Saudi-based REITs are currently trading at an average of nine per cent discount to their NAV, according to Knight Frank. Going forward Knight Frank expects spreads between higher and lower quality REITs to increase as investors increase their focus on fundamentals. REITs in Saudi Arabia are required to distribute 90 per cent of their profits to unit holders in the form of dividends, with only 10 per cent of profits allowed to be re-invested. With the market gaining in maturity and a rise in the number of REITs on the market, dividend yields are becoming a key performance indicator to watch and an indicator of long-term success for investors. “Our calculations show that REITs in Saudi Arabia offer investors an average of 7.3 per cent dividend yield, representing an attractive return for investors. This is well above the average dividend yield offered by some of the key global REITs indices and above our previous dividend yield estimate,” said Burch. cpifinancial.net

PRIVATE BANKING

The future’s bright for private banking in the region With the region undergoing an unprecedented transformation, new opportunities will abound for the local wealth management sector, Rudy Guillemyn, Head of Elite & Private Banking, First Abu Dhabi Bank (FAB) writes for WEALTH Arabia

Rudy Guillemyn

quick search for ‘private banking’ on any news aggregator will typically yield a set of results dominated by the likes of Switzerland, Singapore and Hong Kong, who show little sign of relinquishing their 34

perches atop Mount Offshore. Keep mining through the data, however, and it becomes clear that change is afoot, with the Gulf region rapidly rising through the ranks. According to the Boston Consulting Group’s 2018 Wealth Report, the UAE is the joint-fifth largest centre for global offshore wealth, with the sector overseeing some $0.5 trillion of assets and growing at an average rate of four per cent between 2012 and 2017. To put this into context, the UAE ranks higher than Luxembourg, the UK mainland and Monaco, with Bahrain close behind in eighth place. Such results have led leading analysts such as EY to conclude that “the GCC region is a highly prospective market for private banks and other providers of wealth management solutions”. This should hardly be surprising given the GCC’s meteoric economic rise since its inception. GDP growth has advanced in a more or less linear

fashion for all member states over the past three decades and regional wealth is expected to rise at an annual rate of eight per cent over the next three years. In the UAE alone, the number of wealthy households doubled between 2005 and 2015, prompting a number of international banks to rededicate their private banking efforts and diversify away from traditional commercial operations. Equally as significant, the region’s financial institutions have been active in hiring world-class expertise and developing local wealth management propositions of their own. First Abu Dhabi Bank (FAB), for example, has established a global presence in strategic locations such as Geneva, London and Singapore, allowing it to offer its broad range of global investment and wealth solutions. Private banking therefore rests on fertile ground in the region, with a seemingly massive potential. At the same time, a number of

PRIVATE BANKING

positive reforms, from enhanced regulatory frameworks to increased transparency, have helped to build investor confidence, but there are still a number of challenges that need to be overcome if the region’s full potential is to be fulfilled. Perhaps the greatest challenge lies in the particular profile of clients in the region. For instance, high-income expatriates often spend limited periods in the region, curtailing the potential pool of clients for wealth management firms. When residents do seek out investment advice, this is often from familiar parts of the world such as the UK or Switzerland. This might be a major challenge if socio-economic trends were fixed phenomena. Fortunately, the region is undergoing a period of unprecedented

change, with member states presently implementing ambitious multi-year development plans to place their economies on a sustainable footing for the future. The Abu Dhabi Economic Vision 2030, for example, calls for huge investments in infrastructure, energy and the gradual transition to a smart, digital economy. With 90 per cent of the region’s businesses family-owned, individual investors will be at the forefront of the region’s transformation, creating a wealth of opportunity for private banking institutions. Significantly, these opportunities will not be limited to regular advisory facilities and investment tools: according to the STEP Trust Quarterly Review, 75 per cent of GCC family businesses—

