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WEALTH ARABIA

ISSUE 45 | JUNE 2018

JUNE 2018

Changing gear in the investment cycle Philippe Ghanem, CEO, ADS Securities

Philippe Ghanem, CEO, ADS Securities

Dubai Technology and Media Free Zone Authority

A CPI Financial publication

Changing gear in the investment cycle


Contents ISSUE 46 | JUNE 2018

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EDITOR'S LETTER Greetings all,

W

elcome to the 46th issue of WEALTH Arabia. You may have noticed this year that WEALTH Arabia is more visible than ever before. Perhaps you are reading this at the DIFC or ADFM, or perhaps in one of the finest hotels in the region. Maybe you have picked up this issue at one of our latest events, such as last month’s IG Blockchain & Cryptocurrency Forum, where we and the region’s top experts debated the future of ICOs to a packed audience. We are working hard to ensure that WEALTH not only covers the top issues in its pages, but that we’re out in the world interacting with you our readership. It should be a packed 2018 ahead for us, and we look forward to seeing you all there. This issue has some great stuff. I might suggest you jump over towards the end for our exclusive interview with the CEO of Rolls-Royce about the launch of Cullinan and what it will mean to the Gulf ’s elite. I’m sure this car will be a huge hit here more than anywhere else—it was practically made for us. Beyond that, there’s still much to explore. I hope you enjoy it. Till next time,

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OPINION

8

How far can the bull run?

NEWS & ANALYSIS

9

The latest analysis from the investment world

COVER STORY

21

12 ADS Securities PRIVATE BANKING

18 A universal proposition

William Mullally wealtharabia.net

3


30 Why the crypto crash saved its future 34 IG Forum tackles crypto’s growth 40 The retirement question 44 Why is there no inflation?

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

TRAVEL The good life

wealtharabia.net

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FOOD A Michelin-starred French chef in Tokyo

CHAIRMAN

Saleh Al Akrabi

50

CHIEF EXECUTIVE OFFICER

ART Investing in the old masters

54

MOTORING Why Rolls-Royce made Cullinan Adore the four-door

58 66

TONY LONG tony.long@cpifinancial.net Tel: +971 4 391 4681

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DESIGN The legend of the impossible bookcase

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EDITOR - WEALTH ARABIA

OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419

EDITORS

BUSINESS DEVELOPMENT MANAGERS

MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716 NABILAH ANNUAR nabilah.annuar@cpifinancial.net Tel: +971 4 391 3726 WEB EDITOR

REAL ESTATE Deira Island’s high-end family experience

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SALES DIRECTOR

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

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

editorial@cpifinancial.net

DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526 NIKHIL NIDHAN nikhil@cpifinancial.net Tel: +971 4 391 3717 MOHAMED MAKSOUD mohamed@cpifinancial.net Tel: +971 4 433 5320 SIMON MOTWALI simon.motwali@cpifinancial.net Tel: +971 4 433 5321 ADVERTISING

sales@cpifinancial.net

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LONDON BUREAU

ISLA MACFARLANE isla@cpifinancial.net Tel: +44 7875 429476 CHIEF DESIGNER

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

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FINANCE & DATA MANAGER

FINANCE & DATA EXECUTIVE

HR & OFFICE MANAGER

ADMINISTRATION & SUBSCRIPTIONS

SHAIS MEMON, ACCA, CMA Shais.memon@cpifinancial.net Tel: +971 4 391 3727 RIZZA INFANTE rizza@cpifinancial.net Tel: +971 4 391 4682

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enquiries@cpifinancial.net WEALTH ARABIA ISSUE 45 | JUNE 2018

JUNE 2018

Changing gear in the investment cycle Philippe Ghanem, CEO, ADS Securities A CPI Financial publication

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

Changing gear in the investment cycle Philippe Ghanem, CEO, ADS Securities

Dubai Technology and Media Free Zone Authority

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

©2018 CPI Financial. All rights reserved. No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the editor. Printed by United Printing & Publishing - Abu Dhabi, UAE

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


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OPINION

The UAE pushes forward A

William Mullally

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lthough oil has climbed back up in recent weeks, the oil crash of a few years ago will forever mark the moment in Gulf history that the region recognised its dependence on a single industry, and decided it needed to progress, innovate, and work towards a better, diversified future. One monumental decision came just this May, when HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates, and Ruler of the Emirate of Dubai announced on social media that it will be making a big move in a new direction. “At today’s Cabinet meeting, we decided to allow 100 per cent foreign ownership of companies in UAE, with a 10-year visa for investors, scientists, doctors, engineers, entrepreneurs and innovators. The UAE has always welcomed, and always will, innovators and business leaders. This decision will be enforced by third quarter this year. Our open society, tolerant values, excellent infrastructure and flexible legislation offer the best environment for international investment and

exceptional talent,” said HH Sheikh Mohammed bin Rashid Al Maktoum. As I travel the world for WEALTH Arabia, I am constantly asked why I have made Dubai my adopted home. My answer has always been that it is, unequivocally, the most cosmopolitan city on earth, with talent coming from nearly every country in the world. For the UAE to grow, of course, it must do everything it can to not only attract but keep that talent, and the UAE has made a major step towards that here. A ten-year visa for investors, many of whom are you our readership, is I’m sure a welcome move for you and your families. I have already spoken to those who were thinking of opening businesses in the UAE as well, and 100 per cent foreign ownership has made some say that this is a true gamechanger for them, pushing them to set up shop in the UAE even sooner. Encouraging other key industries too, with this move, will only aid the UAE economy, making it a better place to invest in the long term. The world has been excited to work with the Gulf for a long time, and with moves like this, that will continue long into the years to come.


NEWS & ANALYSIS

A

fter The Tadawul’s TASI share index rose 10 per cent this year and the exchange’s total market capitalisation reached more than SAR 1.9 trillion, Nasdaq Dubai has announced a Q3 launch of equity futures on leading companies listed in Saudi Arabia.

The framework that we have built for trading and clearing Saudi futures is based on intensive consultations with regional and international market participants including brokers and potential investors. We are delighted to provide investors with an exciting new route to gain exposure to the kingdom’s dynamic and rapidly expanding equity markets. Our futures will provide further impetus to investment into the Saudi capital markets and help develop new links with market participants.”

Hamed Ali Chief Executive, Nasdaq Dubai

O

il and other commodities on the rise has been good news for investors in the first quarter of 2018, but uncertainty is keeping experts from being too optimistic for the rest of the year.

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Although the downward sloping shape of the oil futures curves brings carry tailwinds to investors, these gains are mostly offset by roll losses coming from exposure to agriculture and the natural gas market. We still believe it is almost a perfect storm on commodity markets. Commodities continue to perform well, with strength in oil offsetting weakness in metals. The solid global economy, selected supply disruptions and the in part bullish mood underpin the asset class. We maintain a neutral view as the political noise and high uncertainty cloud the outlook, bearing both upside and downside risks.”

We recorded a moderate increase in enquiries and transactions for high-end residential units, suggesting that albeit at a conservative level, there is still appetite for this product. Despite the boost in luxury project launches, we believe developers will continue to focus on affordable and mid-market housing because there remains a substantial supply gap. Other factors bolstering the trend include the growing young population (over 60 per cent are aged 25 to 44) and the rising popularity of home ownership (investment or owner occupation).”

Norbert Ruecker Head of Commodity Research, Julius Baer

John Stevens Managing Director of Asteco

hile there is still an appetite for high-end residential units, demographic projections may signal that investors should look towards affordable housing in the long-term in the UAE.

wealtharabia.net

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ADVERTORIAL

Advertorial

Working with Middle East investors and their

With a strong and growing presence in the region, Jersey is increasingly providing a range of private wealth management services to GCC clients, as Geoff Cook, CEO of Jersey Finance, explains:

global ambitions For several decades Jersey firms have been building links with markets across the GCC, so that today Jersey provides a vital role in supporting family succession planning and facilitating global investment strategies on behalf of investors in the region.

In particular, a survey for that paper revealed that more than half (55%) of professionals working with family businesses in the GCC saw succession planning as the most critical issue for GCC families today.

These positive links have been developed thanks to the combined, forward thinking, efforts of Jersey’s regulator, government and finance industry, all of whom have visited the region for a number of years. For its part, Jersey Finance established an operation in the UAE more than six years ago to work together, more closely, with key stakeholders on the ground.

However, whilst HNWIs in the GCC clearly acknowledge the importance of succession planning - which can be extremely complex given the global nature of families and their businesses - there is still a reluctance to engage with third-party support and a tendency to default to deferring succession decisions – something that could prove costly in the long-run.

What has become clear is that, against a backdrop of shifting markets and a changing global political landscape, investors in the GCC continue to find genuine appeal in the expertise, substance and stability Jersey can offer as an international finance centre (IFC), as well as its range of tried-and-tested wealth products – not least its world-renowned trust, foundation and company vehicles and Shari’ah-compliant services. The indications are that investors in the GCC are increasingly likely to need this sort of specialist cross-border support in the future too. According to the Boston Consulting Group, private wealth in the GCC is set to reach $12 trillion by 2021, growing at a rate of 8.1% - compared to the global average of 6% (‘Global Wealth 2017: Transforming the Client Experience’).

