Private wealth in Saudi Arabia is projected to post a compound annual growth rate of 2.7 percent to reach a staggering $2 trillion in 2020; over the next five years, private wealth held by ultra-high-net-worth households in the Kingdom is also expected to increase by almost five percent
By 2020, private wealth in Saudi Arabia will rise to $2 trillion, according to a new report by The Boston Consulting Group (BCG), Global Wealth 2016: Navigating the New Client Landscape, being released today. In the next five years, the growth of private wealth in the Kingdom will be driven primarily by equities (4.4 percent), followed by cash and deposits (1.9 percent) and bonds (1.4 percent).
Based on BCG’s in-depth study, between 2010 and 2014, Saudi Arabia saw its private wealth increase by 1.6 percent. In those four years, the wealth breakdown was 2 percent in equities, 1.4 percent in cash and deposits, and 0.8 percent in bonds.
This sixteenth annual study by BCG outlines the evolution of private wealth from both a global and regional perspective, addresses key industry trends, and explores evolving client needs—particularly those of underserved, nontraditional segments such as female investors and millennials, whose investment goals are not necessarily well-addressed by the standard, net-worth-based service approach.
“Segmentation approaches based mainly on wealth level continue to be used by the majority of wealth managers, neglect what clients are truly willing to pay for,” said Markus Massi, Partner & Managing Director of BCG Middle East’s Financial Services practice. “Such approaches no longer allow wealth managers to capitalize on the full potential of the market.”
Massi also added: “Local asset managers still provide a standard product program with limited differentiation. International asset managers have embarked on a journey designed to tailor their offering around specific customer segments, leveraging increasingly digital opportunities. They use technology to offer additional communication channels and services to their customers and tap into big data to generate customer insights—so they can further customize their offering and make it more personal. Local wealth managers in the GCC are only now starting to recognize this opportunity, which could become a source of true differentiation.”
Over the next five years, wealth in the Middle East and Africa region is set to reach $11.8 trillion—and Saudi Arabia, the UAE, and Kuwait’s contribution will account for 22.7 percent of that sum.
SPOTLIGHT ON SAUDI ARABIA
In terms of wealth distribution, private wealth held by ultra-high-net-worth (UHNW) households (those with above $100 million) in Saudi Arabia is expected to grow by 4.8 percent in the next five years. Interestingly, by 2020, this specific segment will be witnessing the highest growth.
Across the Kingdom, private wealth held by the upper high-net-worth (HNW) segment (those with between $20 million and $100 million) is projected to increase at a rate of 4.1 percent over the next five years.
In parallel, private wealth held by the lower HNW segment (those with between $1 million and $20 million) will go up by 2.6 percent.
And lastly, looking ahead, the total number of millionaire households (those with more than $1 million in net investable assets) in Saudi Arabia is set to grow by 1.3 percent by 2020.
The findings of BCG’s report also revealed that, in 2015, for Middle East and Africa (MEA) wealth booked offshore, Switzerland (30 percent) was the destination of choice, followed by the UK (23 percent) and Dubai (18 percent).
IN FOCUS: GLOBAL RESULTS
- A Slowdown in Growth. Global private financial wealth grew by 5.2 percent in 2015 to a total of $168 trillion, according to the report. The rise was less than a year earlier, when global wealth rose by more than 7 percent. All regions except Japan experienced slower growth than in 2014. Unlike in recent years, the bulk of global wealth growth in 2015 was driven by the creation of new wealth (such as rising household income) rather than by the performance of existing assets, as many equity and bond markets stayed flat or even fell. Assuming that equity markets regain momentum, private wealth globally is expected to rise at a compound annual growth rate of 6 percent over the next five years to reach $224 trillion in 2020. The number of global millionaire households grew by 6 percent in 2015, with several countries, particularly China and India, seeing large increases.
- Offshore Wealth Management. The report says that private wealth booked in offshore centers grew by a modest 3 percent in 2015 to almost $10 trillion. A key factor was the repatriation of offshore assets by investors in developed markets. Offshore wealth held by investors in North America, Western Europe, and Japan declined by more than 3 percent in 2015. The annual growth of offshore wealth globally is expected to pick up through 2020, although at a lower rate than onshore wealth (5 percent versus 6 percent). Among offshore centers, Hong Kong and Singapore saw the strongest growth (around 10 percent) in 2015. Offshore wealth booked in these domiciles is projected to grow at roughly 10 percent annually through 2020, increasing their combined share of the world’s offshore assets from roughly 18 percent in 2015 to 23 percent in 2020. Switzerland remained the largest destination for offshore wealth in 2015, holding nearly one-quarter of all offshore assets globally.
- Three Key Trends. According to a global BCG benchmarking survey, an annual feature of the report, average revenue and profit margins declined for wealth managers from 2012 to 2015. This development underlines the need for wealth managers to seize the opportunities stemming from three major trends that have altered—and will continue to alter—the industry: tightening regulation, accelerating digital innovation, and shifting needs in traditional client segments.
- Nontraditional Client Segments. The report says that two nontraditional client groups whose investment needs and size (population-wise) merit special attention are female investors—whose success as corporate executives and entrepreneurs (in addition to being the beneficiaries of inheritances and legal settlements) have raised their wealth levels significantly—and millennials (people born between 1980 and 2000), whose overall wealth accumulation is rising steadily. In 2015, women held an estimated 30 percent of global private wealth, with the share slightly higher in developed markets than in emerging ones. Yet just 2 percent of wealth managers surveyed by BCG said they considered women a specific client segment—fully investigating their investment needs and how they wish to be served—and had adjusted their service models accordingly. Similarly, 50 percent of wealth managers surveyed said they did not possess a clear view on how to address millennials in terms of service model, products, and overall approach.
A copy of the report can be downloaded at www.bcgperspectives.com.
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