The work being done across the region to transform and modernise local economies is also helping to usher in new opportunities for private banking. Financial hubs like Abu Dhabi, Dubai and Riyadh are increasingly competing on an equal footing with the traditional private banking centres of the world. — Rudy Guillemyn

some two thirds of all companies in the region—are likely to pass from founding generations to millennial successors in the near future. Demand for family governance services is therefore likely to skyrocket as these transitions take effect. Of course, the mere presence of an opportunity does not guarantee that it will be seized and the region’s HNWIs of tomorrow could continue to favour traditional offshore centres over local private banking institutions. This is unlikely to be the case, however, since local banks have been steadily gearing up for the changes ahead and adapting their wealth management offerings to millennial clients. FAB, for example, is broadening its wealth platform and investing in digital platforms, a prescient move given that wealth management globally is already incorporating the likes of roboadvisory services into their proposition. FAB and other GCC banks also operate vast international networks and partnerships, leading to considerable transfers of knowledge from traditional financial capitals to Abu Dhabi, Riyadh and other regional centres. Private banking and wealth management businesses in the GCC therefore appear well placed to compete on their own terms over the coming years, with the outlook particularly good for the Islamic asset management sector. In the GCC, the majority of Sharia products are managed and distributed through Islamic banks or subsidiaries, who boast a heritage and expertise that would be difficult to match elsewhere. The work being done across the region to transform and modernise local economies is also helping to usher in new opportunities for private banking. Financial hubs like Abu Dhabi, Dubai and Riyadh are increasingly competing on an equal footing with the traditional private banking centres of the world. And since local institutions are proactively preparing for the future while seizing the myriad opportunities available today, the summit of Mount Offshore could soon be within reach for the region’s banks. cpifinancial.net

PRIVATE BANKING

Should you be checking your private bank’s cyber rating? Ian Cramb, Chief Operating Officer, Union Bancaire Privée (UBP) writes for WEALTH Arabia about how cybersecurity is affecting the private banking landscape

PRIVATE BANKING

PHOTO CREDIT: PhonlamaiPhoto/iStock

fter working hard to adapt to changes in private banking over the last 15 years—the disappearance of banking secrecy, the regulatory big bang, the introduction of Automatic Exchange of Information rules—it finally seemed that the industry could look ahead with confidence, focusing on development and digitalisation. However, like Sisyphus, the industry can never rest, and its latest challenge is to combat cybercrime. In fact, the challenge is not new at all, and is not confined to banking. However, it is growing all the time. In the last few years, cybersecurity has been the main concern of financial institutions’ Chief Operating Officers. According to an industry joke, there are only two categories of banks: those that have been attacked and those that haven’t yet realised they’ve been attacked. Cybercrime, whether its aim is to misappropriate money or ruin reputations, poses considerable risks for all types of companies. But the threat is being taken particularly seriously by banks, whose business relies entirely on trust. When Tesco Bank was attacked in 2016, 40,000 accounts were compromised and half had money stolen from them. This resulted in the UK’s Financial Conduct Authority fining the bank GBP 16.4 million for “failing to protect customers”. Since that first large-scale attack, the list of banks affected in Europe has grown to include Santander, Royal Bank of Scotland, Barclays, UniCredit, Bank of Valletta and Metro Bank. JUSTIFIED PARANOIA The banking industry has entered an era of paranoia, with some justification. Web hackers have much more time and resources than their potential victims, however determined those victims might be to protect their IT systems. On the dark web, cybercrime has become an industry in its own right, with price lists, service providers and sponsors. This can be seen in the way attacks have grown in both cpifinancial.net

PRIVATE BANKING

risk on the basis of public traffic data. The resulting ratings are updated daily, forcing companies to make ongoing efforts to maintain a good score. At the moment, these cyber ratings are only accessible to institutional investors. But there is every chance that they will eventually be available to all, and will become a key criterion, like solvency indicators, that private clients take into account when selecting a bank. In the same way as banks must now provide practical evidence of their commitment to responsible investment in order to stand out, they will in future have to show objectively that they are making constant efforts to protect their own data and those of their clients. For the best banks, their cyber ratings will become a marketing tool.