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According to the research, for example, there are real misconceptions around the issues and solutions available when it comes to wealth structuring. Over half (56%) of GCC-based advisers said that loss of control is the biggest misconception that GCC families have when it comes to wealth structuring, whilst 23% are concerned by the lack of transparency of structures. Although this offers some considerable challenges for wealth professionals in the region, it also highlights just how important it is for professionals with first-class experience in forwardthinking IFCs like Jersey, who are used to managing complex cross-border financial flows, to work with families and investors to bring clarity, build understanding and instil confidence.

Jersey is ready to support this trend, offering GCC investors a safe, neutral and attractive platform and enabling them to create a certain future by carrying out their increasingly sophisticated wealth planning and investment strategies.

Jersey is already focused on providing this critical support by working with advisers and investors in the region. Consequently, firms in Jersey are seeing an uptick in the number of private wealth vehicles being re-domiciled to Jersey from less advanced jurisdictions, as investors seek a high-quality trusted solution.

Fundamental Challenges

Flight to Quality

The need for this kind of specialist support was evidenced only last year in a white paper, published by Jersey Finance in conjunction with Hubbis, which identified some fundamental challenges HNW individuals in the GCC will face in the coming decades.

Whilst Jersey has earned a reputation for specialist private wealth work in markets across the GCC, this has expanded in recent years so that today there are in excess of 40 Jersey firms active in the region who are undertaking a broad range of investment and corporate as well as private wealth work.


KUWAIT

BAHRAIN

QATAR

UNITED ARAB EMIRATES

KINGDOM OF SAUDI ARABIA

For instance, Jersey is highly regarded for outbound commercial real estate investment, an increasingly attractive asset class for GCC investors, thanks to its stability and flexible structures for pooling capital and acquiring and selling such assets, focusing on the UK as well as Europe and the US. Additionally, GCC institutional investors, led by sovereign wealth funds (SWF), are looking more and more at opportunities in markets such as the UK, US and Europe and as a result, Jersey fund practitioners are seeing rising levels of capital from institutional investors - the world’s largest private equity fund, structured through Jersey, has a GCC SWF as a primary investor. Jersey’s proposition and expertise in alternative fund servicing, together with its ongoing seamless access to European markets and strong ties to the UK, lends itself well to this trend, with direct investment, co-investment, private equity and club investment deals all amongst the favoured investment strategies for GCC investors. Indeed, the jurisdiction has seen a number of major private equity and real estate fund launches involving GCC investors over the past twelve months. Evolving Relationship

OMAN

Jersey: 10 key strengths + 50 years’ experience in private wealth management + Deep ties to the GCC, with expertise in Islamic finance

+ Early adopter to the latest transparency standards + Glowing recommendations from the OECD, World Bank, IMF and MONEYVAL

+ A substantial network of top-level financial services professionals

+ An enviable community of support services, from legal to accounting

Jersey’s relationship with the GCC is evolving as Jersey seeks to provide a robust and attractive platform for investors to pursue their family wealth and outbound investment strategies. Whilst there is undoubtedly appetite amongst families to tackle succession planning to future-proof their complex family wealth and assets, it’s clear that investors are also increasingly turning to expert advisers for specialist support to put their capital to work in increasingly diverse markets and sectors.

+ Innovative products – from trusts to foundations, private trust companies and family offices

+ Stable location + Close ties to London + The perfect blend of the transparent and the confidential

Jersey offers welcome experience to meet this need, guiding investors through the complexities of their ambitions, and working with them to realise a positive future.

linkedin.com/company /jersey-finance

@jerseyfinance

jerseyfinance.je

youtube.com/jerseyfinance

vimeo.com/jerseyfinance

wealtharabia.net

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COVER STORY

Changing gear in the investment cycle Philippe Ghanem, CEO, ADS Securities, speaks to WEALTH Arabia on his firm’s technology-first strategy

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he brand of ADS Securities, the Abu Dhabi-based investment firm, can be seen on the sleeves of the UAE Team Emirates cyclists as they take on the best in the world at the Giro d’Italia or the Tour de France. Investors who know the company may well suspect that CEO and Vice Chairman of ADS Securities, Philippe Ghanem, is trying to make a point. At a time when the global asset management cycle is about to change, Ghanem sponsors a cycling team. Surely this cannot be a coincidence? For the last few years, ADS Securities (ADSS) has been a regional leader in asset and wealth management, but this was not the starting point for the business—it was originally conceived to deliver specialist financial services trading. In 2010, if an investor in Dubai or Abu Dhabi wanted to enter the market looking to acquire assets they had to get up early and trade through the Far East or wait until Europe opened. ADSS was set up to plug this trading gap and bring liquidity into the market during a time when spreads were widening and risk increasing.

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In 2015 having already become the largest, by volume, trading desk in the GCC, a wealth management division was launched. And, at the start of this month, in recognition of the fast and successful growth of this investment area, ADS Securities was voted by the readers of Banker Middle East, our sister publication, as the leading wealth management firm in the region. This, after just three years of operations. If the competition is looked at in this sector, ADSS’s peer group includes some of the largest and best-known wealth management companies in the world, along with a number of highlyregarded and respected regional firms. In the past, a few of them had been recipients of this prestigious and highly sought-after Award. After receiving the Award, Ghanem put the win down to one simple but very important factor: customer service. The message on client management, which defines the way the company works is very clear. Through all the work for every client the firm is focused on delivering the highest possible standard of service at a level that investors and traders want,


COVER STORY

Philippe Ghanem wealtharabia.net

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COVER STORY

Philippe Ghanem, CEO, ADS Securities

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COVER STORY

according to the firm. According to Ghanem, this approach is embedded in all elements of the firm, from the development of the systems and technology, through to the relationship managers who contact each client personally. Although it is only three years old, the wealth management team has seen extraordinary growth and recently underwent a major restructuring with the pure wealth management Division being split from the Asset Management Division, Ghanem told WEALTH. According to Ghanem, the opening up of the Abu Dhabi Global Market (ADGM) was another significant step-forward for the UAE. The ADGM provided ADSS with the opportunity to establish a specialist Asset Management team. So, on the 7 December 2017, a new subsidiary, ADS Investment Solutions Limited (ADSI) was incorporated. Providing a wide range of services including managing assets, arranging custody, advising on investments or credit, arranging investment deals and managing collective investment funds, ADSI is leading ADSS’ corporate product development programme, according to Ghanem. Based on Al Maryah Island under the regulation provided by the ADGM, this team has already started manufacturing products. Up until the formation of ADSI, investors had to go to the market to find the products which were the best fit with their investment strategies, but now they can opt to go with the structures developed by ADSI, said Ghanem. In mid-May ADS Investment Solutions developed a new FTSE Russell Saudi Arabia index, the FTSE ADS Custom Saudi Minimum Variance Index. It is an index which employs a rules-based approach and has been designed to minimise the volatility of the FTSE Saudi Arabia All Cap Index, based on historical returns. As part of the collaboration, the index has been licenced by ADS Investment Solutions for a new

Most investors know that to bet against technology can only lead to losses. This is what the market cap of Tesla, which spiked higher than that of General Motors, teaches us. Smart money knows that technology wins, eventually. Philippe Ghanem

exchange-traded fund (ETF), which will be incorporated in Abu Dhabi Global Market and listed on Abu Dhabi Securities Exchange. Ghanem told WEALTH that everyone involved in the project is confident that this is the right time and the right market for this product which is based on the smart beta methodology. On the 27 March 2018 FTSE Russell upgraded the Saudi Arabian Tadawul market from Frontier to Emerging Market status. It is also widely anticipated that MSCI will follow this lead and upgrade the Kingdom to Emerging Market at the end of June 2018. These changes are a reflection on the improvements in the market infrastructure, all linked to a number of significant political, social and cultural developments in the country, delivered as part of Vision 2030. The immediate result of the FTSE Russell upgrade, and the opening up of the market to a wider range of foreign investors, has fuelled an impressive 10 per cent rise in the Tadawul so far this year. For ADSI, it was important to be able to offer the ETF product which provides increased access to KSA equities. The change in status for the Tadawaul has the potential to lead to a further investment of up to $40 billion, adding further strength the index. It is anticipated that the majority of investment will be passive, with managers tracking the indices, but it presents a great opportunity for regional investors who are looking for value in GCC equities. FTSE Russell plans to re-balance the index twice a year. The ADSI will look to have the ETF listed in the major markets around the world creating an unique

channel for investors to access the KSA market through a stable and accessible product, and, according to hopefully give all ADS Securities wealth management clients the investment edge that they are looking for, Ghanem told WEALTH. The role of ETFs and the phenomenal rise in passive investment over the last 10 years has been the main theme for the market. Robotic trading based on algorithmic trading and backed by artificial intelligence (AI) systems, have changed the way that a substantial amount of investment flow gets places. However, as with all investments, this is part of a cycle. The management team of ADS Securities has always seen the move to passive investment as cyclical, but the important question is when this cycle will end. After a nine-year bull run for equities it would not be difficult to put a case for a shift from passive to active management. For ADSS, the signs of change have been building up even after another very positive US reporting season, with the FANNG stocks (the five most popular tech stocks) continuing to drive the market forward, according to Ghanem. At the start of the year the main US and European indices did wobble, but recovered. Movement in 10-year bond yields and the change in Central Bank interest rate policy which is causing investors to look again. Just three months ago there were potentially three or four central banks looking to tighten their monetary policy, but now only the US appears to have this option. These changes in underlying sentiment are causing investors to ask questions, and think about the percentage of their portfolio which is actively managed. wealtharabia.net

