#38 - December 2016

ISSUE THIRTY EIGHT - DECEMBER - JANUARY 2017

ISSUE THIRTY EIGHT -DECEMBER - JANUARY 2017 A PATH TO SUCCESS

A path to success THUMBAY MOIDEEN, FOUNDER AND PRESIDENT, THUMBAY GROUP

A CPI Financial Publication

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INVESTMENT DON'T LOSE FAITH IN GOLD

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LUXURY PRODUCTS SENNHEISER'S NEW ULTRA HIGH-END SET

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CONTENTS

ISSUE THIRTY EIGHT - DECEMBER - JANUARY 2017

Editor's

LETTER Greetings, all

Welcome to the 38th issue of WEALTH Arabia. I hope you enjoy what is certainly our finest issue yet.

The WEALTH Arabia Summit 2016 has come and gone. It was so wonderful to see all of you there.

At the beginning of this year, I had the idea to bring you all together to discuss actionable investment with the world’s top minds. Without the whole team at CPI Financial, this would have just stayed an idea that I threw around in the conference room one day. I would first like to thank all of my colleagues for making it such a successful event, all of our sponsors for believing in our vision, and you for trusting us to deliver what was a stellar first event of what should be the cornerstone of the plans for WEALTH Arabia from here on out.

Please keep your calendars free for next year—we’re going to do it all over again then.

This issue is largely dedicated to that event, where all who missed it are able to see some of the excellent insights our experts had. I hope you enjoy digging in!

Beyond that, there’s still much to explore. Trump, jets, gold, headphones, and more. I hope you enjoy it.

Till next time,

William Mullally

OPINION

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There goes my foot again…

NEWS & ANALYSIS

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The latest analysis from the investment world

COVER INTERVIEW

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A path to success Thumbay Moideen, Founder and President, Thumbay Group

WEALTH ARABIA SUMMIT 2016

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The WEALTH Arabia Summit 2016 gives insight to GCC HNWIs Navigating a tricky environment

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Doing well at doing good

Planning ahead Innovating the alternative

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INVESTMENT

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Don’t lose faith in gold just yet There is hope and there is reality The opportunity brewing in Brazil’s economic crisis ISSUE THIRTY EIGHT - DECEMBER - JANUARY 2017

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CONTENTS

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

EDITORIAL editorial@cpifinancial.net

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

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

LUXURY TRAVEL

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Veela Private Island

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JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024 NABILAH ANNUAR nabilah.annuar@ cpifinancial.net +971 4 391 3718

LUXURY INVESTMENTS

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The art of investing in art

LUXURY PRODUCTS Sennheiser

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AVIATION

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Royal Jet

Sitting down with an Italian designer

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A PATH TO SUCCESS

WEALTH WARNING! A path to success THUMBAY MOIDEEN, FOUNDER AND PRESIDENT, THUMBAY GROUP

A CPI Financial Publication

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INVESTMENT DON'T LOSE FAITH IN GOLD

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LUXURY PRODUCTS SENNHEISER'S NEW ULTRA HIGH-END SET

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

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

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www.cpifinancial.net Registered at the Dubai Media City Printed by United Printing & Publishing – Abu Dhabi, UAE © 2016 CPI Financial FZ LLC All rights reserved. No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the Managing Editor.

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OPINION

THERE GOES MY FOOT AGAIN…

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efore I fired up the ol’ laptop to write this latest opinion piece, I got the stellar issue 37 of WEALTH off the shelves and read what I wrote last issue.

Hoo-boy, what a doozy.

“The Trump situation is on everyone’s mind. I’m writing this in late October, and at press time, things have started to calm down. Unless a band of time travelling hunters go back in time, venture off the path, and accidentally step on a butterfly, (and depending on when you’re reading this, they might have,) it looks like Hillary Clinton is headed towards a win.”

First question first—which one of you stepped on that butterfly?

Second, how did we all get this so wrong? It has been the year when we failed to read the writing on the wall. We have failed to predict a lot of the biggest events of 2016. Brexit seemed like an impossibility.

Trump’s election seemed laughable a year ago. But what got them there was something that we all noticed, even as much as we tried to bury our heads in the sand. Populist, nationalistic sentiment has risen all across the globe.

At least I got that right last issue: “Just this morning, I had coffee with Steen Jakobsen, Chief Economist, Saxo Bank, and we both agreed that Trump may falter, but what caused Trump’s rise isn’t going away. The nationalistic sentiment that has popped up in the US, UK, and all around the world isn’t going away.

And, like it or not, those movements are going to affect the world’s economy.”

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That is as true now as it was a few months ago. In fact, if things had gone the other way, it may have taken us even longer to wake up to that reality, and change ourselves to do things about it. These changes would not affect the economy as much if we prepared for them. Finance is all about the future— so if we are to get better at finding value, we have to get better at staring down into our tea and trying to see what the leaves may be telling us.

For Americans, though, this may be the time to look at what a lot of WEALTH readers have looked into—citizenship by investment.

Eric Major, Chief Executive Officer of the global citizenship advisory firm Henley & Partners, says his firm saw an increase in interest from Americans following Trump’s election. And the schemes that would most benefit them are some that WEALTH readers are very familiar with.

“Americans now have the world to choose from when it comes to acquiring an alternative residence or citizenship.

Both the relatively new Malta and Cyprus citizenship programmes give successful applicants the right to live and work in 32 European countries including the 28 EU member states, Switzerland, Norway, Iceland, and Luxembourg. The investment amount is reasonable given the privileges granted, and the application process is quite efficient. There are also numerous prestige residence programmes in Europe including the UK, Switzerland, Belgium

William Mullally and Austria, and the Investment Migration Program in Canada remains popular amongst Americans.”

Of course for the rest of the world, there is no running away. I’ll try to offer up no more predictions for you this issue.

Rather, we will all just have to do a better job of accepting the signs that threaten the status quo, as much as we do not want to.

And as much as some might want me to stop printing his name, I can predict one thing—you’ll be reading a lot more about Donald Trump.

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NEWS & ANALYSIS

G Bartosz Golba, Acting Head of Wealth Management at Verdict Financial

CC HNWI millennials see the world differently than previous generations—they’re more focused on entrepreneurialism, and half expect to never retire, according to a new study from UBS. But they are also more diverse in worldview…

Ali Janoudi, UBS Group Head of MENA

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utomated investment advisement, or so-called ‘robo-advisors’ in wealth management are here to stay—and may change the industry forever. Wealth managers are starting to take notice.

Wealth managers in developed markets have started to lean towards the view that digital players no longer compete for execution-only business. Indeed, in Europe many providers dubbed ‘robo-advisors’ offer a discretionary investment management service. They have clear fee structures which appeal to pricesensitive clients, though the lack of a recognised brand remains their primary handicap.”

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There has been a fundamental shift in attitudes towards wealth in our lifetimes and that is clearly seen in the UAE where millennials express some of the most varied opinions of any market globally. That is largely due to the diverse make-up of the population. Yet like other emerging markets, all are united by a confidence and ambition for their future success in the Middle East, or beyond. "

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David Kohl, Chief Currency Strategist and Head Economist Germany, Julius Baer

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or the first time in eight years, OPEC agreed on November 30 to cut its production—which could be good news for oil prices in 2017 and beyond.

Francisco Blanch, Commodity and Derivative Strategist, Bank of America Merrill Lynch

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he US Federal Reserve has announced it will increase interest rates. Will the markets greet this like a holiday gift? Signs point to yes.

Stock markets are expected to take the rate increase favourably.

In contrast to December last year, when a Fed rate hike was followed by an equity sell-off, we expect a rather positive reaction this time. The good cyclical backdrop is the major reason for this differentiation and a powerful motivation to take higher rates as a confirmation for a solid growth backdrop and not as a threat to it.”

The steep drop in oil prices over the last few years can be partly traced back to the `price war’ inside the OPEC cartel. It looks to us like the war is over. Key non-OPEC nations (led by top-producer Russia) are also parties to the agreement, a first since 1998. OPEC member nations will curb their output by 1.2 million barrels per day, others by 600,000 barrels per day. Country allocations and an independent production monitoring committee are also part of the deal, so we expect firmer compliance than for prior agreements.”

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THUMBAY MOIDEEN IS FOCUSED ON DELIVERING A BETTER FUTURE FOR HEALTH CARE AND OTHER INDUSTRIES.

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COVER INTERVIEW

The path to success AN EXCLUSIVE SIT DOWN WITH THUMBAY MOIDEEN, FOUNDER AND PRESIDENT OF THUMBAY GROUP, ON HOW HE BUILT HIS WEALTH, AND HOW HE WANTS TO SHAPE HIS LEGACY

Chart out how you built a multidisciplinary business conglomerate from humble beginnings and built your wealth using some of the most basic tenets of money management.

Well, I have always believed that life is made up of a finite number of personal and professional investments. It’s the choice we make to structure and express those investments that determines their overall payoffs. Throughout my life, I have made an earnest attempt to cut out all negative tales, and honed the discipline of multiplying some of life’s positive returns.

One of the key goals, since the inception of my first venture in the UAE, the Gulf Medical University (GMU), was to avoid debt and save regularly. I wanted to carefully avoid getting tangled in a

perpetual cycle of debt—which is often the case for many entrepreneurs who spend and borrow excessively to support an unsustainable lifestyle.