Ian Cramb, Chief Operating Officer, Union Bancaire Privée

number and sophistication. According to Forbes, in just the first half of 2019, 3,800 security breaches were made public, in which the security of 4.1 billion records was compromised. This is the downside of the evermore connected world that we have created. The number of potential pitfalls is increasing as technological innovation makes everything more interconnected. In the banking industry, in particular, it should not be surprising that clients want the immediacy, simplicity and efficiency now being made possible by electronic services. Yet the e-banking apps giving 38

them that connection have themselves become a weak link in the system. Well-designed e-banking tools provide solid protection. But hackers will take advantage of any small crack, such as a delay in installing an update, to infiltrate devices. Banks are spending increasing amounts of money to combat this multifaceted threat. They are customers of a rapidly growing cyber-resilience industry. As well as established software makers, we have seen a proliferation of new service providers, such as cyber-rating agencies that assess a company’s cyber

VIRTUAL VAULT Even then, to turn cybersecurity into a positive selling point, banks will have to raise awareness on an ongoing basis, both internally and externally. They must use their relationship managers’ close links with clients to make sure they are fully informed, particularly when setting up e-banking. After all, in a previous era, clients used to ask how secure a bank’s vault was. Today, therefore, it is natural that a bank should take the time to raise clients’ awareness of cyberprotection matters. Internally, as well as the need to ensure that their staff can be relied upon in order to minimise human risks, banks must raise awareness through information sessions, make regular assessments of how employees respond to “phishing” attacks (attempts to gain access to sensitive data through work e-mails), carry out penetration tests and simulate cyberattacks. Today’s COOs are caught up in a number of technological revolutions, and most of them would admit that they need to remain humble in their efforts to combat cybercrime: no matter how effective the defences they build, it is impossible to eradicate all risk. But they also know that they cannot let down their guard when dealing with such a major challenge.

THE BUSINESS OF BANKING Banker Middle East is the MENA regionâ&#x20AC;&#x2122;s most prestigious financial title. Read by senior bankers & financiers across the Middle East, for more than a decade it has been the most informative source of news, developments and strategic thought from within the financial community.

Banker Middle East is a controlled circulation publication. You may apply to subscribe via our website or by emailing subscriptions@cpifinancial.net

GET THE DIGITAL EDITION OF BANKER MIDDLE EAST ONLINE. cpifinancial.net

MOTORING

One of the worldâ&#x20AC;&#x2122;s best-designed supercars takes on the Yas Marina Curcuit WEALTH Arabia channels their inner Lewis Hamilton in the Lamborghini HuracĂĄn EVO

MOTORING

ince the Yas Marina Circuit opened in 2009, it has become an integral part of the racing world, holding major events such as the FIA Formula One, the Abu Dhabi Grand Prix GP2Asia Series, Drag Racing, V8 supercars and more. Reportedly costing nearly AED 4 billion to produce and designed by renowned architects Hani Rashid and Lise Anne Couture, it has been praised for its unique corners, its infamously sharp turn seven and iconic main straight. WEALTH Arabia’s first experience out of the stands came in the passenger seat next to one of the most legendary figures in the world of automotive media—Top Gear star The Stig. The Stig, a famously silent and anonymous figure that is always seen wearing

a white racing jumpsuit and white helmet, looked over to me blankly as I got into the car, ready for a race around the track for the first time. “Don’t go easy on me,” I later regretted saying to the Stig. While that experience left me regretting quite a number of my life decisions, this time would be different. I would take the wheel myself around the track in the driver’s seat of the Lamborghini Huracán EVO, the latest and greatest in Lamborghini’s legendary line of supercars. A next generation v10 super sports car, as they deem it, the EVO is directly based on the prowess and performance of the Huracán Performante, while also incorporating next-generation vehicle dynamic control and aerodynamics.

The Huracán, Spanish for hurricane, takes its name, as many Lamborghinis traditionally have from famous Spanish fighting bulls, and Huracán is no different, named after a famous bull that was renowned for its courage and fought in 1879. The line launched in 2014 with the Huracán LP 610-4 Coupe, followed by the Polizia variant made for the Italian State Police, then the limited edition Avio, and then the next major updates, the Spyder, and the LP 5802. Even the Pope has a Huracán—the Huracán LP 580-2 Pope Francis, which was donated to him, featured a white and gold design, and then was signed by the Pope himself and auctioned by Sotheby’s with the proceeds going to charity. cpifinancial.net