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COVER STORY

Over the last nine years there has been very little advantage for active over passive management. “If you want to be less correlated, one of the obvious moves is back into active management, working with firms like ADS Securities,” Ghanem told WEALTH. Some investors have already decided to head for safe havens, with gold seeing very large flows, but Ghanem and ADS Securities’ view is that through active investment there are still very interesting areas to explore, including in Tadawul. The wealth management team has also focused hugely on developing the IT systems which provide clients manage their portfolios, according to Ghanem. “Under-investment in technology is some companies’ greatest weakness, at ADSS it is perhaps one of our greatest strengths,” said Ghanem. The first iteration of the ADS Securities OREX trading platform was launched eight years ago, and today the third-generation version is in operation with a further generation under development due for launch later this year, according to Ghanem. For a company like ADSS, which needs to provide exemplary products and flawless customer service in order to differentiate itself from its competitors, technology is the key, according to Ghanem. He told WEALTH that ADSS management is very concerned about investment firms which do not try and understand or work with the very latest cuttingedge technologies. “They have been proactive in making sure that everyone is passionate about cryptocurrency and fully understands the implications of the blockchain revolution. Those directly involved are regularly quizzed about what they have learnt or researched that day. Part of the firm’s success has been down to the quality of the people it employs with all functions expected to be experts in their field,” said Ghanem. 16

Mohamed Abdellatif

Philippe Ghanem


COVER STORY

If you want to be less correlated, one of the obvious moves is back into active management, working with firms like ADS Securities. Philippe Ghanem

Just two years before ADSS was formed, the iteration of blockchain technology was laid out in 2008 by a person (or group of people) using the name of Satoshi Nakamoto. The technology that this created has the potential to revolutionise global financial markets. Blockchain’s selling point is that it provides a secure, efficient and scalable solution for the clearing, settling and transfer of almost all assets. For challenger markets, like the ADGM, blockchain and distributed ledger technology could provide an opportunity to deliver specialist products into the global marketplace. The ability to introduce considered and purposeful regulation which supports the growth of these new systems, rather than trying to stop or restrict their implementation, is one of the key advantages of smaller more flexible hubs, according to Ghanem. “Most investors know that to bet against technology can only lead to losses. This is what the market cap of Tesla, which spiked higher than that of General Motors, teaches us. Smart money knows that technology wins, eventually,” said Ghanem. In the financial services sector we are seeing the increased and applied use of AI, alongside traditional systems, which provides increased trading efficiency. According to Ghanem, this is another key factor in the evolution of the company. When technology creates efficiency, it is adopted. The speed of algorithmic trading systems has changed investment strategies, across all asset classes. From FX through to equities, AI systems now control substantial trading flows and react in milliseconds to changes in market conditions. The future is here in these systems, whether they are part of an active or a passive strategy.

According to Ghanem, there will always be a need for experienced and knowledgeable market experts who set the strategy and develop the AI, but more and more transactions are managed through automated systems. When this is linked to the development ethereum, for example, with its integrated smart contracts, the opportunity for change is clear. Smart contracts are a robotic answer to many of the back-office functions which have grown in traditional financial centres. By using blockchain and distributed-ledger technology, many legal and accountancy actions are completed simply within the transaction, thus creating resource and time efficiency and complete accuracy. For many investors, the volatility associated with cryptocurrencies has been a reason not to invest in the technology or even consider it. But blockchain is in its infancy, and is developing at light speed. Coins from bitcoin to ether are currently being used for speculation in the same way investors trade stocks, but this will change. As the main coins become more liquid their true functionality will develop, according to Ghanem. At present, the speed and scalability of blockchain means that it cannot meet the demands of most financial systems. The amount of resource, financial and human, being placed into the technology means that it will be advanced very quickly. ADSS is a leader in embracing this change, seeing technology as the future of financial services, Ghanem told WEALTH. “One of the often repeated mantras at ADSS is that ‘only those prepared to embrace the future and adapt will survive’,” he said.

In eight years, ADS Securities has achieved more than anyone expected, according to Ghanem. In 2010 the idea of an independent financial services company based in Abu Dhabi with an ambition to take on other global investment firms, would have gained little credence. But, in 2018 the reality is very different. On a monthly basis more and more international companies are moving to Abu Dhabi attracted by ADS and the flourishing ADGM, Ghanem said. For investors from across the world, Abu Dhabi is now on the financial map. It is an important investment centre bringing together the East and West and with the growth of Saudi Arabia and other GCC countries, it is an important market in its own right. The UAE offers the stability and the infrastructure which investors seek. The balanced regulation offered by the Central Bank and the freezone financial centres is helping to promote trust and is offering security to a range of firms and individuals. The difficulties faced by other emerging markets is helping bring substantial inflows to the region, and it has been Abu Dhabi’s ability to manage these flows and provide the products and services clients want, which has taken the sector forward,” said Ghanem. So what of the future? ADS Securities and its CEO confident that this is just the starting point for the region. The recovery in the oil price and stability the UAE offers, even with some geo-political concerns impacting countries close-by means the Emirates are well placed to have an increasing role in the global markets. The speed of change in technology, the need for regulation to adapt to new market conditions and the ability of firms like ADS Securities to produce market leading products is creating a great future for Abu Dhabi and the UAEs financial services sector. So, as the riders of UAE Team Emirates flash past on the screen or stand on podiums at prestigious events, it should act as a reminder that we could well be at the point where the asset management cycle changes. wealtharabia.net

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PRIVATE BANKING

A universal proposition Naushid Mithani, Market Head, Global South Asian Community, EMEA and Head, Private Banking, UAE, Standard Chartered, speaks to WEALTH Arabia about covering the totality of what elite customers need

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Naushid Mithani

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hat are your HNWI/ UHNWI clients most looking for from a private bank, and how is Standard Chartered uniquely positioned to offer products and services to address those needs? Our clients have a range of needs, which span wealth management and growth to succession planning and philanthropy. Many of our clients are also entrepreneurs whose personal and business banking needs are closely linked. From a personal wealth management perspective, we help them meet their investment goals through a team of senior relationship managers who have experience across multiple market cycles, and they are supported by investment strategists and product specialists in each market. Our 'open architecture' wealth management model means we have the ability to access multiple third-party sources of market insights and our products are sourced externally, with no bias towards our own proprietary products. This allows us to put our clients’ needs at the forefront of our business and source solutions bestsuited to their needs. One of our most compelling advantages is our ability to offer more objective investment advice based


PRIVATE BANKING

on a process developed by our inhouse Global Investment Committee, a diverse group of market experts. The success of our process is based on the diversity of the sources of market information we curate from, the diversity of perspectives within our investment committee and our decision-making process behind our investment themes for the weeks and months ahead. Our ability to offer a universal banking proposition also means that clients can leverage our global Commercial Banking and Corporate & Institutional Banking capabilities for their business needs across Asia, Africa and the Middle East, with solutions tailored to where they are in their growth journey. With our presence in 70 per cent of the countries along the Belt and Road corridors—including parts of the Middle East—we expect strong growth opportunities for businesses and exciting new avenues for personal investments, and have teams on the ground to help our clients capture these opportunities. Could you tell us about ADVICE, and how has implementation gone since its introduction? Our clients look to their relationship managers and investment advisors to help them navigate market complexity and reach their investment goals. For us, digitisation is a complementary force. We are investing to give our relationship managers more innovative tools and enhancing our infrastructure to continuously enhance client experience. The introduction of our awardwinning ADVICE platform last year is an example of how we are using technology to enable our frontline colleagues to deliver timely, actionable investment advice to clients faster and more effectively. The one-stop digital advisory tool integrates our house views and investment recommendations with the Thomson Reuters’ platform, allowing our relationship managers to give clients investment proposals much faster, enabling a visibly superior client experience.

Standard Chartered has increased its tools for wealth management in recent years.

What have been the other key initiatives that Standard Chartered has recently implemented? We aim to provide differentiated value to our clients across relationship management, digital channels and the quality of investment advice and global insights we offer. Digitisation is a crucial agenda for us to meet the expectations of our increasingly tech-savvy clients. To further enhance the capabilities of ADVICE, we have initiated a proof-of-concept with a robo-advisory fintech to build a digital advisory tool integrated within ADVICE to allow our investment advisors to respond faster and more credibly to clients’ queries on equities ideas. We are also continuously looking to improve ADVICE’s user interface and allow our frontline colleagues to customise the platform based on both their preference and clients’ needs. Complementing our digital advances is our ability to provide our clients with insights into major global trends before they become mainstream. We have partnered with the Economist

Intelligence Unit to produce a series of reports to provide our private banking clients with the latest trends in investment, the changing nature of work, personal health and leisure, allowing them to take advantage of innovative developments as they unfold. How do you see private banking evolving in the future, and how are you planning to stay ahead of those changes? We are going beyond clientfacing solutions and capabilities to empowering our relationship managers to continuously enhance our client experience. As clients become more digitally savvy, they also expect their banks to similarly deliver digital innovation to make their user experience more convenient, accessible and personalised. However, we believe that the human advisor model is still central to our client relationships, as investors still prefer the 'human' touch especially when making complex investment decisions. wealtharabia.net