Since I managed to survive and grow with the support of the ruling families in the UAE and my team’s unconditional assistance in the medical education sector, I started creating various subsidiaries such as pharmacies, health clubs, coffee shops, restaurants, optical outlets etc., that bolster the core business. The art of managing your finances sensibly, in this part of the region, is to learn the skill of scaling up and down as per your financial fortunes. For starters, you need to remember that occasionally you need extra money accessible to keep going in the event that you manage to score a breakthrough. At the same, taking a step

back and scaling down your operations can help in providing some breathing room in challenging times.

What was your investment strategy on the road to wealth?

An important strategy, throughout my business cycle, is systematically diversifying investments. One reason for this is that, I believe, investment returns are driven not by an asset class alone, but a broad range of external factors too. Going that extra mile to understand and isolate the drivers of returns in various market conditions will help any business to position themselves for decent returns in both good and bad times.

In addition, if we keep all of our investment eggs in a single basket, the prospects of the business or the individual ...cont. overleaf

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COVER INTERVIEW

cont. from page 11

will be highly vulnerable when contrasting market drivers take prominence.

How did the values, discipline and ability to sense potential of your grandfather and father equip you to make the most of every opportunity?

I had a relatively privileged upbringing, as both my father and grandfather were successful businessmen in India. During the early years, their astute business sense,

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piousness, strong bond with the family and generosity made a huge impact on my learning. My maternal grandfather ran a timber business, whereas my paternal grandfather owned a shipping venture.

The elders in the family were successful in their field of business. Eventually, they culminated into my inspiration. I exchanged notes and learnt the ropes of trade from them. I was eight years old when I gave my first public speech at the inauguration of a

factory in Mangalore, India. I was 29-years old when I signed my first contract worth $10 million with the Forest Minister in Papua New Guinea.

How has your vision helped you on your journey?

In my experience, the first requirement is breathing life into values, ethics and ideas that you’re most passionate about. Although, it’s equally difficult staying invested in them

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I hope my investments contribute to the greater good of the sector we serve, and are remembered as a commitment to innovation, public health and research. – Thumbay Moideen

THUMBAY MOIDEENMADE HIS FIRST SPEECH AS ONLY A YOUNG BOY IN MANGALORE, INDIA.

in difficult and hard times, but I believe values and ideas can truly define the world you live in. I have faced challenges throughout the phase of establishing one of the finest medical college and university in the region, but resorting to unethical practises has never been the problem-solving strategy.

Spreading knowledge and providing good healthcare are the causes I am extremely passionate about, and pursuing this passion has helped me to find peace and success.

The healthcare industry has been a popular area of investment for HNWIs. How does a diversified portfolio in the healthcare domain help to multiply/ boost your assets?

We realised that healthcare and locally-trained staff were areas where there is a need for quality services. The UAE healthcare market is estimated to be $19.5 billion (AED 71.6 billion) by 2020, indicating an annual average growth of 12.7 per cent from 2015, according to the GCC healthcare report from Alpen Capital.

The report further noted that overall the GCC healthcare market is projected to grow at a compounded annual growth rate (CAGR) of 12.1 per cent, from an estimated $40.3 billion in 2015 to $71.3 billion in 2020.

That is simply a reflection of the deepening healthcare demand because of consumer affluence, growing population,

changing lifestyles and greater awareness.

While the government has taken significant measures to improve access to quality care, the sector has also seen emergence of private players due to the growing healthcare needs of the population, with an inflow of both domestic and foreign investments. In terms of diversification, I have always believed in exploring new markets, taking new risks and coming up with innovative products.

As risky as it can get, it always helps in bringing a measure of greater stability.

If one of your investments doesn’t pan out, you have a backup plan to drive your portfolio until you find your footing again.

How do you see the future of that industry?

In today's advanced economies, healthcare and education promotes innovation and productivity, more than just clocking ...cont. overleaf

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COVER INTERVIEW

THUMBAY MOIDEEN LEARNED A LOT FROM HIS FATHER AND GRANDFATHER, HE SAID IN THE INTERVIEW.

cont. from page 13

growth and employment. Subsequently, the sector has begun to consume more services and to rely more heavily on them to operate.

So, yes, quality healthcare service delivery, medicine and health sciences education is entering a dynamic new phase in Middle Eastern and African markets. As a new global consumer

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class emerges, and innovations spark additional demand, quality service providers will have substantial new opportunities—but in a much more uncertain environment.

Could you elaborate on the financial legacy you want to create?

Wise financial planning has empowered

generations of businessmen across the globe. We are living in the midst of what history may find to have been the most important revolution in the healthcare industry in the Middle East.

I hope my investments contribute to the greater good of the sector we serve, and are remembered as a commitment to innovation, public health and research.

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WEALTH ARABIA SUMMIT 2016

WEALTH Arabia Summit 2016 provides valuable insight for GCC HNWIs THE INVITATION ONLY SUMMIT CATERED SPECIFICALLY TO HIGH NET WORTH INDIVIDUALS AND THEIR MOST TRUSTED SENIOR INVESTMENT ADVISORS AND REPRESENTATIVES IN WEALTH MANAGEMENT AT THE GODOLPHIN BALLROOM JUMEIRAH EMIRATES TOWERS, DIFC

MARK MOBIUS

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he inaugural edition of the WEALTH Arabia Summit proved to be a popular choice for HNWIs and their representatives with over 200 attendees at the panel discussions and private meetings throughout the day.

The invitation only summit, a first for the region, catered specifically to High Net Worth Individuals and their most

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trusted senior investment advisors and representatives in wealth management at the Godolphin Ballroom Jumeirah Emirates Towers, DIFC. Expert speakers discussed fundamental issues, challenges and opportunities in the local market and abroad. Dr. Mark Mobius, the Executive Chairman for Franklin Templeton’s

Emerging Markets Group delivered the keynote presentation, analysing the investment outlook for emerging markets and what this actually means for investors. Audience members lavished praise on the presentation, continuing a substantive question and answer session with Dr. Mobius long after his presentation finished.

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This is a forum for an exchange of ideas. No one has all the answers.

You need to hear a multitude of ideas before you make the decision that makes sense for you... An event like this is really very useful."

–M ark Mobius, Executive Chairman, Emerging Markets Group, Franklin Templeton

Dr. Mobius himself stressed the importance of the event. “The WEALTH Arabia Summit is very important for not only investors, but people who are trying to help them invest—fund managers, and wealth experts. This is a forum for an exchange of ideas. No one has all the answers. You need to hear a multitude of ideas before you make the decision

that makes sense for you. Each investor has individual requirements—individual problems that have to be solved. An event like this is really very useful.”

Robin Amlôt, Chief Executive Officer of CPI Financial, organiser of the Summit, commented, “I am proud to say that the first edition of the WEALTH Arabia Summit was a great success. Our attendees were engaged fully in the panels, receiving actionable investment advice from a broad cross-section of the world’s top experts, who provided insights on issues ranging from social impact investing to succession planning. These are challenging times, and platforms such as ours play a vital role in tackling those challenges.”

The Social Impact Investment panel, moderated by Reza Dari, CEO, Global Investment Bank, was a particular stand out, with delegates commenting throughout the day on the insights shared by its panelists.

Other speakers included Hussein Sayed, the Chief Market Strategist for FTXM and Dr. Ryan Lemand, the Managing Director of Wealth & Asset Management for ADS Securities who discussed critical factors impacting

return on investment. Panellists included David Staples, the Managing Director of Corporate Finance EMEA from Moody’s, Nada Al Hashimi, the Family Office Analyst at Knight Frank and Alande Mustafa Safi, Managing Director & Investment Specialist at Paragon Premier Investment Fund discussed how to reap financial returns through social impact investing, preserving wealth for generations through proper succession planning, and new strategies and opportunities through innovative investing.

The WEALTH Arabia Summit 2016 also gave attendees the chance for built-in 1-2-1 meetings with solutions providers.

These discussions were held in a private area to allow for confidential conversations to take place.

The WEALTH Arabia Summit 2016 was sponsored by Global Investment Bank, Paragon Premier Investment Fund, FXTM, RAK Bank, Mashreq Bank, Invest Cyprus, Credence International, Maserati and Qatar Financial Centre, all of whom CPI Financial thanked for their contributions.

To learn more about this event, please visit the website at www.wealtharabia.net.

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WEALTH ARABIA SUMMIT 2016

LEFT LEFT TO TO RIGHT: RIGHT: GEORGE GEORGE TRIPLOW, TRIPLOW, DAVID DAVID STAPLES, STAPLES, HUSSEIN HUSSEIN SAYED, SAYED, CONOR CONOR MCGORRIAN MCGORRIAN AND AND ROBIN ROBIN AMLÔT AMLÔT

Navigating a tricky environment

IN AN ALL-STAR PANEL AT THE WEALTH ARABIA SUMMIT 2016, EXPERTS FROM AROUND THE WORLD GAVE INVESTORS ADVICE ON HOW TO INVEST IN AN UNCERTAIN FUTURE

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ake no mistake—these are turbulent times. If any expert is telling you different, or is telling you they know exactly what the future will bring, either they are lying or they have a crystal ball. But even in this uncertain period, that doesn’t mean that

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investors should take all their money and shove it under their mattress. Investors, now more than ever, should be investing, but they need to have a strategy.