MOTORING

The Performante was a track oriented variant available from 2017 to 2019, which set a lap record of 6:52.01 on the Nürburgring Nordschleife, a time so fast that many couldn’t believe that it had really happened, forcing Lamborghini to prove it again a week later. “Lamborghini is intent on leading the advance to the highest level of super sports car technologies and driving emotion. This is the essence of the new Huracán EVO. It takes the extraordinary abilities of the Huracán Performante and combines state-of-the-art vehicle dynamic control to amplify the everyday Huracán driving experience,” said Stefano Domenicali, Chairman and Chief Executive Officer of Automobili Lamborghini at the launch. “The Huracán EVO is the very definition of evolution: it is a step ahead, redefining the segment parameters. It is remarkably easy to drive, while delivering the most responsive, sensory and agile driving experience, in every environment.” The Huracán EVO features the 5.2 l naturally-aspirated Lamborghini V10 engine, uprated to produce higher power output and an emotional and powerful

sound, with Titanium intake valves and refined lightweight exhaust system. The Huracán EVO outputs 640 hp (470 kW) at 8,000 rpm with 600 Nm of torque delivered at 6,500 rpm. With a dry weight of 1,422 kg the Huracán EVO reaches a weight-to-power ratio of 2.22 kg/hp, accelerates from 0-100 km/h in 2.9 seconds and from 0-200 km/h in 9.0 seconds. Braking from 100 km/h to 0 is achieved in just 31.9 m, with a top speed of more than 325 km/h. 42

The Huracán EVO features new Lamborghini rear-wheel steering and a torque vectoring system working on the four wheels, while at the heart of the car is the new feature of Lamborghini Dinamica Veicolo Integrata (LDVI): a Central Processing Unit that controls every aspect of the car’s dynamic behaviour, fully integrating all of the car’s dynamic systems and set-up to anticipate the next move and needs of the driver, interpreting this into perfect driving dynamics.

Lamborghini Piattafor ma Inerziale (LPI), a comprehensive set of accelerators and gyroscope sensors placed at the car’s center of gravity, has been upgraded to what is now deemed version 2.0. With improved precision, it monitors in real-time the dynamic vehicle attitude regarding lateral, longitudinal and vertical accelerations, as well as roll, pitch and yaw rate. The magneto rheological suspension, upgraded to version 2.0, instantaneously

MOTORING

adapts the damping following inputs from the LPI. A new advanced traction control system together with enhanced all-wheel drive and torque vectoring, allows traction to be directed to a single wheel as required. Enhanced Lamborghini Dynamic Steering (LDS), able to provide higher responsiveness in cor ners while requiring the lowest steering angles, is now coupled with rear-wheel steering in order to ensure agility at low speed, as well as maximum stability in highspeed cornering and under braking in the most severe conditions. T h e un ique c om bin ation of all these systems is gover ned by Lamborghini’s LDVI to create a super-agile and responsive car with, an astounding level of control. Processing data in real time, the Huracán EVO recognizes the driver’s intentions through steering wheel, brake and accelerator pedal inputs, engaged

gear and the driving modes selected via ANIMA controller: STRADA, SPORT or CORSA. In my multiple trips around the Yas Marina Circuit, I select each of these settings, and it is very clear how different each is, with a huge shift in responsiveness and overall feel when moving into SPORT and CORSA. If you want to put this car to the test, don’t leave it in STRADA. The car, of course, is doing a lot of the determination for you. External conditions are determined through active suspension and all-wheel drive grip estimation function. All of this information is analysed and processed by LDVI, which turns them into precise inputs for the vehicle dynamic system. A ‘feed forward logic’ is implemented via the dynamic controller, which means the car doesn’t just react, but predicts the best driving set-up for the next moment.