19


PRIVATE BANKING

That is why we are investing to give our relationship managers more innovative digital tools and enhancing our infrastructure to continuously raise the bar on our client experience. In addition to ADVICE, we are also investing in enhancing our trading platforms across fixed income and equities with industryleading capabilities such as the ability to price in real-time to further reduce our turnaround times to execute on client requests. Across our key markets, a lot of wealth is set to change hands to the next generation. Our clients can tap our strong legacy planning and trust solutions. Additionally, we offer a unique next generation programme which is focused on helping the sons and daughters of our high net-worth clients to hone their talents across leadership and entrepreneurship, philanthropy, sustainability and communication. How do the needs of clients in the region differ from those in other markets? Are they more hands-on or hands-off with their portfolios? Do they accept more risk? In the Middle East and Africa, we find that clients across our footprint are often have multiple private banking relationships. These clients also tend to be time-starved and look to their private banks to provide them with investment ideas suited to their needs and objectives. While they have a good grasp of market trends, many are interested in thematic ideas. Most of our high net-worth (HNW) and ultra high net-worth clients are also entrepreneurs, and are looking for a wealth partner that can help them with both their personal and business needs. With most of their wealth tied up in their businesses, the ability of an investment advisor who can help them to monetise their businesses is important to them. As a universal bank, we are able to provide them access to corporate and investment banking capabilities which can help them with the banking needs of their businesses. Given that most of them are still the first or second-generation business owners, they are concerned 20

Our ability to offer a universal banking proposition also means that clients can leverage our global commercial banking and corporate & institutional banking capabilities for their business needs across Asia, Africa and the Middle East, with solutions tailored to where they are in their growth journey. Naushid Mithani, Market Head, Global South Asian Community, EMEA and Head, Private Banking, UAE, Standard Chartered

about the transfer of wealth and their businesses to the next generation, so succession planning is a major need. How do you select your relationship managers, and how do you ensure that they are to the quality that Standard Chartered demands? Our clients need fast, relevant investment advice to meet the challenges of fast-moving markets. It’s critical that private banking professionals are well experienced and equipped to adapt to the change in the industry and to be able to support their clients through the market cycles. In addition to our talent acquisition strategy (in 2017, we hired 60 senior relationship managers globally), we are committed to developing our talent to stay relevant to the fast-evolving needs of our clients. Last year, we launched our Private Banking Academy, and have partnered with Fitch Learning, a pre-eminent training and professional development firm, and INSEAD, a leading business school, to create a bespoke training programme for our global front-line colleagues. The Academy seeks to equip them with the skills they need to deliver an exceptional level of service and advice to our private banking clients.

What are your thoughts on the investment landscape in 2018? Global equity valuations have comeoff from multi-year highs and earnings expectations remain strong but worries about global trade tensions, rising oil prices and a renewed rise in bond yields continue to impact the markets. We maintain our preference for global equities, given that global growth remains robust, despite softening of some economic activity indicators from multi-year highs. While the current economic recovery cycle is mature, history suggests some of the strongest equity market returns tend to occur late in the cycle. Our preference for Asia ex-Japan equities, and our preference for China within the region, remains in place, with the attractive valuations relative to developed markets (DMs) still offering room for further outperformance. We have also raised our preference for US equities, given the more attractive valuations following the equity pullback earlier this year and strong earnings growth expectations. Rising inflation expectations have been a major driver of the rise in US bond yields, but we believe further yields gains are likely to be limited short of an inflation overshoot. Corporate and EM bond valuations (as measured by credit spreads) have also eased year-to-date alongside moderating equity valuations. A further easing of valuations (credit spread widening) is unlikely as usually valuations tend to hold around elevated levels late in the business cycle. We still believe corporate bonds form a solid core holding, particularly in Asia ex-Japan, where they remain less volatile than in other regions. However, we still see more attractive relative value in EM USD government bonds than in corporate bonds. EM local currency bonds also offer the advantage of diversification into bond markets that are less correlated with rising US Treasury yields. Overall, we continue to prefer an aggregated exposure via multi-asset income strategies.


INVESTMENT INVESTMENT

LIVING 100 YEARS:

THE NEW EXPECTATION

UBS’s Head of Wealth Management for the Arabian Gulf, Niels Zilkens, discusses the importance of health and wealth and looks at how the rising prospect of living for a century means a whole new way of thinking

T

he idea of living a century was once confined to science fiction. For the world’s wealthy, living a 100-year life is not an outcome they consider a mere possibility. It’s one they expect. Whilst many want to discover the secret of how to live a long life, in our business, the most pressing challenge is how to plan your wealth over such a lengthy period of time. Nine in 10 investors are taking steps in response to increasing life expectancy such as adjusting spending habits and financial plans, as well as allocating their wealth to long-term investments. Not only is longevity affecting the wealthy’s investment approach, it is also impacting their legacy planning. Nearly two in three investors plan to give more of their wealth away while they are still alive to see heirs enjoy it. wealtharabia.net

21


INVESTMENT

MANY WEALTHY PEOPLE IN THE UAE EXPECT TO LIVE FOR 100 YEARS In the recent UBS Investor Watch report, the largest recurring survey of over 5,000 wealthy investors globally, we uncovered some fascinating insights into high net worth individual’s relationship with their health and wealth. In the UAE specifically, 45 per cent of respondents expect to live to 100, compared to a global average of 53 per cent. The topics of life expectancy and the related consequences are frequently discussed in many client meetings. LONGEVITY IS PROMPTING THE WEALTHY TO ACT DIFFERENTLY Almost all of the wealthy individuals surveyed in the UAE say they have made, or will make, financial changes in response to longer life expectancy. While 30 per cent are adjusting their spending habits, the most common strategy is to make greater use of longterm investments. This makes a lot of sense and many clients are keen to create long-term financial plans in a variety of investment areas so that they can make higher returns. One also has to think carefully about how to plan. A longer life means more time to accumulate savings; but it can also mean a longer retirement, resulting in the need for more money to be saved. Both require a greater exposure to risky assets since they offer a higher return in the long run. It also makes sense to have exposure to long term themes that may only pay off later in life. We have identified a variety of long term investment themes that they could consider: Some of these include for example, smart mobility where the need for energy efficient transportation, regulatory changes and technological advances will lead to greater electrification of cars, autonomous driving and new car-sharing mobility concepts. This opens opportunities in particular for electronics and electric components related to electrification and autonomous driving. In the world of Automation and Robotics, rising 22

Niels Zilkens, Head of Wealth Management, UBS, Arabian Gulf


INVESTMENT

It’s important that banks provide solutions and portfolio suggestions that capture both, the financial plans of the retiring parents as well as the potential funding of the children or grandchildren. Niels Zilkens

wages and demographic challenges will put pressure on manufacturing costs and drive investments in automation solutions. In renewable energies, global electricity demand is increasing due to population growth, urbanisation and technological advances. Political support and falling costs make renewables attractive and should lead to further growth in the future. As people increasingly take a longer view towards investments, illiquid assets such as private equity, hedge funds and real estate will become more attractive relative to other asset classes, because illiquidity becomes less of an issue to consider when looking into investment options. WEALTHY INDIVIDUALS ARE ADDRESSING THEIR WORK/ LIFE BALANCE Warren Buffett’s recent statement: ‘I can buy anything I want, but I can’t buy time’ is a theme that is clearly on the mind of many wealthy individuals. Over 90 per cent of those surveyed were absolutely clear their health is more important than wealth. Over half are willing to sacrifice over 60 per cent of their wealth if it would guarantee them an extra 10 years of life. It’s no surprise that they are investing in their own health, seeing it as their biggest asset to preserve, spending significant sums on gyms and medical treatments. INVESTING IN THE HEALTH OF SOCIETY We also noticed from our research that sustainable investing is important to our clients. Around 91 per cent of wealthy investors believe it is their duty to help others stay healthy. The mindset of clients is clearly changing and they are more attracted to investing in

companies that fulfil environmental, social and governance (ESG) values. Our UAE clients also recognise that that it’s not just their own health that matters, 72 per cent have already invested in an area of health to generate positive social impact and 56 per cent are looking to increase their impact in health investments specifically. If we look at how technology and society may evolve over the next 100 years, it is clear that placing people and society at the heart of portfolios would be a win-win for all concerned. DESPITE THE UPBEAT ATTITUDES, THERE IS STILL ANXIETY Clients are constantly telling us that they need to invest and save more for their retirement. Almost half of those surveyed in the UAE are worried about rising medical costs and the effect living to 100 will have on their own lifestyle and retirement. In addition, 52 per cent worry that living to 100 will reduce their children’s inheritance. Clients are realising that wealth distribution from one generation to the next will happen during the lifetime of our clients. It’s important that banks provide solutions and portfolio suggestions that capture both, the financial plans of the retiring parents as well as the potential funding of the children or grandchildren. EMBRACE THE OPPORTUNITY FOR HONEST DISCUSSION We are working on the challenges and opportunities that the insights from Investor Watch bring to network of experts and investors. From our UBS Global Surveys, through to reports that we publish regularly, we want to create discussions with our clients to help them plan for longer lives by exploring portfolios aligned with risk tolerances and longer timeframes. Honest discussions about future visions for family, businesses and society is an opportunity to leave the legacy you want. As to whether adjustments in financial holdings and inheritance planning are successful, the ultimate judge will be time itself. wealtharabia.net

23


INVESTMENT

Tadawul outpaces the region's markets According to research from CPI Financial, Tadawul was the top performing market in the region from 1 February to 26 April, with ADX gaining and DFM dropping