For Conor McGorrian, Portfolio Strategist – Fundamental Equity, State Street Global Advisors, that strategy

should be focused on equities, and on finding equities that provide value in the long term. In McGorrian’s eyes, that is a matter of what the company is valued at in relation to its actual value. “The key focus for investors here has to be, and it always has to be, about valuation. There’s no

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doubt that there’s always uncertainty—in my career I’ve seen tech boom and bust, I’ve seen bubbles form and burst; there is always something for investors to worry about. But if you focus on valuation, find good quality businesses that are undervalued by the market, and have the patience and discipline to stick with it, then over the longer term you can generate much better returns for your clients.”

In any investor’s mind, risk is a main concern. But without diversification, so-called ‘safe’ investments could prove risky in the long term. “From an investor’s point of view, it’s about making sure the risk profiling of your portfolio is correct, that you’re comfortable with the risks you’re taking, and that you have the courage of your convictions.

Diversification does not mean buying a second piece of property,” said

Robin Amlôt, Chief Executive Officer, CPI Financial.

“Diversification is something we haven’t been able to address in the region,” said George Triplow, Executive Director – Wealth & Asset Management Leader MENA, Ernst & Young. “So when you look at the investor set in the region, how diversified are they actually? We see more and more GCC investors wanting to invest in similar products that they already have.

We see expats who take money out of the region. So then, how diversified are the investments in the region?”

But it’s not always the investor’s fault— sometimes the economy in which one is investing causes a lack of diversification.

“If you’re focusing on this particular region, the challenge of this particular region is that the economies themselves are not particularly diversified,” said David Staples, Managing Director, Corporate Finance EMEA, Moody’s. “Even if you have a diversified portfolio, you have exposure to the macroeconomic impact of commodity-based economies where government investment is a driver for growth. So thus, government policy and the effectiveness of changing government policy during periods of transition becomes extremely important, and challenging issues for people who may be focusing on investing in corporates and financial institutions and have to overlay that with the issue of sovereign macroeconomic investment risk. At least in the GCC you don’t have the currency issue to worry about as you do in other countries, but the big challenge is how much access you need to the liquidity in your portfolio. I don’t find this to be a region with a lot of liquidity depth and that becomes an issue.”

But not everyone believes diversification is the only path forward for investors. “I think diversification isn’t working right now because the world we were living in for the last couple of years, where central banks pushed investors to look at equities for yields and fixed income for capital appreciation, has become very challenging,” said Hussein Sayed, Chief

Market Strategist, FXTM. “Even the correlation in the markets now, we can see that yields are moving in a different way than they have traditionally moved. I think we have to look away from traditional investing and look at alternatives for the time being. Hedge funds are worth looking at.”

The riskiest path may be the one that appears to be the safest—investing only in the market they are most familiar with “For a lot of investors, the temptation is to focus on the home market, the areas investors know best. But I think that’s very risky. Income funds look extremely expensive, but I think there are parts of the equity market that offer reasonable prospects for the future, including the industrial and financial sector. They are optically very risky, but valuations are very cheap at the moment, and that gives the investor a margin of safety when they look at those areas,” said McGorrian.

But though investing can often be in the public good, if you invest your emotions as well as your capital, things could get messy. “You have to strip the emotion from it,” said McGorrian.

“Investing is a tough business, and if you are going to get emotionally involved with businesses it’s going to make it very hard to make rational decisions about them. It’s about fundamental analysis— understanding the businesses you’re investing in, why you think they’re cheap today, what you see differently from other investors in the market. You then need to be very rational and disciplined about when your exit point is going to be from that investment as well.”

But while analysis is important, it is not always possible. “One of the challenges that face international investors looking into in the GCC region, as opposed to investors that are already here, is access to sufficient information to take a fundamental analysis,” says Staples. “Sometimes investors here have better access to information that can assist them to make decisions about investment more than international investors have.”

Things are getting better, however. “We can see a transformation in governance ...cont. overleaf

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WEALTH ARABIA SUMMIT 2016

RISK IS HARDER TO ASSESS THAN EVER BEFORE.

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happening, and I hope that it will be a fast process,” said Sayed.

“The markets here are evolving quite quickly in terms of transparency, governance, and the instruments that are available,” said Amlôt. “It is inevitable that there will be teething problems, mistakes, and wrong doing, as life is like that and these things happen, but the one thing that needs to happen is increasing the depth of the markets, as they are still very small still. If you look at the bonds available here, they are either government or governmentrelated entities, unlike in the European markets or the US.” Even as things change, they don’t always change for the better. Change creates uncertainty, and the investment landscape has changed a lot since the last generation of investors built the economies of the GCC into what they are today. “We’re in a different world from the investors who came up in the previous generation, a different environment,” said Triplow. “Why do markets continue to go up? It’s fundamentally about valuations, and sector focus. People have been let down constantly by markets as there’s too much volatility. It’s very difficult to let clients understand long buy and hold—they want to sell out as soon as

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there’s a blip in the market. Investors want something they can hold in their hand.”

The unexpected changes in commodity prices in the region—namely, the drop in oil price, has forced the GCC to change— and it is making the changes it needs to ensure long term success. That’s the kind of change that investors can get behind.

“What I think is good for the region with the substantial decline in oil prices is that it’s forcing governments and companies to diversify and seek capital elsewhere,” said Staples. “And when they seek to diversify their capital, they’re forced to become more transparent, and that generates greater interest. And when there’s greater interest and greater opportunity for investment, that sparks a change in thinking. It’s very easy to be critical of the investment style of the region that people have talked about as too name and region-driven, but there haven’t actually been all that many opportunities.

There are some very good companies in the region that are very good at telling their stories, but with the opening of the Saudi market, and the change being made

by Saudi leadership, there will be a forced increased transparency. When ARAMCO comes, even with a small issuance, it will increas in transparency, and that sets an example. There will be a larger number of

opportunities for people to consider, and that creates an environment where investors can think more about diversification and a change in style.”

As investors chase high returns, the goal needs to be put in perspective, according to Amlôt. “There’s two things— understanding of market risk, and understanding one’s own appreciation of that risk. It needs to be understood that wealth management is just that—it’s not about making spectacular returns, it’s about protecting it, and maintaining it’s value so that it can be passed on.”

A steady trigger finger is an asset as well. “I would have thought given the commercial culture in this region that people have generally made their money through business you don’t change your business plan. Investors are always tempted to buy at the top when everyone’s very enthusiastic, and selling when things are at the bottom and everyone’s in a panic.

Looking at the 2006-7 markets, if you’d stayed, you could have done pretty well. It’s about sticking the course over the longer term,” said McGorrian.

Old adages don’t always hold true, however. “As Buffet said himself, I made all my money by selling too early,” said Triplow.

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WEALTH ARABIA SUMMIT 2016

LEFT TO RIGHT: PETER VANDERWAL, SHAINOOR KHOJA, HEATHER HENYON AND REZA DARI

Doing well by doing good

HOW DOES INVESTMENT BENEFIT SOCIETY, AND HOW CAN INVESTORS MAKE BIG RETURNS WHILE FOCUSING ON IMPACT? AN EXPERT PANEL AT THE WEALTH ARABIA SUMMIT 2016 WEIGHED IN

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alk to an investor about investment, and you’ll end up hearing a lot about returns. Ask an investor how they benefit the world, and they’ll talk about social impact— saying that the money they invest ends up

benefitting both economy and society, or the environment. But while many have invested to benefit others for a long time, there has been a renewed interest in the specific branding of ‘impact investment’ in the last few years.

At the WEALTH Arabia Summit 2016, a few of the true leaders in the ‘impact’ space sat down for a discussion on how they have worked towards impact investment, and how to find returns while also benefiting society. cont. overleaf

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SOCIAL IMPACT IS EXACTLY WHAT THE INVESTMENT WORLD HAS BEEN MISSING, AND NEEDS TO FOCUS ON.

cont. from page 21

But it’s not enough to just talk about benefit. “When we’re talking about the definition of impact investment, the word that stands out is ‘measurable’, the question is, how do you measure your impact?” asked Reza Dari, Chief Executive Officer, Global investment Bank.

“We have to be best in class, we have to be profitable, and we have to create socioeconomic growth,” said Shainoor Khoja, founder of the Better Business enterprise. “A great example of this is the last 14 years we’ve spent in Afghanistan, investing in the second telecom operator in the market. We went when nobody wanted to go. We bid $5 million for the license when no one else was willing to bid above $1 million. We’ve invested over time more than $600 million, we’ve paid $450 million of taxes, we represent six per cent of the GDP, and we’ve created 40,000 indirect jobs, with a workforce of 12,000 of which 20 per cent are women.”

Besides those figures, Khoja also offered insights into how her investment has benefited society. “We have various community engagement models—we also have social

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relevance as we have used our skills and expertise to bring much-needed products and services to the beneficiaries to bring them into the economic cycle. What excites me about this model is the fact that it is based very much on where business originally started. If you think back a long time ago, business was for the community, and it helped lift the community.