In STRADA, the Huracán EVO is agile and capable for driving enjoyment, whereas in SPORT it becomes playful, intuitive and extremely exciting. In CORSA the Huracán EVO is sharp, reactive and exhilarating for the most extreme driving environments, such as racetracks. Put it in CORSA. Let’s dive into the aerodynamic redesign, shall we? A new front bumper gives the car a low, assertive personality, but more importantly assures aerodynamic efficiency via the front splitter with integrated wing. The enlarged air intakes feature the Ypsilon shape that is inherent in Lamborghini design DNA. The side profile of the Huracán EVO is articulately dynamic, featuring Lamborghini’s hexagon design references in the windows, the new wheel design and around the new side air intakes. But it is at the rear of the car that the Huracán EVO most distinctively evokes the power and dynamism that lies within. Reflecting the wide, open, naked rear seen in its race-car brother, the twin outlets of the new sports exhaust system are positioned high up in the car’s rear bumper. At the upper end of the tail an integrated, slotted spoiler provides enhanced air flow, clearly asserting the car’s aerodynamic abilities. The underbody has been shaped to maximize aerodynamic efficiency as well, including downforce and aerodynamic efficiency more than five times over the first-generation Huracán. Even on the world-class Yas Marina Circuit, I still didn’t feel that I had pushed the Huracán to the limit. Partially that might be that I am not Lewis Hamilton, but I still yearned to take it out on the open road or the Autobahn in Germany to really let loose. I also had the chance to take the car around the busy roads of Abu Dhabi, and it was just as fun to drive in more everyday conditions than it was on the track, easy to drive and both relaxing and exhilarating depending on how you want to use it. But make no mistake, this is car you’re going to want to drive, and drive as fast as you can. cpifinancial.net

ART

Koranic Instruction (1890) by Osman Hamdi Bey

ART

The ascent of Osman Hamdi Bey The 19th century Turkish Orientalists artist broke records in separate auctions in late 2019, selling for millions. Why has Hamdi Bey come to the forefront, and how does he fit into the broader Orientalist movement?

here are few more hotlydebated artistic movements as the Orientalist movement. Ever since Edward Said’s landmark book Orientalism was released in 1978 featuring a painting by Jean-Leon Gérôme on the cover, Orientalism has been derided by critics as a misrepresentation of the Arab world, one in which European artists based their depictions of an entire culture on exotic fantasies and stereotypes taken from tall tales and misconceptions. This, of course, does not tell the whole story. While often it is the European artists that are most discussed, such as Gérôme, Eugene Delacroix, Robert Talbot Kelly or Ludwic Deutsch, there is no more fascinating figure in the movement than Osman Hamdi Bey. In fact, in a decade in which we’ve seen multiple films about Vincent Van Gogh, as well as films about JMW Turner, Renoir, and Margaret Keane, one wonders what is taking so long for Hamdi Bey’s story to be told on a mass scale. Hamdi Bey (1842 – 1910) was himself an Orientalist painter, but he was in fact much more. “Hamdy Bey was not only a painter he was a teacher of painting. He founded the Academy of Fine Arts in Istanbul, and he was also an archeologist, a conservationist, a photographer and a diplomat. He was a man of many talents,” Claude Piening, Senior Director of Sotheby’s in London, tells WEALTH Arabia.

Osman Hamdi Bey

cpifinancial.net

ART

The Scholar (1878) by Osman Hamdi Bey

In fact, some of his most important contributions to Turkish and Middle Eastern culture came from his archeology, as he helped pioneer museum curatorship by founding Istanbul Archeology Museums as well as the Istanbul Academy of Fine Arts, which survives to today as the Mimar Sinan University of Fine Arts. From an investment and collector’s perspective, Hamdi Bey’s work as an 46

Orientalist painter is also having a huge moment. Sotheby’s just held its largest-ever Orientalist sale and Hamdi Bey’s painting Koranic Instruction was the top lot of the sale, set against the spectacular interior of the Green Mosque in Bursa and featuring his own self-portrait, selling for $6 million. That isn’t even the highest-selling piece by Hamdi Bey this fall, as Young Woman Reading, another of his

paintings, sold for $8.1 million. "Young Woman Reading was one of the finest of Osman Hamdi Bey's paintings to appear at auction in recent years. I am not surprised that the bidding was so strong and that it set a new world record sum for the artist. The sum achieved for Young Woman Reading, and for the three works in the sale by Ludwig Deutsch, demonstrate the strength of the market