A

bu Dhabi and Saudi Arabia’s stock markets were up in the first quarter, while Dubai was down. Tadawul, Saudi Arabia’s exchange, rose the most with over seven per cent growth compared to Abu Dhabi’s 1.5 per cent. According to research from CPI Financial, the publishers of WEALTH Arabia, ADX, the Abu Dhabi Security Exchange, rose nearly 1.5 per cent from the dates of 1 February to 26 April, going from 4602.23 points to 4,669.52 points, a change of 67 points. In ADX, the best performing sector was energy, with a gain of 29.41 per cent. The second biggest gainer was 4.31 per cent. The worst performing sectors were investment and financial services, with a loss of 12.04 per cent, and real estate, with a loss of 8.86 per cent. In terms of companies, Abu Dhabi National Energy Company was the biggest gainer at ADX, rising 147.27 per cent in the aforementioned time

24

period. Dana Gas rose 32 per cent, Fujairah Cement Industries rose 26.32 per cent, and Union Cement rose 23.33 per cent, and Abu Dhabi National Co. for Building Materials rose 19.64 per cent, rounding out the top five. The top losers in ADX in that time period were National Bank of Fujairah, dropping 46 per cent, Union Arab Bank dropping 38.2 per cent, AXA Green Crescent Insurance Company dropping 33.7 per cent, Commercial Bank International dropping 31 per cent, and Emirates Insurance Company dropping 20.9 per cent from February to April. The most traded by value at the ADX were First Abu Dhabi Bank, with a traded value of AED 1.7 billion, Al Dar Properties with a traded value of AED 952 million, Etisalat with a traded value of nearly AED 916 million, Dana Gas with a traded value of AED 878 million, and Abu Dhabi Commercial Bank with a traded value of 726 million.

Tadawul, the Saudi Stock Exchange, rose 558.75 points in the same period, a gain of 7.30 per cent. It opened on 1 February at 7650.12 points and closed on 26 April at 8208.87 points. The best performing sectors during this period at Tadawul were media, rising 45.14 per cent, and food and staples retailing, gaining 26.36 per cent. The worst performing sectors were REITs, dropping 9.38 per cent, and diversified financials, dropping 7.52 per cent. The top gaining companies in Tadawul were Saudi Industrial Export Company (SIECO), gaining 79.5 per cent, United Electronics gaining 58.6 per cent, Saudi Resarch and Marketing Group gaining 56 per cent, Rabigh Refining and Petrochemical Co rising 44.1 per cent, and Al Sorayai Trading and Industrial Group, rising 42.6 per cent. The biggest drops came from Etihad Atheeb Telecommunication, which dropped 27.8 per cent, Saudi Indian Company for Cooperative Insurance, also known as WAFA Insurance, dropping 26.5 per cent, Saudi Enaya Cooperative Insurance falling 21.8 per cent, Southern Province Cement Company, which fell 20.4 per cent, and Walaa Cooperative Insurance, which dropped 20.3 per cent.


INVESTMENT

ADX General Index

4750 4700 4750 4600 4550 4500 4450 4400 1-Feb

15-Feb

1-Mar

15-Mar

29-Mar

12-Apr

26-Apr

15-Feb

1-Mar

15-Mar

29-Mar

12-Apr

26-Apr

1-Mar

15-Mar

29-Mar

12-Apr

26-Apr

Source: CPI Financial

DFM General Index

3500 3400 3300 3200 3100 3000 2900 2800 1-Feb Source: CPI Financial

Tadawul All Share Index

8600 8400 8200 8000 7800 7600 7400 7200 7000 6800 1-Feb Source: CPI Financial

15-Feb

The most traded stocks by value were Saudi Basic Industires Cooperation with a traded value of SAR 36 billion, Alinma Bank with a traded value of SAR 32 billion, Dar Al Arkan Real Estate Development Company with a traded value of SAR 27.8 billion, Al Rajhi Banking and Investment Corporation with a traded value of SAR 18 billion, and Saudi Kayan Petrochemical Company with a traded value of SAR 9 billion. Dubai Financial Market, or DFM, dropped 10.15 per cent from February to April, going from 3412 points to 3065 points, a drop of 346 points. The best performing sectors at the DFM were industrials which only lost one per cent, and banks, which lost 1.75 per cent. Consumer staples and discretionary were the worst performing sectors, losing 41 per cent, and investments & financial services, which dropped 19.36 per cent. The best performing stocks at the DFM were Emirates NBD, which gained 20 per cent, Dubai National Insurance & Reinsurance, which gained 16 per cent, Arabian Scandanavian Insurance and Takaful, which gained 14.7 per cent, National General Insurance Company, which gained 8.9 per cent, and Dubai Insurance Company, which rose 4.5 per cent. Marka was the biggest loser, dropping 54 per cent in the aforementioned time period. It was followed by Ithmaar Holding, which dropped 53.8 per cent, Al Sagr National Insurance Company, which dropped 51.9 per cent, Drake & Scull International which dropped 43.3 per cent, and DXB Entertainments which dropped 39.8 per cent. The most traded by value at the DFM were Emaar Properties with a traded value of AED 3.3 billion, GFH Financial Group with a traded value of AED 2 billion, Dubai Islamic Bank with a traded value of AED 1.38 billion, Emirates NBD with a traded value of AED 869 million, and Ithmaar Holding with a traded value of AED 855.9 per cent. wealtharabia.net

25


CRYPTOCURRENCY FOCUS

The history of money, a collective fiction Matthew Amlôt, Editor, CPI Financial, writes about how currency has evolved from the earliest days to modern cryptocurrency

26

T

here is a collective fiction we all participate in. That collective fiction is money. Money has no intrinsic value. Even gold, which until 20th Century had virtually no industrial uses, was only valuable because we decided it was, and was in relatively short supply. there is no intrinsic value in banknotes but they are widely accepted and difficult to make your own copies, though not impossible. Indeed, UK bank notes still ‘promise to pay the bearer on demand…’ a relic of the days when you could walk into the Bank of England and exchange your note for the equivalent value in gold. And now, since mid-90s, we have gone digital, just exchanging 1s and 0s— nothing physical at all remains in the largest transactions.

This works because, broadly, until the advent of cryptocurrencies, the overwhelming majority of currencies were state controlled, and these large institutions have governed how monetary interactions work. When it doesn’t work, it’s the large institution that is generally at fault. These large institutions create friction in the system. When I want to send money back to the UK, I have to pay extra fees and wait days. Moving money across borders and time zones is expensive. The act of setting up these governing bodies slow down small business, taking payments and access to credit. Across the board, the way these bodies are acting as gatekeepers to our access to finance. Coupled with this, the traditional banking and finance space has always been slower to innovate.


CRYPTOCURRENCY FOCUS

A Roman coin of the emperor Constantine, circa 300 CE. PHOTO CREDIT: Shutterstock/I. Pilon

Who owns our money? If one of these gatekeepers decides that you are fraudulent, or that they no longer want to work with you, or should the law change, then your access to your money is gone, because it was never really yours. It simply existed as a number in a database owned by your gatekeeper of choice. We live in a space now where your database number is not even always in the same place. With services like PayPal, Apple Pay, Venmo and every institution with its own app and mobile money service, your money is spread out across disparate providers and these providers, by and large, do not talk to one another. I recently spoke with a member of the Financial Services for the Poor team at the Bill & Melinda Gates Foundation, one of the key challenges that he identified to me is

that of interoperability. The lack of interoperability slows down and blocks what we can do with payments. Where did money begin? It began with barter, pre-currency, which was an inefficient system. If I want your cows and I have vegetables and you want vegetables that is fine. But if I want cows, you want rice and I have vegetables I need to find a third party to exchange with. Ancient civilizations designed tables of how much rice one cow is worth and how many vegetables for one pound of rice. Then we moved to forms of currency with alleged intrinsic value, whether this was gold or cowrie shells. Instead of transacting inefficiently with barter, we then had our medium of exchange. I could sell my vegetables for gold and use that gold on any products I desire.

However, we still had friction in the system, as here’s only so much gold. And what if I wanted to transact in increasingly large numbers, or, even worse, increasingly small numbers? What if I wanted to pay my employees, would I have had to shave off a piece of gold everyday? And to get a loan, do I walk out of the bank with several bricks of gold? I might make it in Dubai, but I can think of a few places I would not get to the end of the street! As such, something that represents gold or silver is replaced with something that represents it, whether that be coinage or banknotes. Thus we arrive at the ‘gold standard’. The gold standard was a promise. Much like that line that still exists on a UK banknote, I can take my $10 and I can get $10 of gold. In the early 20th century, the world’s most important economies still were based on the gold standard. Because the gold supply grows very slowly due to physical limitations, government overspend and inflation were kept in cheque. This was fine— until the Great Depression. The UK and the US were legitimately getting to a place whereby they would be unable to back their currency. Governments could not stimulate their economies. In order to deter people from cashing in their deposits, and as that meant literally exchanging notes for gold and depleting the gold supply, interest rates had to be kept high, making it too expensive for people and businesses to borrow and grow. President Franklin D. Roosevelt cut the US dollar’s ties with gold in 1933, opening the gates for the government to pump money into the economy and lower interest rates. Liaquat Ahamed, author of the book Lords of Finance, said, “Most economists now agree 90 per cent of the reason why the US got out of the Great Depression was the break with gold.” After some time, the world’s economies have moved away from the gold standard, giving central banks and authorities more power to fight recessions and slow down overheating economies. wealtharabia.net