I think somewhere along the way there was a disconnect. What I love about the model that I practice is that it brings all of that together and it provides the fishing rod and not the fish—it moves away from dependencies.”

Peter Vanderwal, Strategic Growth & Innovative Development Financing Lead, The Palladium Group, also believes that measuring your impact is an important part of social impact investment—but it has to be within reason. “The work that Palladium implements particularly for governments and donors is all tightly measured. Traditionally, you’d see somewhere between seven and twelve per cent of your entire contract budget being devoted to monitoring, evaluation, and learning. The reality is, that’s just too expensive for the investor space. So it’s really

about looking at the key indicators that are the must-have measurements, and bringing that cost to around two per cent because otherwise you’re just eating into returns. Impact investing does not necessarily mean that you take any sort of reduction in your return—in some instances, certainly, particularly if it’s a very low-risk investment, but in many cases you’re looking at least a market return. Too much monitoring, too much measurement, eats into return. So we work very closely with our team to put bespoke measurements on each of the investments we do.”

In Khoja’s eyes, a fundamental part of social impact investment is investing to stay, not to get a quick return. Their history is a testament to that. “The key message for me is that what you need as a mindset as investor is the ability give the execution team to innovate and try new things, and a very long term perspective. When we invest, we invest to stay in the long term. We look at impact investment in the longest duration.

We’ve been doing this since 1967, so impact investment is just a new title for what we’ve been doing,” said Khoja.

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WEALTH ARABIA SUMMIT 2016

Getting investors interested in that, however, is a different story. “Trying to persuade investors to have a longer term perspective is difficult in this region,’ said Heather Henyon, Founding Partner, Athena.

“We look at three to five years for an exit, and some investment groups will talk about eight years. It’s challenging in a market where people are looking for quick flips.”

Even as investors continue to chase a quick return, the broader culture is changing, and investors are going to have to change with it. “It seems like we’re talking about a cultural revolution—a revolution that is capable of aligning interests across a common utility, that includes all the stakeholders across the board,” said Dari.

The next generation will change investment, whether purely return-focused investors want them to or not. “I think millennials are changing the scene, and customer engagement is changing the scene.

We’re coming into a world where people care—they care about what they buy, what they spend their money on, and how they invest. Research shows that there are many more younger people giving than the older model of large families giving in a large chunk.

I think that is really important to look at. The second is that I think the world is just much more global. We can no longer build a wall around our wealth and live happily ever after.

The discontent and needs of the outside world

will overspill into our world, and I think the youth of today are really recognising that and wanting to make a positive contribution to that,” said Khoja.

Bringing in more women, too, is very important. “The number of women in the finance sector needs work. The blended teams that are emerging now are an interesting trend that will shake the future of private engagement,” said Khoja.

Dari believes that women can help guide a more intuitive, left-brained world. “We’re going through a period where human society is moving away from the more left brain rational thinking of perceiving the world to a more right brained world where we include intuition in our decision making and investment. Women are naturally positioned to lead the way when it comes to making that shift happen.”

In Henyon’s view, though, including women is not just about moral guidance—it’s about the bottom line. “Women have always generated better investment returns. Women do take a longer-term view—they’re not as likely to get excited about the latest gadget or stock. There’s a different mentality. Women are quite analytical. In the two investment groups I’m in, one has far more women, and the way those two groups make decisions is very different. The women might overdo it on due diligence, but the men underdo it and get very excited by a cool idea. A lot of guys that I

know invest in women-led businesses because the performances are better—not because they want to empower women, but because they make more money that way.”

As much as investors want to talk about how their investments benefit society whether they mean to or not, Khoja believes that it must be intentional from the get-go. “You have to be intentional about wanting to have impact. It’s very much a mindset. We don’t invest with just a social intent in mind, but if you want to be healthy, you have to make sure that your employees and communities are healthy. If we didn’t, how would we protect our business for decades to come? We need a stable community and a prosperous community to be our customer, and that’s where the mindset comes in.”

“It’s about creating quantative value and extracting quantitative value by first creating quantitative social value,” said Dari.

“I think that’s very powerful—the power of a common-shared utility between stakeholders and shareholders hasn’t been fully understood.

With the rise of millennials, if we’re really able to create structures, products, and investment solutions, that are genuinely capable of redistributing wealth around the world, that creates a shared common value between the manager, investor, and the stakeholders you’re impacting over the longer term.”

Microfinance might be one way in which investors can aim towards impact.

“In microfinance, the return on equity is well over twenty per cent. Other microfinance retail products sold through private banks see returns of five to seven per cent annually. They’re decent returns.

We’re not talking about double digits, but if you do it over time and you’re looking at private equity investments, in five to seven years, you can make a sizable return,” said Henyon.

Palladium offers even better numbers.

“Seven to 12 per cent is about what we’re targeting with these investments,” said Vanderwal.

Dari offered even higher numbers. “You can have a commercial business that is capable of chasing yields above 15-20 per cent.”

Clearly, while impact needs to be intentional, there are huge returns to be made for investors.

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WEALTH ARABIA SUMMIT 2016

Planning ahead SUCCESSION PLANNING IS A COMPLICATED BUT KEY ISSUE FACING GCC HNWIS, ACCORDING TO A DIVERSE PANEL OF EXPERTS AT THE WEALTH ARABIA SUMMIT 2016

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uccession planning is not the most exciting subject in the life of a high net worth individual. While economics, investment, experiences and luxury automobiles are all more fun topics of conversation, one topic that needs more attention is how to make sure that the wealth that allowed all of that activity is there not just for the next generation, but further down the line.

“There is an old folk tale about a man who tells people that his grandfather rode a camel, his father drove a land rover, he drives a BMW, his son will drive a land rover, and his grandson will ride a camel. Wealth dissipates if you’re not careful,” said Robin Amlôt, Chief Executive Officer of CPI Financial, laying out exactly how life without proper succession planning can go.

The issue is coming under increased focus in the GCC. “A lot of wealth that has been created in the GCC is relatively young—first or second generation. Upon succession, it’s the first time that people think about family governance and also corporate governance of the companies.

Many local families have gathered to set up education on these topics, and this is something that we have heard a lot about in the last four to five years,” said

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Stijn Janssen, Head of Tax Advisory, Withers Worldwide.

But as Rajesh Malkani, Head of Wealth Management and Private Banking at Mashreq Bank said, you’re lucky if you even get to that conversation.

“Succession planning is a complex issue, but it’s a good problem to have. It means after you there will still be some assets left over. I think the elements that make this complex are broadly, a function of your nationality and your domicile. The jurisdiction of your assets, the function of the domicile of your heirs, and in some religions, a function of the gender of the heirs, and the complexity of the nature of the asset as well. Something as simple as a liquid portfolio is easy to transfer, and it can get more complex depending on if it’s property or an operating company.

It’s then about asking how we can unravel these complexities.”

Sean Hird, Head of the DIFC Wills and Probate Registry, has been working to make sure people in Dubai of all backgrounds are able to take care of their succession. “We’re here to introduce a new mechanism whereby non-Muslims can opt out of the Shari’ah distribution arrangements in governance and inheretence matters whereby they can

achieve certainty with regards to the distribution of their estates.”

Janssen believes the DIFC in particular has taken important steps in sorting out the legal issues that arise in these situations. “When people have assets beyond Dubai, it becomes more complex. If you own property in Dubai that isn’t freehold, that must be owned by an Emirati owner—this makes foreign trusts unusable. That is why in DIFC they created a trust law. Bahrain and Qatar have since followed suit. This allows people to organise matters during life so that when they are no longer there, the family doesn’t get into a fight. This allows a next generation to have prosperity.”

“I think there are multiple factors that go into making sure you have a coherent succession plan in place for family businesses,” said Nada Al Hashimi, Family Office Analyst, Knight Frank. “You can start with the governance structure of the business, and the governance structure of the family. A family council, for example, can mimic the structure of the business itself.”

Sohail Zubairi, CEO of Dar Al Sharia, provided the Islamic perspective on succession planning. “The concept of wealth in Islam is that no one owns

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LEFT TO RIGHT: RAJESH MALKANI, SEAN HIRD, NADA AL HASHIMI, SOHAIL ZUBAIRI, STIJN JANSSEN AND ROBIN AMLÔT

anything—everything is owned by Allah Almighty. We are simply trustees.

If Allah has given us wealth, there is a defined guidance on how it should be treated, investment, how returns should be derived, and how that should take care of society. This is not only in Islam—it is in Christianity as well. It is not wrong to create wealth in Islam, but it should always be kept in mind that whatever you do is in the Shari’ah boundary. Wealth preservation is also taken care of in Islam via Waqf.”

Inheritance, too, is part of the Muslim tradition. “In Shari’ah, the inheritance is predefined in the Qu’ran, not having changed in 14 centuries. You do not need an accountant to know who will get what. The sons will get higher than the daughters, and the wife will get lower than the daughter. It’s all there. Daughter’s husbands are supposed to take care of

them, whereas the sons need to take care of their spouses and children. The general perception is that women do not get anything when wealth is distributed, which is incorrect,” said Zubairi.

Of course, for non-Muslims, there are alternative methods of planning.