ART

for Orientalist paintings,” Bonhams Head of 19th Century Art, Charles O'Brien said. O’Brien is correct that Orientalist paintings are a very strong market at the moment. In Sotheby’s sale of the Najd Collection, 36 paintings sold to bring a combined $43,287,495, a record for an auction in this category. While Hamdi Bey’s piece was the top lot, the aforementioned Deutsch

also was a strong representative, with his painting The Tribute selling for a record-breaking $5.6 million, doubling the artist’s last top record from a sale in 2013. In total, his paintings totaled $13.9 million in sales, with four selling for more than $1 million. Gérôme’s Riders Crossing the Desert sold for $4.1 million, also a record for the artist. “The appearance at auction of important private collections gives

the world the opportunity to discover exceptional works of art collected with a taste for the very best. This season, it was a privilege to be able to exhibit all 155 rarely-seen works from one of the greatest collections of Orientalist paintings ever formed and to see a growing audience to discover their sheer painterly power. The enhanced enthusiasm carried through to the auction of select pictures from the cpifinancial.net

ART

group, the results of which represent a major market defining moment,” “Edward Gibbs, Sotheby’s Middle East & India Chairman, said. While Hamdi Bey is the most prominent Middle Eastern artist that representatively painted the Middle East at the time, Piening is careful to make the distinction between the types of Orientalist painters—those that actually travelled to the Middle East and earnestly tried to represent the cultures they visited, and those that instead painted offensive fantasies. “I would distinguish between armchair Orientalists and true Orientalists. Armchair Orientalists were people who relied on second or thirdhand accounts, read Arabian Nights, and let their imaginations run wild basically, that to me is not true Orientalist art. True Orientalist art is by artists who actually encountered these places, who made the effort to travel there,” Piening tells WEALTH Arabia. “Of course, artists took artistic license in their final compositions. Art by definition is artful. But compositions were informed by actual encounters and trips. That’s what distinguishes this collection as well--there are no armchair Orientalists. Edward Said’s arguments are true in certain instances.” What makes Hamdi Bey’s Orientalist paintings so compelling is his style is influenced by the artists such as Gérôme and Boulanger, but also was intensely his own. “What’s interesting is that it is painted in the Western representational style, yet by a Turk at a time when representational figurative painting was virtually unknown in the Islamic world, and certainly wasn’t being practiced by local artists. Hamdi Bey spent time in the 1860s in Paris where he studied under a French academic painter called Gustave Boulanger, where he also would have met Jean-Lèon Gérôme, and you can see he’s basically adopted specifically the French style of academic painting with its emphasis on rigorous draftsmanship and so on, and broad it home where he encouraged his pupils to adopt the style as well,” says Piening. 48

The Tortoise Trainer (1906) by Osman Hamdi Bey

“When it was painted, and it’s hard to believe this now, it would have been highly avant garde to a local audience in Turkey. To see a picture like this by a Turkish artist would have been revolutionary, to be honest. Because it was painted by an insider, a Turk, painting his own culture

as opposed to by an outsider looking in, you can’t accuse Osman Hamdi Bey of the Western gaze.” The fact that this art was being painted by someone who had not just visited and ‘immersed’ himself in Middle Eastern culture but someone

ART

who was of it is not just something that makes it more interesting on paper. The depictions of the European Orientalists and those of the Turkish Hamdi Bey are very different in a number of ways. For one, Hamdi Bey is able to make it personal, putting himself in the paintings and commenting on his own life and culture around him from a firstperson perspective rather than a third. With that came a more critical eye, and his subjects were often portrayed as more flawed and human, as were the locations themselves. There was no effort to glamorise—he wanted to show things as they were and as he saw them, rather than pristine interpretations. “Many would say that his pictures therefore have an added authenticity because they’re representations by an insider depicting his own world. Because he was painting own culture, he was able to poke a bit of fun and maybe being a bit of satirical. He was able to push the boundaries,” says Piening. However, in Piening’s view, when compared to the European Orientalist painters, Hamdi Bey’s depictions, though distinct in some way from his peers, are more similar than different in both style and substance. “Because this is what you could call an authentic Orientalist work, it’s quite interesting to then compare other Orientalist pictures by nonlocals to this and ask yourself how does they stack up against this? Do they compare favourably? And I would say they do actually. All this business that Edward Said that the text or images of Orientalist artists is patronising and demeaning is more or less negated by many of these artists who made a genuine attempt to depict the culture that they encountered. If you measure those pictures, such as the ones hanging in this room, with a picture actually made by a local artist, you realize that they’re not far out,” says Piening. Hamdi Bey’s art undoubtably had a great effect on the whole region. “It’s a snowball effect. While we don’t know how many were enrolled in his school after he founded it, potentially a dozen or two, but the