27


CRYPTOCURRENCY FOCUS

This means that these coins and notes have become divorced from their direct link in value. Money is now worth something because we think it is, and often because a government says it is. As I wrote earlier, we live in a collective fiction. Enter cryptocurrencies. These represent the next evolution in how we transact, and how finance works. But what makes cryptocurrencies different from our current experience? First, there is, generally, no central control, although watch this space for state and international legislation to look to regulate cryptocurrencies. This raises some immediate big questions: How can governments and authorities control economies and smooth out the boom and bust cycle? Should governments and authorities even be able to influence economies? Cryptocurrencies are designed to work without intermediaries, without gatekeepers. The clue is in the name really—cryptocurrencies are based on cryptography. This is simply the study of how to hide one piece of information and securely reveal its source later. Much of the modern technology world is based on cryptography already, email, ecommerce, all are underpinned by cryptography. It makes it safe for us to type our financial details and passwords in. Cryptography can be used so that we no longer need to rely on governments, banks and financial institutions. All of WEALTH’s readers will have heard of Bitcoin, and likely some of the other major coins, such as Ethererum, Litecoin or DogeCoin – itself based on an internet meme of a Shiba Inu. There are roughly 200 countries in the world, depending on who you ask, most with their own currencies. The last time I checked there were well over 1700 cryptocurrencies in existence. These currencies can exist for a myriad of uses, from the Bitcoin, to facilitate transactions, to smartcontracting enabled by coins like Ethereum. Simply put, the future is in smart programmable money. 28

A bitcoin, which does not exist in physical form except for use in magazine spreads. PHOTO CREDIT: Shutterstock/Eakvoraseth

With smart money, you will be able to pay anybody, anywhere, safely and securely. Borders disappear. Gatekeepers are removed. This represents a fundamental change to the world around us.The internet has created an explosion of innovation since its innovation. It changed the way we communicate and brought the world closer. Cryptocurrencies will cause the same sea change, but in finance and how we transact. The most powerful asset we have in the digital age is our personal data. Everything we do online is tracked and recorded. This data will perhaps become more valuable than anything physical as companies vie to understand our habits and pitch new products to us. But we do not own this data. Often, it is owned by big companies such as Google. One use case for cryptocurrencies is to regain control of your digital identity, monetise it and control the flow of this information. The use case of cryptocurrencies is not limited to just banking and finance activities. For

example, I could rent out my data to my healthcare provider to track my habits and find out the best way for them to provide me with healthcare. You could feasibly create a cryptocurrency on a blockchain to track how this healthcare provider is using my data. Instead of using your browser and being subjected to a sea of ads, you could simply pay. One thing that cryptocurrencies enable is a far more ubiquitous system of micropayments. Take spam for instance. If instead of email being free you where charged a very small fraction of a cent, could spam even exist? A reduction in transaction fees and the ability to seamlessly send money anywhere makethis possible. We are entering a new world. We are at the precipice of how finance will change. What we are seeing now is the first iteration of cryptocurrencies. We are in the dialup stage of cryptocurrencies where it is still difficult and slow in comparison to where we will end up. The next step in our collective fiction will change the world around us.


Confused by which curriculum to choose? JOIN

Dwight School Dubai and

Brighton College Dubai as they discuss the benefits and differences between British and IB school programmes. Parents working in the DIFC area are invited to attend on

Tuesday 26th June at INTERSECT BY LEXUS, Gate Village 7, Dubai International Financial Centre (DIFC)

REGISTRATION

opens at 6pm with the event starting at 7pm. CanapĂŠs and beverages will be provided.


CRYPTOCURRENCY FOCUS

PHOTO CREDIT: Shutterstock/r.classen

30


CRYPTOCURRENCY FOCUS

Why the crypto crash saved its future William Mullally, Editor, WEALTH Arabia, writes his thoughts on what the first quarter of 2018 means for the future of cryptocurrency after a delirious 2017

C

ryptocurrency investors loved how things went in 2017—though the story hasn’t been the same so far in 2018. As I’m sure many of our readers know, it has been a trying quarter for the cryptocurrency space. Its premiere currency, Bitcoin, has fallen back to earth after rocketing forward in 2017, and across the market, many coins have followed suit. With the risk of me sounding too negative, my thoughts are exactly the opposite—this is a very good thing for cryptocurrency. We have, all together, gone through the various phases together when a game-changing technology bursts on to the scene. First, complete and utter scepticism. For early adopters, how many times did you get this reaction when you told them about cryptocurrency. “You’re investing in what? How does that work? Pfft. Yeah. Good luck with that.” As crypto continued its path forward and its underlying blockchain technology proved to have so many practical applications we have only begun to scratch the surface even now, a new conversation emerged. Very serious people started to take the technology

more seriously, though many remained sceptical. It was 2017 that was the real moment for crypto, when so many were finally convinced by the gobs of new millionaires popping up worldwide that they were convinced that they could not let this pass them by. I’m sure many of our readers might agree that this was, by far, the most dangerous moment for cryptocurrency, because the sort of growth it experienced made it run the risk of becoming exactly what it promised never to be—a traditional bubble. Even outside of the numbers, I’m sure you all saw the signs. When bitcoin hit 20,000, that was when my friends and family whose previous investment experience can be encompassed by the phrase 'beanie babies' started messaging me, the beloved financial journalist in their lives, to tell me that they had either just bought, or would like to. More and more people popped up in the space, declaring themselves ‘cryptopreneurs’, but when you talked to them, they seemed to only talk about the number of people who had gotten rich. When there are that many people who lack the substance and financial wealtharabia.net

31


WILL THE CRYPTOCURRENCY MANIA CONTINUE?

CRYPTOCURRENCY FOCUS

Zoom 1d 7d 1m 3m 1y YTD ALL

Percentage of total market capitalisation (dominance)

PERCENTAGE OF TOTAL MARKET CAPITALISATION (DOMINANCE) Zoom 1d 7d 1m 3m 1y YTD ALL

From Jan 12, 2017

80%

To Jan 12, 2018

Friday, Jan 12, 2018,11:47:00 UTC Bitcoin: 33.45% Ethereum: 16.90% Bitcoin Cash: 6.14% Litecoin: 1.85% Ripple: 11.20% Others: 24.14%

70%

Percentage of Total Market Cap

60% 50% 40% 30% 20% 10% 0%

Feb '17

Mar '17

Apr '17

May'17

Jun'17

Jul'17

Aug'17

Sep'17

Oct'17

Nov '17

Dec '17

Jan '18

Source: coinmarketcap.com

SOURCE: COINMARKETCAP.COM

know-how, things get scary fast. ETHEREUM marketing of ICOs will stop people like ONE The SEEMS TO BE OF question THE I ask myself most often now is—what currency will Posters on the bitcoin subreddit seemed CRYPTO my poor aunt being taken in by a get rich ASSETS WITH REAL-WORLD be the google of crypto? In my to be engaging more in a religious cult quick scheme—they will not slow down THAT GOES BEYONDopinion, ITS though we have many blueexperience than an investment strategy. UTILITY growth. As regulation talk increases— chip currencies leading the way at Predators pop up, Ponzi schemes CRYPTOCURRENCY just recently, Taiwan’s MinisterFUNCTION of Justice, the moment, none of them is the emerge, pump and dumps ramp up, Qui Taisan, called for crypto regulations google—the space is still developing. and bad actors manipulate those that to be in place by November—and the Bitcoin in many ways seems outdated are most easily manipulated. G20 countries will likely have something and outmoded—perhaps it is the The first quarter of 2018 may be in place by the end of the year—this will Yahoo—in 20 years, you’ll still the best thing that ever JACOB happened to not harm cryptocurrency, it will signal its POUNCEY, CRYPTO ANALYST be getting emails on it from your the cryptocurrency space. Last fall at coming of age. Institutional investors and grandmother, but the you have not the second annual WEALTH Arabia key individuals have already taken crypto Jacob Pouncey first joined Saxo in 2017 as their go-to crypto guy. He has followed searched for anything oncrypto it in at least Summit, a tenured colleague of mine andseriously, andspace regulation onlyJacob bringfocuses cryptocurrency blockchain sincewill 2013 . on delivering in-depth 10.and In the long term,that if perhaps the heckled from the audience during my Heinhas more established and knowledgeable market analysis . a deep understanding of the technology fundamentals drive world bank or IMF launches a crypto blockchain panel, god bless that players into the market, creating the next the him, Crypto Asset space . to help fund a country’s development, bitcoin reminded him of the tulip crazeto focus wave a more and responsible and hopefully Jacob tends on of medium long-term indicators for market analysis . perhaps that will signal the next in Belgium in the 19th century—the less volatile cryptocurrency market that phase. Perhaps it will be a currency ultimate bubble troll. Of course, his can act more as a reliable store of wealth issued by a country like Belgium point was reductive, as cryptocurrency than just a pure currency. Of course, 29 or China, or perhaps with Russia’s and bitcoin are truly transformative as there are those of you in the audience that Q12018 support of Ethereum, things will technologies, and are not a blip on the still want to view themselves as pirates develop more in that direction. Still, scale, but a sea change that will change braving uncharted waters, and surely, #SAXOSTRATS the financial world forever. that does not mean that investors that aspect of the space will Byremain. A momentary drop, coupled with the should sit back and wait—the space But we should welcome the changes increased talk of regulation and bans, is still vital now, and an essential part and corrections, and have less unease are exactly what crypto needs to mature. of your portfolio, provided you can about the future of cryptocurrency than Google and Facebook banning the live with the risk. ever before. 32


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IG Forum looks to crypto’s growth 34


CRYPTOCURRENCY FOCUS

At the IG Blockchain & Cryptocurrency Forum, industry experts debated the need for regulation in the space as it moves towards maturity