“Planning has to be done in the context of the legal ownership situation that arises when someone passes away. If you are a Muslim or you do not have a will, the legal ownership is governed by a clear structure that dictates how your wealth is distributed. If you have a will that has been registered with the DIFC Wills and Probate Registry, you are able to plan differently, with the will itself dictating where the estate goes and how it is managed,” said Hird.

But it is not just a matter of establishing a plan. If the next generation cannot implement it, all planning is useless.

“Education for the next generation has to be the key,” said Amlôt.

To do that, sometimes it’s a matter of letting children go off on their own. “In preparing the next generation to take care of these roles, there is a lot of aspects that go into that. First, it’s about understanding what the business is, and what the vision for it is going forward. From there, it’s about giving them the knowledge that they need to take on those roles. A lot of family businesses, and those that have been success stories, have their children go and work elsewhere before they take a role in the family business so they get the right expertise,” said Al Hashimi.

The GCC, however, is much better educated on these matters than ever before. “Clients are getting well-informed.

They do a lot of research. No one comes to us completely ignorant—that is not the case anymore at all,” said Malkani.

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Innovating the alternative

IN TIMES OF ECONOMIC UNCERTAINTY, INVESTORS HAVE TO LOOK AT NEW WAYS TO INVEST, SAID A PANEL OF EXPERTS AT THE WEALTH ARABIA SUMMIT 2016

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n these times of great uncertainty, the world is turning to the experts for answers. One problem, though— they do not have all of them. “Honestly, I do not understand anything that is happening around the world today,” said Ryan Lamont, CEO of ADS Securities.

“I have a PhD in financial markets correlation and contagion effects, and to be honest, nothing makes sense anymore.

If you look at the macroeconomic models, nothing works.”

But even as markets are harder to predict than ever before, some fundamentals stand as ways to invest innovatively, even in the current climate.

Venture capitalists and angel investors are finding returns by focusing on the early stages of promising businesses.

“Technology startups create value, and venture capital captures that value,” said Chantalle Dumonceaux, Co-founder of WOMENA. From there it’s a matter of identifying the right start ups early on, rather than trying to come in once they’ve already gone public.

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“There are many opportunities to invest, but we have to change the way we invest. If you’re a top down investor, you’ll probably be clueless and pull out.

It’s the age of stock picking, technology, and trend-following. Technology, SMEs and start ups are the sectors that create value today. If you look at the very simple macroeconomic formula of aggregate demand, none of these work today because consumers are not spending, investors are not investing in big projects, and governments are not spending though they should, so the story is really an aggregate supply growth story. And in that, it is innovation that creates growth.

And who creates innovation? Start ups, technology, SMEs,” explained Lamont.

But finding the right SMEs is a difficult process. For Dumonceaux at WOMENA, it takes a long time to find a company worth investing in. “We allow HNWIs to look at deals on a deal-todeal basis. Since we launched, we’ve seen 900 inbound submissions from start ups.

From there, we have pitch meetings.

We’ve had 36 companies present. To date, we’ve done six investments,” said Dumonceaux.

But angel investment is also high risk, though fun. According to Dumonceaux, about half of investors have a great return and the other half have a negative return—though overall the numbers are still positive. “We recommend that someone allocates no more than 1015 per cent of their portfolio to angel investing,” said Dumonceaux.

Alternative investment is also an innovative space which investors should look at, said Paul Gyra, Chief Operating Officer and Head of Wealth Management, Global Investment Bank. Filling the credit gap could prove lucrative for GCC investors. “Alternative strategies are driven by what geography you’re in. In the GCC, hedge funds are not as advanced as they are in other markets.

In this region, a lot of investors have not been satisfied with their experiences with hedge funds, which gave a bad reputation to the business. But there are evolving

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ALANDE MUSTAFA SAFI

MARIOS TANNOUSIS

strategies toward alternative credit. Using private vehicles, like they do in the US, you can generate very attractive returns in alternative finance and commodity finance. The regulatory environment is causing a pulling back of credit towards SMEs in the region. Some are targeting 18-20 per cent with minimal risk, and if that continues, you will see US investors coming out here trying to exploit the credit arbitrage.”

According to Marios Tannousis, Deputy Director General, Invest in Cyprus, his nation has only survived its most recent crisis because of innovative investment. “After the crisis we faced in 2013, the banking system went down on its knees, and we had to recapitalise banks. This recapitalisation happened mostly through investment funds. The country at the same time went through

RYAN LEMAND

PAUL GYRA

reforms, which caused big sacrifices in both the private and public sectors. It was very difficult, but for the last year and a half, we are on a path of positive growth. This happened from strategically positioning the country into sectors that proved to be competitive and in which we had a competitive advantage.”

Innovative investment schemes are a great way to get a country back on track. According to Alande Safi, head of the Paragon Premium Investment Fund, Australia’s current scheme focused on foreign direct investment is reaping great returns while also providing huge benefits to the community. Investors, too, find huge benefits in investing in countries such as Cyprus and Australia.

“The main focus of the investment that Paragon promotes to its clients is that Australia wants to build its nation.

CHANTALLE DUMONCEAUX

It’s a big island, and Australia wants to build with foreign investment. It’s a big land, but the population is only about 24 million. The Australian banking sector has traditionally always used foreign assistance. With that, Australia is eager for foreign investment to drive its vehicle. To do that, the Australian Government is allowing its land to be sold not at retail price, but at the Government price, for us to plan and build residential, commercial, hospital, etc, with benefits coming to the investors mainly from the price at which we purchased the land. We then deliver high principle-backed returns.

We look at six to eight per cent returns per annum,” said Safi.

While some are telling investors they cannot find the returns they want, that isn’t the whole story. Though there is risk involved, there is always more value to find.

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INVESTMENT

HUSSEIN AL SAYED

HUSSEIN AL SAYED

Don’t lose faith in gold just yet

BY HUSSEIN AL SAYED, CHIEF MARKET STRATEGIST, FXTM, AND ‘BURSAT AL ALAM’ HOST, CNBC ARABIA 28

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When the current president-elect defied the polls and ended up beating Hilary Clinton, gold prices – surprisingly – collapsed.

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ver since Donald Trump’s shock victory on November 8, the financial markets entered a predicted phase of uncertainty. Analysts and market experts expected the weakening of the US dollar and almost everyone, myself included, figured that investors would clamour towards safehaven assets. This is why gold has been so closely watched in the immediate aftermath of the US elections.

While Trump and Hilary Clinton were on the campaign trail, and during the final days leading up to the election, the price of gold was rising every time he narrowed her lead. But when the current president-elect defied the polls and ended up beating Hilary Clinton, gold prices–surprisingly–collapsed.

Trump’s conciliatory victory speech actually softened the blow to the currency markets that many were fearing. Something that, coupled with signs pointing to a smooth transition of power, has led gold to reverse its expected course.

THE TWO SIDES OF THE GOLDEN COIN On the one hand, bulls have good reason to worry that Trump’s planned economic strategy will boost the country’s growth since this will lead to a faster pace of tightening US monetary policies, which will, in turn, send bond yields higher and thus make the non-yielding yellow metal less attractive to investors. Bears believe that the Federal Reserve will more than likely raise US interest rates by the end

of 2016, which will make USD assets an attractive buying option.

While this might be true in the short term, the bigger picture should give the bulls more encouragement. For one thing, the Fed could remain dovish until the US economy is more evidently revived. Then there are prospects of a higher budget deficit needed to finance the Presidentelect’s infrastructure, which–coupled with his plans for tax cuts–will likely lead to higher inflation levels. This is when investors might strongly consider gold as a hedge.

Another factor that deserves careful consideration is the overall political risk premium. There is still a lot of uncertainty surrounding Trump’s foreign policies, an area which was very controversial during his campaign. If that wasn’t enough to put the global markets on edge, the EU is facing challenging times ahead with Italy’s referendum on 4 December, the Presidential election re-vote in Austria which is also set for December, and elections in Germany, France and Holland in 2017. All of these elections feature a far-right candidate who has a big chance to seal victory in Trump-like fashion, thus tilting the markets towards high volatility and giving investors more than enough reason to turn to gold.

In light of this, I firmly believe that a bullish case for the yellow metal still exists. Even in a hypothetical world of rising interest rates, momentum can have a negative swing at the next big shock.

While ETF liquidation is already seen

in some funds, with SPDR gold trust saying its holding fell 0.71 per cent on 21 November, and 3.6 per cent for the month overall, the purchasing of physical gold is still occurring, especially in Asia.

So while the bulls have a right to fear a continuing weakness, investors could consider having a small portion of their portfolio in gold as diversification and protection against many of the impending risks during the current political climate and as we head towards 2017.

DISCLAIMER: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance.

FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

RISK WARNING: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

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INVESTMENT

TRUMP’S ELECTION IN THE US HAS BROUGHT RENEWED UNCERTAINTY TO FINANCIAL MARKETS.

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PHOTO:SHUTTERSTOCK/ SNEHIT

There is hope and there is reality THE TRUMP RALLY IN PERSPECTIVE, BY HANS GOETTI, CHIEF STRATEGIST MIDDLE EAST & ASIA, BANQUE INTERNATIONALE A LUXEMBOURG

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he current sharp rally in asset prices on the heels of Donald Trump’s election victory has so far mainly been based on hopes for an economic revival based on deregulation, repatriation of US corporate profits and a huge dose of fiscal stimulus centred on infrastructure spending and tax cuts. The question on investors’ minds is how sustainable this risk rally is and whether we are looking at some seismic event representing a fundamental change in the investment environment and the beginning of a new sustainable inflationary cycle.