A Lady of Constantinople (1881) by Osman Hamdi Bey

cumulative effect over the generations is that we now have representational art that is widely espoused in Turkey and across the Arab world as well. The whole culture of painting and painting in a representational style is thanks to reforms that came in in the 19th century. Before that local artists were not really practicing representational painting,” says Piening. While Hamdi Bey’s art and association with the Orientalism artistic movement does not absolve the Orientalists completely of their more pointed transgressions and unfair depictions, nor does it invalidate Edward Said’s work, it does in fact show that Orientalism was a broader, more fascinating movement that had strong cultural value for the Middle East from an artistic perspective, just as it has been embraced by Middle Eastern private collectors and institutions such as the Louvre Abu Dhabi. Hamdi Bey’s art should continue to rise in value, and if a clever filmmaker ever gets the idea that they should make a movie about the fascinating life of Hamdi Bey, we may finally see the artist ascend to the heights he so richly deserves.

Young Woman Reading (1880) by Osman Hamdi Bey

cpifinancial.net

EVENTS

Thank you for attending the WEALTH Arabia Summit 2019! We look forward to welcoming you to the 5th edition in 2020.

INTRODUCING THE NEW

WWW.CPIFINANCIAL.NET We’ve got a new look, full of features and customised solutions to meet your evolving digital needs! Our new portal, redesigned from the ground up, offers a new cleaner look and added functionality. We combined all our brands under the same portal to create a user-friendly browsing experience for our trusted readers and valued business partners. In order to better serve the needs of the Middle East’s financial community, the new cpifinancial.net has added sections to supplement its in-depth financial news analysis, such as classifieds and business directory, in addition to overhauled opinion and features sections. We hope you enjoy our new intuitive design that is easy to navigate and provides added depth.

www.cpiﬁnancial.net

GREAT FARES GREAT FARES

ON THE WORLD'S MOST AWARDED AIRLINE ON THE WORLD'S MOST AWARDED AIRLINE BUSINESS CLASS ALL-IN R ETUR N FAR ES BUSINESS CLASS ALL-IN R ETUR N FAR ES FROM FROM

Hong Kong Hong Kong Tokyo Tokyo Bali Bali Kuala Lumpur Kuala Lumpur

7,975 7,975 AED AED8,395 8,395 AED AED8,505 8,505 AED AED8,775 8,775 AED AED

Feel Feelatathome homewith withour our award-winning award-winningser service vice

Singapore Singapore Brisbane Brisbane Melbourne Melbourne Sydney Sydney

Over Over 1,800 1,800 enter entertainment tainment options options

FROM FROM

9,025 9,025 AED AED 13,805 13,805 AED AED 13,825 13,825 AED AED 14,525 14,525 AED AED

Up to to 40k 40kggbag baggage gage Up allowance allowance

Book Book now now at at singaporeair.com singaporeair.com

Above fares advertised are startingfares faresper perperson, person,inclusive inclusiveof oftaxes. taxes. Market Market fares fares to other cities available. Fares dodo notnot include Above fares advertised are starting cities in in Asia Asia and andSouthwest SouthwestPacific Pacificregion regionare arealso also available. Fares include fees and/or charges that might leviedby byticket ticketoffices, offices,travel travelagencies, agencies, and and other other third party booking upon ticketing. Other terms and fees and/or charges that might bebe levied booking channels. channels.Fares Faresare aresubject subjecttotoavailability availability upon ticketing. Other terms and conditions apply. Visit singaporeair.comfor formore moredetails. details. conditions apply. Visit singaporeair.com