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Matthew Amlôt, Editor – Banker Africa, CPI Financial Dr. Marwan Alzarouni, Bitcoin & Blockchain Investor | Educator Utpal Nath, President of Dubai Chapter, Government Blockchain Association Kyp Zoumidou, Senior Executive Officer, IG Dr. Mohamed Damak, Senior Director & Lead Analyst, S&P Global Alain Zahlan de Cayetti, Managing Partner of CVML (Dubai) PHOTO CREDIT: CPI Financial/Florante Magsakay

ryptocurrency has become the most talked about asset class in the investment world. There are many reasons for this. For one, it has faced unmatched volatility and growth in an incredibly short span of time. It also is baffling to many traditional financial players, a game-changing technology that is still figuring out what it will become. At an all-star panel at the IG Blockchain & Cryptocurrency Forum, held at the Atrium at Dubai International Financial Centre, experts discussed one of the key issues facing cryptocurrency—regulation. Should cryptocurrency be regulated—and can it be? What is the best possible future to ensure growth and safety for investors? To Mohammed Damak, Senior Director & Lead Analyst, S&P Global, one first must answer the question of what a cryptocurrency is, and whether it qualifies as a currency at all. “To me, it’s not a commodity, nor a currency. It’s not a currency because it fails the basic test of the two characteristics of a currency, which are a store of value, and an effective means of exchange. Let me explain myself. We published research of cryptocurrency in February. I started to look at the numbers in January. In January the market cap was $823 billion, and when we published the research in February it was 324, then 267 on 30 March and now it’s $401 billion. wealtharabia.net

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CRYPTOCURRENCY FOCUS

The market is concentrated. There are 1,700 capitalisation cryptocurrencies, but the top 10 make up 80 per cent of the market capitalization. The price of bitcoin is 3,200 times more volatiles than gold. It’s 2,200 times more volatile than the exchange rate between the euro and the US dollar. 1700 users control more than 26 million other users. The concentrated nature make it prone to market manipulation. When we ask ourselves the question over what a crytpocurrency is, we deduced that it is a speculative instrument at this stage,” said Damak. Dr. Marwan Alzarouni, Bitcoin & Blockchain Investor, does not believe it is a currency. “The licence I have right now is in DMCC, and it says propriety trading in crypto commodities, meaning it is considered a commodity,” said Alzarouni. Utpal Nath, President of Dubai Chapter, Government Blockchain Association, pointed out that bitcoin, the most famous cryptocurrency, never called itself a currency. “We have to take a step back and realise what regulations we’re talking about. Bitcoin, when it came up, it never stated that it was a cryptocurrency, it called itself a digital payment solution. Adding up the blockchain as a technology, this addresses the core problem of double spending. This disrupts many processes around the industry. So what will the regulator regulate? Anti-money laundering, antiterrorism, and know-your-customer data privacy,” said Nath. Kyp Zoumidou, Senior Executive Officer, IG, which hosts a platform using which users can invest and track their investments into cryptocrrency, regulation will be necessary. “If you put the word crypto before anything, does that mean you should get away with not regulating it? If crypto is such a big thing that can be used beyond currencies, such as medical usages, it should be regulated. If it’s used for finance, it should be regulated by the finance agencies. It’s such a wide thing that areas crypto should be regulated. Currencies should be regulated. 36

Matthew Amlôt, Editor – Banker Africa, CPI Financial addresses a packed house at the IG Blockchain and Cryptocurrency Forum held in DIFC.

Commodities should be regulated. I used to be head of compliance for ten years, so I have worked close with regulators such as the DFSA, FCA, and a number of European regulators. They’re getting to grips with what blockchain is because they want to use it themselves. They’re getting to grips with how cryptocurrency will come into the financial sector, and what to do with them. Regulators are people like us, though less like the people in this room, as they don’t know what cryptos are, and they’re trying to learn about it. Regulation are there to protect investors, and that’s why it needs to be there. It might be an inconvenience that you get your bags searched and scanned at the airport, but there’s a reason for it,” said Zoumidou.

“Blockchain was set up in 1991, and at that time the blockchain technology taht that part of the digital ledger technology was created. Cryptocurrency came after with bitcoin. Immediately, United States and the national regulatory institutions wanted to regulate it. It’s the only time in history where a product existed that was meant to escape state regulations. The idea of cryptocurrency is to not be effected by the regulatory system. This is an advantage and inconvenience. On the one hand, it can give you the chance to be very rich, but also to lose everything. It can give you a chance of escaping regulations—such as when Venezuela launched an ICO to escape the US embargo. It may give you the possibility of submitting money, but


CRYPTOCURRENCY FOCUS

Kyp Zoumidou, Senior Executive Officer, IG

it will never replace the fiat money as we use it today. It could be seen as a security, or a security of exchange for the people that are a part of it. But legally speaking, if you pay someone in cryptocurrency, is it legally binding? Have you liberated yourself from the obligation to pay? If I pay you in bitcoins, did I legally pay you? This is only one of the legal issues that it has,” added Alain Zahlan de Cayetti, Managing Partner of CVML (Dubai). Matthew Amlôt, Editor at CPI Financial, believes that the vastness of the space creates unique issues. “There are some 200-odd countries in the world, each one broadly having their own currency. Last time I checked, there were 1,700 differs. How can we regulate a market like that?” asked Amlôt.

Utpal Nath, President of Dubai Chapter, Government Blockchain Association

“At IG, we cover about 10,000 different products. If you split that 1,700 up, I’m sure there’s subdivisions you can categorise them into different areas, and from there you can give them to different regulators to which they fit best. There’s no magic answer, you have to apply your regulatory resources to whatever area it is at best you can. The regulators in the UAE are a resource that helps the economy grow, and that’s how

we need to think about cryptocurrency regulations too. Perhaps there should be a tax on bitcoin transactions, much like VAT was implemented in the UAE,” said Zoumidou. De Cavetti believes that there are already regulations in place that affect crytocurrencies—the basic regualtions on anti-money laundering, anti-terrorism funding and know-yourcustomer privacy issues. wealtharabia.net

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CRYPTOCURRENCY FOCUS

“All of these apply to all transactions, including cryptocurrencies,” said De Cavetti. “In Dubai, we’re fortunate enough to be in a place that is well advanced when it comes to technology and embracing new technology, but you cannot use bitcoin to buy your groceries at Spinney’s or Carrefour. You may be able to buy a Tesla, but not everyday payments. Because o that, it must be called a speculative instrument. Once we’ve agreed on that, we can move forward on how it can be regulated. On that point, the future will depend on the way that it will be regulated. In our opinion, if it’s regulated at the G20 level and it starts to be accepted by more governments and economic operators, then it could become a viable instrument,” said Damak. “Blockchain is the real positive disruptor. It’s the technology that could make the financial transactions more rapid. Banks could use blockchain to make transactions more rapid. In the UAE, Emirates Islamic has started to print chequebooks with QR codes that are stored on blockchain. Blockchain could be a positive disruptor for the financial services industry, and probably will in the future,” he continued. According to Amlôt, a key feature of crytpocurrency is the anonymity associated with it, creating a challenge for how exactly regulation could work in something that is inherently about anonymous transactions. “We do this in my business with a phone number and a picture of the customer’s ID. We also limit the amount he can draw per day. For larger sums of money, we’re much more extensive in checking these things,” said Alzarouni. Nath pointed out that there must be a middle ground between anonyimity and proper regulations. “Yes, some tokens coming out from blockchain technology have an underlying anonymity parameter, but it will have to fall under local regulations, as it could fall under tax evasion,” said Nath. Damak stressed that there must be an effort to protect the consumer. “When 1,700 people can manipulate 38

the price of bitcoin, and do whatever it takes to work in their. benefit, it can create problems. This is why we’ve seen banks internationally stop their customers from buying this speculative instrument on their credit cards,” said Damak. IG’s SEO Zoumidou pointed out that one of the key issues with cryptocurrencies is how it interacts with traditional finance, especially once investors are trying to cash out. “There’s an important aspect: what are you going to do with this stuff? If you have it and cannot transfer it to any other value, is it useful? If you’ve made profits in crypto, and you want to take that money out and get it back into your bank account and use it for something, if you transfer this money to a UK bank and tell them that the source of funds is crypto, they won’t accept it, because they don’t know where it’s come from. There’s a requirement in the financial services system to do AML and KYC, and while my initial reaction is that you have to regulate it to protect people, some countries put sanctions in place are overreaching and made problems for other people in the world because they’re trying to control things—and while i support regulation, I think that may have gone too far,” said Zoumidou.