The current rally has a striking resemblance to market action between May and September 2013 when the US Federal Reserve (the Fed) threatened to terminate the easing cycle (taper tantrum) based on the view of an

improving economy. Back then the yield on the 10-year US Treasury bond soared 137 basis points. This time around, the yield backup has been 100 basis points.

The S&P 500 rallied four per cent then compared to five per cent now. Small cap stocks jumped 10 per cent and by just over 16 per cent this time. Even within the equity space sector performances were similar. There was a big rotation out of the defensive rate-sensitives, such as utilities, real estate and consumer staples, and the winners back then were the same as this time around and included materials, industrials and financials.

As far as President-elect Trump’s economic growth agenda is concerned, there is hope and there is reality. While Trump’s wish list includes $1 trillion of infrastructure spending, he will have to ...cont. overleaf

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INVESTMENT

For now the bond market is willing to give President-elect Trump the benefit of the doubt that a relevant fiscal stimulus will be put in place.

cont. from page 33

deal with the fiscal hawks in Congress.

There will be tremendous resistance to blow out the fiscal deficit by some $5 trillion (including tax cuts) over the next 10 years. Under Trump’s plan public debt would grow from 76 per cent of GDP to 105 per cent.

Many observers like to compare Donald Trump to Ronald Reagan.

However, when President Reagan cut taxes in the early 1980s and boosted fiscal (mainly military) spending the public debt-to-GDP ratio was 30 per cent and not 76 per cent like today. The price/ earnings ratio of the S&P 500 was at eight and not at 20 like today and long-term interest rates were at 13 per cent and not around two per cent where they are today.

The question is whether the recent rise in long-term bond yields is backed by fundamentals or whether it is just another blip and possibly a buying opportunity for bonds. It seems logical that stimulating the economy at nearly full employment will eventually lead to inflation. For now the bond market is willing to give President-elect Trump the benefit of the doubt that a relevant fiscal stimulus will be put in place. To what extent this expected rise in inflation is sustainable will depend on how fast the output gap will be closed, i.e. the structure and size of any fiscal programme is paramount.

In this context let us highlight that, historically infrastructure spending has not lifted inflation (examples: FDRs “New Deal” in the 1930s, Eisenhower interstate highway spending of the 1950s) as infrastructure upgrades increase efficiency which is deflationary.

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While inflation rates are bound to pick-up in coming months due to a base effect, we do not see that the necessary fundamentals are yet in place to predict the beginning of a sustainable inflation increase, even if we are seeing a “false” breakout in the short term.

FINANCIAL MARKETS

The current increase in yields is built upon an expectation of a massive fiscal stimulus by the new administration. The question is how much higher rates can go with many Western governments having to serve extensive amounts of debt as a result of the Great Recession of 2008. Total debt in the global economy stands at $152 trillion (according to the IMF) which is higher than before the Great Recession.

Under the circumstances it will be next to impossible for yields to rise much more without crippling the global economy.

On the other side US equities are expensive and continue to be in a consolidation phase, but remain a viable alternative to bonds in light of attractive dividend yields.

THE EFFECT ON INVESTORS

US equities are not cheap and the Trump rally has been based more on hope than reality. While we see selective investment opportunities, we are experiencing the fastest sector rotation in a long time and a more tactical approach to US equity investments will be required.

In Europe, investors’ attention will increasingly focus on political risks over the next few months. Markets will be facing uncertainties from mainly political

events: elections in France, Netherlands and Germany and any next steps as a result of the Italian referendum will be key. These events have the potential to produce surprises and increase market volatility as illustrated by the recent populist outcomes of votes.

While the strong US dollar is a headwind for emerging markets in the near-term, there are a number of positive drivers that favour investments in this space in the mid to longer term.

The differential of growth rates between emerging and developed economies is moving back in favour of the former.

Historically, this has been the main determinant of the relative performance between emerging and developed markets. In contrast to the ever more bizarre monetary experiments in developed economies, emerging economies are still conducting orthodox monetary policies which allow them to lower interest rates to spur growth.

Commodity producers should benefit from a resurgence of growth in China. Russia specifically could benefit from the prospect of better relations with the US under a Trump presidency.

After the recent surge in bond yields we believe the market will take a breather. As there is a lot of uncertainly in the months ahead we recommend investors reduce the duration of fixed income investments.

Furthermore, in this uncertain world it is prudent to have an exposure to gold which in our view is a hedge against all kinds of risks, including policy missteps by central banks.

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INVESTMENT

BRAZIL HAS HAS A A LOT LOT OF OFVALUE VALUE FOR FOR INVESTORS, INVESTORS, BRAZIL IN ADDITION ADDITION TO TO ITS ITS GREAT GREAT BEAUTY. BEAUTY. IN

The Opportunity

brewing in Brazil’s economic crisis

MICHAEL HASENSTAB, A TEMPLETON MACRO INVESTOR, SEES LONGTERM BENEFITS IN THE STRUGGLING LATIN AMERICAN COUNTRY 34

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B

razil’s political implosion may be a turnoff for foreign investors, but in reality, this crisis will likely facilitate a much needed break from the toxic combination of overspending and excessive government credit expansion seen in recent years.

Having once been part of the quartet of so-called BRIC nations powering global growth, Brazil has become a laggard, falling deep into recession, its

worst since the 1980s. Unemployment is at its highest since 2009. By the end of 2015, inflation soared to 10.7 per cent from a low of 4.92 per cent in mid-2012; government bond yields breached 16 per cent from below nine per cent in 2012; and the real has depreciated by more than 150 per cent since 2011.

Brazil’s problems cannot simply be blamed on the fall in commodity prices.

Rather, they are largely the result of

poor and overly pro-cyclical economic policy. Government-directed lending has been excessive, with state-subsidised credit crowding out the private sector and overwhelmingly dominating the country’s total net credit expansion from the end of 2011 through the end of 2015.

Central bank policy was also far too loose.

The central bank’s inflation-adjusted benchmark rate hit a low of just one per cent in 2013. The previous period of ...cont. overleaf

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INVESTMENT

cont. from page 35

fiscal prudence, which saw Brazil’s debtto-GDP ratio fall from 79 per cent in 2002 to 61 per cent in 2011, was abandoned.

And since 2011 new debt equivalent to almost 10 per cent of GDP had been accumulated, with little to show for it.

The situation sounds bleak, but statistics do not tell the full story. This crisis presents an opportunity to make tough reforms that should pave the way for a return to health. A return to more responsible fiscal and monetary policy should allow Brazil to realise its enormous potential. On the back of better policy, we have seen and continue to see an attractive long-term opportunity in local currency bonds, which have notably been one of the best performing assets in all of emerging markets this year.

Prior to the blow up last year, we had liked inflation-linked local bonds, but after the currency imploded and yields went through the roof, we made sizeable investment in fixed rate local currency bonds in early October 2015. We saw the crisis as a trigger to force a change in government policy, which now has expanded to likely involve a change in the Government.

If evidence is needed that drastic action can pull a country back from the brink, we need look no further than Ireland. Back in 2011, the consensus was that Ireland was insolvent. Irish sovereign bond yields were sky-high, reflecting a real fear that the country could go bust.

The markets were wrong. The government understood that recovery was achievable through tough measures to reduce the deficit–implementing socalled fiscal consolidation, maintaining low tax rates to attract future foreign direct investment despite pressure from many other European nations to do the opposite, and allowing labour market flexibility to facilitate a temporary move lower in real wages necessary to regain export competitiveness and refuel growth. The policies were painful in the

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short term, but they allowed Ireland’s strong fundamentals to shine over the long term. Ireland’s growth rates are now once again one of the highest in Europe.

Jobs are growing, exports are booming, and large amounts of foreign investment are flowing in.

It is far from an isolated example.

Take Hungary. At the time of the euro-zone crisis, Hungary was on the brink of insolvency, leading the ratings agencies to downgrade its debt to junk status. The government took unpopular decisions that proved exactly the right approach to shore up the economy and stimulate growth. Policies ranged from forcing banks to shoulder some of the cost of reckless Swiss franc mortgages, to revamping unemployment insurance from a welfare model to a Roosevelt-like workfare system, and rationalising the outdated Soviet-era health, education and transport systems.

The changes paid off. Today, Hungary joins Ireland as one of the most buoyant economies in the EU, with government yields in the low single digits and a stable currency.

While Brazil faces its own challenges, like Ireland and Hungary, we can see a path to regaining economic health.

If Brazil accepts short-term pain for long-term gain, there are good reasons to believe that it, too, will recover. Over the next few years, the country should be able to realise its true potential as one of the world’s most resource-rich economies if the central bank maintains a sufficiently tight stance to turn the tide on inflation and the government returns to running a primary fiscal surplus. These polices will also allow Brazil’s growing middle class to re-emerge as a key driver of growing consumer demand.

Can Brazil stay the course while these policies are implemented and take hold?

