For a small country, Qatar has a lot of money. Capital held by private individuals is growing fast, and with it an appetite for offshore investment.
“The value of offshore private wealth in Qatar is huge,” says Shawn Mofidi, managing director for Citi Private Bank.
“The Boston Consulting Group estimates it was $54bn in 2000 and will be $101bn in 2010.”
According to Boston Consulting Group, Qatar has the second-highest proportion of millionaire households in the world, with 7.9 per cent of all homes having assets of more than $1m under management.
It is second only to Singapore, with 10.3 per cent, and ahead of third-placed Switzerland, at 7.3 per cent.
The UAE and Kuwait are fourth and fifth respectively.
With ownership of more than $90bn worth of private assets, it is little wonder that wealth managers are circling the oil-rich emirate.
“Here you have a country that is politically and legally stable, with a forward-thinking leader and one of the fastest-growing economies in the world,” says Farhad Assari, head of private wealth management in Qatar for US investment bank Morgan Stanley and one of the nine private banks now in the Qatar Financial Centre (QFC).
“It has the highest per capita income in the Gulf and a booming energy sector that is funding development of other sectors.”
Oil and gas aside, Qatar’s wealth is such that capital is its biggest export.
The business opportunities in Doha led Morgan Stanley to establish a local office after the opening of the QFC in May 2005.
“What prompted us was the creation of the QFC,” says Assari. “When it opened in 2005, we were one of the first to apply. We gained authorisation and our office opened in 2006.”
The opening of the QFC has prompted an influx of international private banks such as Citigroup and Morgan Stanley to set up local offices.
Such firms were anxious to get closer to their existing clients and find new customers within the well-regulated framework of the QFC.
“We had been covering Qatar from the Geneva and London offices, and more recently from our Dubai regional office,” says Assari.
One of the most recent additions to the private banking market is the UK’s Coutts. Now RBS Coutts, its licence was awarded in August 2008.
The bank has had a representative office in Dubai for more than 10 years and has recently expanded its presence there, alongside new representative offices in Abu Dhabi, and shortly in Bahrain.
“The main attraction is that firms licensed by the QFC are able to engage in both onshore and offshore business, and have the chance to participate directly in one of the most dynamic regions in the world,” says Stewart Allen, RBS Coutts’ senior vice-president for the Middle East and principal representative for Qatar.
“Tax is a key issue for any international business when deciding where to open new offices, and the tax regime that operates within the QFC offers an internationally competitive fiscal environment.”
Other banks targeting private banking and wealth management that have established a local office at the QFC in the past 24 months include Bahrain’s TAIB Bank, Switzerland’s Union Bancaire Privee, Credit Suisse and Goldman Sachs from the US.
“The private wealth management business is very competitive,” says Assari.
“People know Qatar is a strong market for wealth management, so most of the major institutions are here, with the result that competition is fierce.”
It is not just competition from other global firms that is a concern for banks.
Qatar National Bank acquired UK private banking firm Ansbacher in 2004, giving the local institution global offshore investment expertise.
“The competition for us is not so much foreign banks as local banks building their offshore wealth-management capabilities,” says Mofidi.
“They can continue their existing relationship into offshore operations.”
However, Qatar’s local banks are facing uncertainty as they wait to find out how the new regulatory body, due to come into force over the next two years, will affect them.
Lawyers say what the new legislation will demand of local institutions is unclear, but it is expected to be tougher than current requirements of the central bank.
The international private banks in the QFC say a new regulatory regime will make no difference to them, as they already follow a stringent regime from operating in other highly regulated global financial centres.
Crucially, the local banks’ ability to compete with these global organisations will be decided by how well they adapt to the new regulatory environment, whatever shape it takes.
The main challenge for global banks is to convince the ultra-high net worth target market – individuals with assets of more than $25m – that their organisation can provide better wealth management than others in the QFC.
“We think we have a competitive global network,” says Mofidi. “If a client of mine wants to visit India or China to seek investment opportunities, I can arrange that for tomorrow.
“A private Swiss bank, for example, would not have this network so readily available.”
According to Mofidi, facilitating global networking is an important part of the service the group -provides, as client relationships can be used to create joint-venture opportunities in different regions such as India and China.
These joint ventures often result in direct investments in each other’s businesses.
“The mandate is dictated by the client, who might prefer real estate, hospitality or pharmaceuticals,” says Mofidi.
“We effectively enable them to use our network of contacts. They act like mini investment clubs, where we provide an introductory service.”
Another area in which Citi is attracting interest is through what it calls ‘co-investments’, where the bank puts an equity stake into an investment or project.
“Clients take comfort in that we put our money where our mouth is,” says Mofidi.
“For example, we recently put $100m into a fund to build infrastructure across India and invited clients to co-invest. There was very large interest in this opportunity from Qatar.”
Sharia-compliant investments are also important for the Qatar market and all banks claim to offer this service, although the methodology varies.
HSBC, for example, has a specialist Islamic wealth management division, Amanah, that can manage entire portfolios using sharia-compliant tools.
Other banks, such as Citi Private Bank and Morgan Stanley, do not have separate businesses for this but say they have the in-house expertise to ensure Sharia-compliant structures are part of their wealth-management offering.
Specialist advice in Islamic financing and other areas is another service sought by Qatari investors. Firms such as RBS Coutts claim this is an area where they can be particularly valuable.
“An increasing trend for Qatari investors to have assets in a number of different tax jurisdictions has seen a growing demand for specialist taxation, trust and succession-planning advice,” says Allen.
“The growing wealth and mobility of Qatari investors means specialist aircraft financing and worldwide property services are again in demand.”
Property services and real estate have always been popular investments for Middle East clients, and Qatar is no exception. Banks say investors continue to seek opportunities in real estate, and increasingly in private equity.
“In general, real estate is an asset that has always been interesting to Middle East investors, and now private equity is becoming a lot more prevalent,” says Assari.
Forecasts of a downturn in the local real estate markets are not deterring investors from considering real estate.
All the banks MEED has spoken to say Qataris have minimal exposure to the sub-prime markets. Wealth managers agree that the downturn in global financial markets can be exploited by the cash-rich Qataris.
“In all of this negativity, I see a positive side, which will be that the current environment is going to create great opportunities for investors who are cash rich and ready to invest,” says Assari.
“Opportunities will be in the same areas as before – real estate, financial assets and the markets in general – but the prices are going to be a lot more attractive.”
Insiders predict that not all banks will stay the course. “Some think money grows on trees in Qatar but this is not the case,” says Mofidi. “Personal relationships are key.”
Qatar is second only to Singapore in the proportion of millionaire households it has, at 7.9 per cent of all homes