I believe it can. Brazil is sitting on healthy levels of foreign currency reserves– equivalent to more than a year of imports

–and while its debt-to-GDP ratio has risen, it is still lower than many Western economies, sitting at 70 per cent at the end of 2015. More than 90 per cent of this debt is held in local currency, so the weaker real does not cause it to balloon.

Additionally, gross foreign direct investment in Brazil remains resilient, representing some 4.2 per cent of GDP, more than enough to offset the current account deficit of 3.3 per cent. While its debts are manageable, Brazil’s banks are relatively well capitalised, and have passed stress tests, meaning the country has time on its side.

While the government’s recent policies have been disastrous, things are changing. Encouragingly, the brake has already been applied to past budgetary irresponsibility, and there is a growing political consensus that serious fiscal consolidation is needed to deliver a turnaround.

The central bank has also made moves to regain credibility and start anchoring inflation expectations. Interest rates were raised from an overly accommodating low of 7.25 per cent to a more appropriate 14.25 per cent. A self-engineered recession, while painful, was the only way to prevent runaway inflation from leading to a huge rise in poverty and social instability. This vigilance must continue.

If tackled head-on, a crisis can be a necessary catalyst for positive change. We are confident that Brazil will thrive again if it does not return to the unsuccessful policies of the past and instead makes new, tough decisions needed to return fiscal and monetary health.

Let us here in the US also not ignore the lessons of Brazil–overly easy monetary policy and overspending will only lead to a short-term boom with dire long-term consequences.

Hasenstab is chief investment officer with Templeton Global Macro, a unit of Franklin Templeton Investments.

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Velaa Private Island

INSIDE THE MALDIVES’ MOST SOUGHT-AFTER ULTRA-LUXURY RESORT

VELAA PRIVATE RESIDENCE

38 38

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TRAVEL

OCEAN POOL HOUSE

BEACH POOL VILLA

CONCEPT Velaa Private Island is the realisation of a dream to create a ‘beyond luxury’ ultraexclusive boutique hideaway. This unique destination was developed to embody the very best of this unique archipelago, bathed by azure skies in the aquamarine waters of the Indian Ocean.

DESIGN Velaa shares its name and its home with the generations of sea turtles that have inhabited the island for countless years. The colors and patterns of a turtle shell make up subtle nuances in the design, while from a broader aerial view, Velaa’s exclusive overwater villas resemble the head of a turtle with the island forming the body.

ARAGU RESTAURANT AND CRU LOUNGE

WATER POOL VILLAS

...cont. overleaf

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POOL RESIDENCE

cont. from page 39

VILLAS, HOUSES & RESIDENCES Velaa Private Island comprises 43 private villas, houses and residences and four fourbedroom residences. Eighteen villas are built over water, including the Romantic Pool Residence which can only be reached by boat, allowing even more privacy and exclusivity.

POOL RESIDENCE

DINING EXPERIENCE For the epicurean, Velaa Private Island offers three restaurants and two bars and a wine cellar, a generous selection of locations and cuisines are available for guests.

ATHIRI Athiri is all-day beachfront dining at its finest, where guests can enjoy a feast of creative cuisine served fresh to their tables or prepared to their request. Avi is a casual pool bar by day and a vibrant cocktail bar by night, complete

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BEACH POOL HOUSE

VELAA PRIVATE RESIDENCE

with a mixologist and live DJ against the backdrop of spectacular ocean views.

TAVARU The tastes and flavour of Chinese, Korean and Japanese cuisine will induce your senses at the boutique Tavaru restaurant.

Specialising in East Asian cuisine, the deft hands of our talented chefs will create inspirational and exciting dishes from the finest local and international ingredients to tantalise your palate.

ARAGU & CRU Velaa Private Island’s signature restaurant, Aragu serves innovative cuisine in an elegant setting over water; here guests can enjoy vintage champagne at the Cru lounge followed by fine dining.

Aragu means ‘essence’ and the concept of this signature restaurant offers guests two distinct styles of enjoying one dish – a ‘simplistic’ option focusing on the clear taste of individual elements and simple combinations, or a ‘sensational’ option whereby elements are combined to create an exciting and harmonious fusion of ingredients.

WELL BEING Velaa Private Island counts itself amongst only a handful of retreats throughout the world to be working alongside the

distinguished Spa by Clarins brand and features exclusive My Blend facial products and body treatments for a truly personalised experience.

Showcasing the first ‘snow room’ in the Maldives, the spa offers a synergy of therapies and products with six secluded double treatment villas over the water.

Wolke 7 Cloud 9–The Viennese artist and perception researcher, Sha, has now developed a holistic spa treatment concept to counter daily stresses and strains: Wolke 7 Cloud 9.

VELAA GOLF ACADEMY Designed by Jose Maria Olazabal, renowned for his short game prowess, Velaa Golf Academy, with nine different tees, six greens, seven bunkers, and a lake in the wonderful turquoise hues the Maldives is famous for, Velaa Golf Academy by Olazabal provides an unequalled backdrop to develop your game on this unique private island. A real “Practice in Paradise”.

WATER SPORTS AND EXCURSIONS Experience a feeling of speed with our jet ski and feel like a real James Bond exploring the house reef by Sea Bob. Feel the sensation of flying with parasailing or kite surfing.

ARAGU RESTAURANT AND CRU LOUNGE

Velaa Private Island embraces and encompasses the tranquil infiniteness that is the ocean. Experience the tranquility of Velaa Private Island surrounded reef and cruise the sea with a traditional Baththeli, meet the dolphins or jump onboard a snorkeling cruise and discovered abundant coral reef.

KIDS CLUB The Lha Velaa (“Baby turtle”) Club boasts some amazing activities for young guests to enjoy and have the opportunity to forge beautiful friendships with other peers of their age. For instance, the Lha Velaa Club has the biggest aqua park in all of Maldives.

That alone will keep the children busy for hours, while the parents enjoy some much-needed time off!

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LUXURY INVESTMENTS

le

SALMA SHAHEEM

THE ART of investing in art

BY SALMA SHAHEEM - JOINT VENTURE PARTNER AND HEAD OF MIDDLE EASTERN MARKETS AT THE FINE ART GROUP 42

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The Middle East art market is an incredibly interesting space, and the UAE has been absolutely pivotal in the growth and international recognition of the region’s artworks and artists." it can be a hedge against inflation. And some of the potential drawbacks don’t accurately reflect the truth. Art is often seen as illiquid, yet unlike most asset classes it is both tangible and moveable.

The major risks related to the art market involve acquiring the wrong artwork, i.e: fraudulent, damaged, stolen or looted works, but if you acquire what you intended, there is relative safety in that investment. During the economic downturn in 2009 museum quality art did not take a significant hit, though the market for very young emerging artists did suffer greatly. What we refer to as ‘blue chip’ or ‘museum quality’ art can indeed withstand time, economic turmoil and other trends in the market (i.e. equities, properties, etc.). And whereas the stock market is intangible by nature, art is not. As my business partner likes to say, “a Canaletto will never down zero”.

A

rt has proven to be a viable asset class as over the years we have witnessed a demonstrable diminishing supply set against an increasing demand for art. In addition, art is a store of value and wealth preservation and as a result offers long-term protection against inflation.

There are several key elements that make art a unique instrument for portfolio diversification. It is a real asset that enjoys a negative correlation with traditional assets, and simultaneously

INVESTING RIGHT

Research is everything when it comes to acquiring art. There is a very fruitful, educational process involved in building a collection. For example, what year was the piece painted/made? This is very important for any genre especially when we look at historical references for genres of the past (i.e. impressionist and modern art and post war). Next, provenance, or the CV of the artwork, is very important. The next question to ask yourself is, is the work in good condition?

This is especially relevant in secondary market acquisitions; the photo may not always be a true representation. Lastly, if you’re acquiring an artwork from the primary market and it’s by an emerging artist, it’s important to know what major collections they exist in, have they been or will there be any future acquisitions by museums or institutions?

THE ART ECONOMY

A stable art economy is attributable to the various players in the market: galleries, art dealers, museums and foundations, auction houses, advisors and collectors.

I like the term ‘movement’ to describe a healthy art economy, especially when we are discussing this region (which is an emerging market), and this entails more than just sales. The best example I can give you is the increase in regional artists, represented in the galleries in Dubai, with international presence or featured in renowned collections. This is largely due to the hard work of the gallerists.

Another indicator is when the majority of the lots have successfully been sold at auction, and we witness a surge of new collectors alongside seasoned collectors who contribute through building and maintaining their collection.

CONSULT THE EXPERTS

In an opaque and inefficient market, an expert or advisor can present the opportunity for arbitrage. ...cont. overleaf

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LUXURY INVESTMENTS cont. from page 43

The overall objective of having an advisor is that they pursue a proactive and proprietary approach to investing/ collecting by leveraging their network and knowledge. Art advisory is objective, and it offers a complete and comprehensive perspective on the market, presenting the best possible options for your collection/ portfolio. Art advisors have no inventory and therefore all the due diligence/ research they are responsible for should be non-bias.

The Middle East art market is an incredibly interesting space, and the UAE has been absolutely pivotal in the growth and international recognition of the region’s artworks and artists. With that said, every emerging market experiences growing pains, and its perseverance comes from a strong infrastructure and a healthy economy. As an industry, we strive to maintain a steady incremental growth. Success is measured both in cultural economic development as well as monetary value.

Luckily, the UAE has also led the way in this field—in recent years, the country has become a representative hub for the region’s art; initiatives such the Sharjah Biennale, Art Dubai and the ongoing museums project in Abu Dhabi are a testament to this. The UAE is already an art investment hub for the region, and investors in the country looking to diversify should absolutely take notice.

FIVE ESSENTIAL KEYS TO POSSESS WHEN ENTERING THE ART MARKET - Work with experts - Research - Sell at the right time and place - Publicise the work correctly (‘Old Masters’ tend to sell better when they have been out of the public gaze for some time, whereas contemporary works benefit from mass publicity) - Invest only five to seven per cent of your investable wealth into alternative investments - Acknowledge that there are many different sectors of the art market that all behave differently

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PHOTO:SHUTTERSTOCK/NETFALLS REMY MUSSER

CHOOSING WHAT TO ADD TO YOUR COLLECTION AS AN INVESTMENT IS NO EASY TASK.

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LUXURY PRODUCTS

Sound built for the HNWI

DR. ANDREAS SENNHEISER, CO-CEO OF SENNHEISER, WRITES EXCLUSIVELY FOR WEALTH ABOUT THE HISTORY OF THE BRAND, THE LAUNCH OF THE SENNHEISER HE 1 AND ITS FOCUS ON ULTRA-LUXURY

S

ennheiser has stayed true to its brand values that were established at the time of inception. We are shaping today the audio world of tomorrow—that is the ambition that we and our company live by from day to day. This vision statement describes what we are hoping to achieve together with our employees.

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The way to this achievement has been paved by our trailblazing ideas. Ever since our grandfather Prof. Dr. Fritz Sennheiser founded the company in 1945, Sennheiser has been continuously setting trends in the audio industry. Right up to the present, our innovative inspiration, curiosity and passion have made our products and services

immensely successful. Wherever people care passionately about recording, transmitting or playing sound, Sennheiser will be there.

This is something we are proud of. So, in essence, my brother and I believe that our business success is founded on our core values to constantly push the limits—and this drives all aspects of the business today.

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DR. ANDREAS SENNHEISER

adapted to the needs of the given case. So the trailblazing ideas of our developers have made Sennheiser products famous throughout the world, and repeatedly met with an enthusiastic response from audio aficionados. This ethos is carried forward by all of the brand’s advocates and we believe that if we stay true to this formula, we will not have to do anything differently.

SPOTLIGHT ON HNWIS

THE MOST EXPESIVE HEADPHONES IN THE WORLD, THE SENNHEISER HE 1

PERSONAL TOUCH

We are proud of the fact that we are an independent family business—and we believe that this is an important factor behind our success. Our financial independence guarantees our freedom to act and our competitiveness, and so ensures the future of our company. Sennheiser—the name stands for the establishment and development of trends. We do not just react, we are always reinventing the future. Here our passion goes to such lengths that we are only satisfied with a solution when we see it as being perfectly

The High Net Worth Individual (HNWI) today is offered a greater choice than ever before. Increasingly we are seeing that a HNWI is looking for quality – even when it comes to audio. A HNWI is certainly developing a more focused interest and expectation from the products and brands they endorse. So for instance, our customers expect us to give them first-class technology, top service, comprehensive expertise and onsite support. With this end in mind, we have reshuffled our organisation to better serve the needs of our customers. Seven independent business segments in the field of consumer products and professional products as well as two dedicated sales channels enable us to focus on the different requirements of our customers and the market—and we believe that increasingly, more brands would have to look at very targeted ways of ensuring that they cater to their HNWI clients successfully.

High-end audiophiles want just one thing and that is to be able to listen to sound that is as lifelike and direct as possible.

That is also the aim of the engineers and acoustic developers at Sennheiser.

We continue to design and manufacture headphones for the very highest audiophile demands, taking care to apply state-of-theart and pioneering technology—always driven by the ideal of achieving sound in perfection to offer a truly immersive audio experience.

THE HE 1

The HE 1 takes advantage of the most stateof-the-art technology. Ten years of research and development have made a decisive difference in improving sound quality, while resulting in a far more efficient amplifier concept and higher long-term stability.

What’s more, all of the state-of-the-art materials used are designed to reduce the impact of structure-borne and air-borne noise to greatest possible extent and to avoid resonance.

The electrodes of the HE 1, for example, are made from ceramic, whereas the ones in the Orpheus were made of glass, resulting in minimum resonance. And while the first amplifier concept of the Orpheus was based solely on tube amplifiers, the HE 1 relies on a mix of tube and transistor amplifiers, combining the advantages of both amplifier concepts.

We believe that we have brought a new high-end headphone system to market, which delivers an unprecedented audio experience. We are very confident that with the new HE 1, we once again open a new chapter in audiophile listening.

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THE INTERIOR OF THE NEW BBJS, EXCLUSIVE TO ROYAL JET.

Adding to the fleet

NEW ROYAL JET CEO ROB DICASTRI TALKS TO WEALTH ABOUT THE LATEST BBJS TO HAVE JOINED HIS FLEET What are the biggest developments of 2016 for Royal Jet? The biggest thing right now is the delivery of these two new Boeing Business Jets (BBJs).

The first one arrived in October, the second toward the end of November. These aircraft were ordered two years ago and were in outfitting for the past year. They are brand new BBJs with high-end technology in the cockpits and that’s really a big exciting development for Royal Jet. One has a bluish interior one has a reddish interior, one’s name is RJ Victor and the other is RJ Uniform.

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The BBJ is a niche market. We are the largest operator of BBJs in the world. We had six before these came in and we are at eight now, and so this extends our lead in that sphere, but these are different. They have very high-end interior, and the designers have done a great job bringing that vision to life. They’re not the typical wood and leather aircraft that you’d see. They’re very modern—lots of carbon fibre involved.

Tell me more about these BBJs. The roof is a honeycomb design with starry

night sky, and you can change the color of the ceiling to your mood, or you can set it to rotate. It has high-end entertainment technology. They are two of the first two BBJs to have Ka band, faster than any other BBJ in terms of wireless connectivity. You can watch Netflix through this system which just was not possible before. In the cockpit they have the enhanced vision system, which lets the pilots see in heavy weather.

We’re the first operator in the UAE to be licensed to use the EVS system, and it’s great for pilots and great for safety.

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AVIATION

The Ka band is super fast internet. Those are what the customers have been waiting for, now they are finally here. Customers want to fly on them right away, so they’ve been quite busy. They are something different. Many of our loyal customers have been flying with us for many years, enjoy our service and are very loyal to us, but to give them something different, something unique, it’s been really satisfying to us.

We wanted to change the look and the feel of them so it’s not the same every time our customers fly. They have a choice now with four BBJs of effectively the same configuration, but different feels for each one. This keeps customers from getting tired of the exact same layout—we didn’t want them to be the same. Configuration is what clients want to be consistent, but the look and the feel should change.

How much feedback did you get from your customers in customising these new aircraft?

We consulted with them about what they wanted to see as far as amenities and seating. There are 34 seats—which you usually don’t see. There’s a front bedroom, VVIP area, entourage area, good baggage compartment. We already have aircraft in our fleet with that type of configuration, and they are our most popular aircraft.

What have been your main priorities since joining Royal Jet? I just joined in August. I followed Royal Jet since I was in Saudi Arabia with NASJET, and I admired their work, but until you get in the company, you don’t know the details. It’s been a matter of taking all that we learned in that first few months, coming up with our strategy for next year and beyond, and, even if it’s a bit cliché, we want to unlock the potential of the company.

I’ve been telling people that the days of ordering aircraft and hoping to have the level of business to justify them are behind us. You really have to work the other way around—have the business and then bring in the aircraft. We did that with these two BBJs—we have the demand, and we needed to refresh the fleet and satisfy our loyal customers.

We want to consolidate our position in the region as the premiere VVIP operator.

That’s our niche. We are Royal Jet, we have a royal pedigree—we know how to satisfy the VVIP customer. I think your typical company just starting up does not necessarily know that or have that background that can help satisfy them like we do—which is one of our differentiators. We want to consolidate to capture that customer, as we have the aircrafts built just for that. Whether that’s about expanding the offerings and services we have or bringing in more to our fleet, that remains to be seen.

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HNWI CHAT

Sitting down with an Italian designer ROBERTO COIN, FOUNDER OF LUXURY ITALIAN JEWELLERY BRAND ROBERTO COIN COIN.

What's your go-to suit?

I love Kiton.

Which car do you love most?

I've had a few favourite cars at different stages of my life.

Today it's the Rolls Royce. In the past, it was the Bentley.

What is your watch of choice?

I adore my Patek Philippe.

What is your preferred travel destination?

My favourite travel destination is always the next one I need to discover.

But I always love to return to my own town of Venice.

What is your favourite restaurant?

That's a tough question to answer. The one that's top of mind is Da Vittorio in Bergamo, Italy.

What's your personal life philosophy?

I was born happy and I will die happy.

What are your hobbies outside of work?

Too many for the little time I have. I love writing, reading, exploring nature, interior design and sport.

What's your proudest memory?

EVGENY KUZIN I have quite a few. Apart from my personal life, one proud memory that comes to mind is winning an award for Corporate Social Responsibility.

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