Volatility is the key to trading. If you get too much volatility, you’re going to get whipped in and out of whatever it may be, commodity or currency. There needs to be a level of volatility in an asset class in order to trade it. Depending on your position and portfolio, the question of whether now is a good time is different for everyone in the room. Kyp Zoumidou, Senior Executive Officer, IG

However, while cryptocurrency is lambasted because of its volatility, Zoumidou pointed out that without volatility, there’s no reason to invest in something to begin with—because that is where gains are made. “Volatility is the key to trading. If you get too much volatility, you’re going to get whipped in and out of whatever it may be, commodity or currency. There needs to be a level of volatility in an asset class in order to trade it. Depending on your position and portfolio, the question of whether now is a good time is different for everyone in the room,” said Zoumidou. “Your risk appetite and your access to funds are very important. Don’t get into anything without getting into the research yourself,” warned Alzarouni. Cryptocurrency has the potential to change the finance world, according to Damak, in far more exensive ways than many may realise. “I represent a rating agency, so I cannot advise investors what to do or what not to do, but on a macro level, if we were to see banks start to issue cryptocurrency in a decentralised manner, it would be the end of central banking as we know it. If we were to see central banks start to issue cryptocurrency, it would mean the end of the banking system as ew know it. Which way the market will go, only the future will tell, but at this stage, this is our view,” said Damak. Nath stressed that investors need to practise caution—even while others are getting rich overnight. “My advice would be do not fall into FOMO, or fear of missing out. A lot of work has to be done in the blockchain space itself. I’d say 90 per cent the cryptocurrencies are not giving promising business case. Think about what type of a security you’re putting the money in, what the business is behind it, and what your risk appetite is. From a tech perspective, we’re only at the ground level. There will be enormous opportunities. and there will be use cases that we haven’t seen yet. Do not fall for the gold rush, be realistic in your approach,” said Nath.


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The retirement question For expatriates in the Gulf, the question of what to do later in life should not be left until the day approaches. Graeme Whittaker Field MCSI, ACII, ACIB, Chartered Financial Planner, Director & Head of Corporate Services, Credence International writes on how tax jurisdictions may affect your decision

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owever long you plan to stay in UAE, it is unlikely you will retire here, so having a plan on where to repatriate after UAE is important. Whether this be as you step into retirement or you move into your next promotion, understanding the differences between different jurisdictions is an important part of the decision-making process. Here we compare the challenges faced in considering a move to various countries. What is important when considering a retirement jurisdiction? Four main things: standard of living and climate, cost of living, medical cover, and income taxation. STANDARD OF LIVING AND CLIMATE If playing golf with the sun on your back is important, then it’s worth knowing what weather you will wake up to each morning. However, for some, the weather is what it is and the value of your income or pension is more important. 40

COST OF LIVING The first table on the next page compares various cost of living indices against New York City (100) and, with the exception of Local Purchasing Power, lower is better. Whilst everywhere is cheaper to live than the UK, the higher LPP of the UK shows that, as average net disposable income is higher in the UK than elsewhere (due to higher wages) you have more money left each month to buy goods and services. Since the financial crisis a decade ago, Portugal has certainly faired better than the other countries on holding property prices whereas Spain is only now starting to see the green shoots of recovery on property prices meaning you can still get excellent value for money when looking to buy.

PHOTO CREDIT: Shutterstock/Khongtham


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MEDICAL COSTS Whilst all four countries analysed run state funded healthcare, for those British expatriates, the impact of Brexit will determine whether this will still be offered in a few years’ time. For non-EU expats, it is worth investigating fully the impact and cost of healthcare in your chosen country. If in doubt and if affordable, arranging your own private cover is still a sensible option. INCOME TAX As Benjamin Franklin said, 'In this world nothing is certain but death and taxes' and, whilst this is true, there are some interesting tax breaks available to those considering repatriation and becoming a resident. In simple terms, income tax is payable in the country you are resident in. Usually, this can be determined by the country that you spend more than 183 days per year in and your global income would be taxable at the highest marginal rate in that country. If, however, you do not spend this long in any one country, you would need to look at the Statutory Residence Test to determine which tax jurisdiction you fall into. Sadly, if you keep moving, this doesn’t mean you avoid paying any tax at all. You need to be tax resident in a particular country. At first glance and without any tax concessions, the below table shows simple income tax on an annual income of EUR 50,000. However, Portugal offers a NonHabitual Tax regime which effectively will allow new residents of Portugal to receive tax free global income for a period of 10 years. Cyprus also provides some concessions with Dividend income, interest income pension lump sums and life insurance payouts receiving tax free status with regular pension income being taxed at a flat rate of five per cent. The UK, of course, provides ISAS, Pension contributions ands National Savings Certificates which all offer tax breaks for residents. Spain’s rules are complicated and, whilst specific tax breaks are limited, different types of income attract different rates of income tax. wealtharabia.net

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Graeme Whittaker Field, MCSI, ACII, ACIB, Chartered Financial Planner, Director & Head of Corporate Services, Credence International

Average yearly temperature range

Local climate

Spain Cyprus Portugal 0

10

20

30

40

Portugal

TEMOERATURE (˚C)

Cyprus Yearly rainfull

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United Kingdom

Sunny days

Index

Portugal

Cyprus

Spain

United Kingdom

Cost of living

55.86

60.32

61.75

75.87

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20.39

15.44

22.23

33.40

Cos of living & rent

38.75

38.68

42.69

55.38

Groceries

4.57

49.67

51.26

60.96

Restaurant price

46.83

65.36

60.56

83.87

Local purchasing power

61.97

94.78

90.67

108.54

Purchasing or renting property shows an interesting comparison with the UK by far the more expensive Graph of apartment price per square metre and price to income ratio 25000 20000 15000 10000 5000 0

€20,190.00

10 8 €3,830.00 Portugal

5.33 €1,538.00 Cyprus

Price (€)

9.31

€4,382.00 Spain

United Kingdom

Price to income ratio

Figure 3 – Graph showing the average apartment price per square metre and the price to income ratio (Average Apartment Price: Average Salary)

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12 10 8 6 4 2 0

350 300 250 200 150 100 50 0

Sunny days

Yearly rainfall (mm)

United Kingdom

800 700 600 500 400 300 200 100 0

Country

10-Year house price index

Portugal

19.02%

Cyprus

-17.22%

Spain

-38.01%

United Kingdom

-14.96%

WHAT ABOUT INHERITANCE TAX? UK Inheritance Tax is payable on death based on the value of your assets at a rate of 40 per cent. The first GBP 325,000 falls into the Nil Rate Band which avoids IHT and for married couples, each can receive this allowance. As a British expat, inheritance tax is based on domicile and not resident status. Therefore, even living in a different country will not remove this tax which is payable on death. If you are a foreign national living in the UK, Inheritance tax will potentially be payable on your UK assets only. Spain has a similar regime to the UK whereas both Portugal and Cyprus have no Inheritance Tax providing you can change your domicile to these countries. This is a complex area and changing domicile is certainly not an easy option, but one worthwhile if your intention is never to return to the UK and you are happy to sever all ties with the UK including giving up citizenship and changing this to another country. Both countries offer citizenship through investment schemes and if this is your intention, it is well worth exploring these options. CONCLUSION When considering life after Dubai, careful consideration needs to be given to provide the lifestyle that you want whilst still managing your income to provide it. It is important to consider the local customs, regulations, residency rules. Most expats who come to work in UAE do so with an initial expectation of staying here for three to five years. Some stay longer, some are unsuited to the climate and culture and leave quicker but only the astute understand that the period they spend in UAE can make a fundamental difference to the rest of their lives if they plan their finances properly whilst here. Wherever you are planning for your next stop, getting your finances in order, whilst resident in a tax haven, and receiving professional financial planning advice is key.


WEALTH ARABIA ISSUE 45 | MARCH 2018

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INVESTMENT

Why is there no inflation? Mark Burgess, Deputy Global CIO & CIO, EMEA, Colombia Threadneedle Investments, writes about one of the biggest questions facing regional investors looking at their global financial portfolios

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fter years of monetary stimulus, zero interest rates and quantitative easing, the global economy is now experiencing strong, synchronised growth. Finally, some 10 years after the global financial crisis, after the US housing crisis, the Euro zone currency crisis and a challenged time for the financial system, economies are growing strongly almost everywhere, and the leading indicators suggest we

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are set fair for the medium term. In addition, President Trump has taken the somewhat surprising decision (given where we are in the cycle) to provide additional fiscal stimulus to the US economy, stoking what would appear to be an already hot fire. Markets have been supported by a variety of factors—zero interest rates and low government bond yields being the most important—but economic and company fundamentals are now

taking over as the driver to equity and credit markets. However, with the growth backdrop, all eyes are now on the inflation outlook and the consequent central bank response. With the US Fed now raising rates, markets are potentially finely balanced, and a sharp uptick in rates and bond yields in response to an inflation shock has the potential to challenge market valuations in a way we have not seen for some time. Therefore, the near-


term focus has to be on inflation, its drivers and where we go from here. All things being equal we would expect wage growth to be the main driver of inflation. However, a variety of structural disinflationary forces are likely to overcome any impact from economic activity in the short- to mediumterm to dampen inflation. Thus, our own forecasts are for benign inflation levelling out at two per cent in the US and around 1.5 per cent in the Euro zone in 2018—and this is in part due to these disinflationary factors, which are many and varied. Crucially, they are having a meaningful ongoing impact on employment and wage growth, to the extent that the Phillips Curve economic model no longer works. The Phillips Curve, used by central banks, describes the inverse relationship between the unemployment rate and consumer inflation—the simple rule being the lower the unemployment rate, the greater the inflation, as labour bargaining power increases as labour availability decreases. That relationship held from the pre-war era through to the end of the 1960s, but dislocated in the 1970s era of high unemployment and high inflation, partly caused by oil shocks. In the 1980s this flattened and we now have the current environment of prolonged low inflation alongside very low levels of unemployment. Wage growth has stalled. One could argue that the Phillips Curve is an over-simplistic way of understanding how wage growth is generated, and one of the factors that may have been underestimated in this model is the importance of inflation expectations. After such an extended period of ultra-low inflation there is an argument that the expectations of workers in their wage bargaining behaviour has reduced. We have seen this in Germany, where there is a very tight labour market and yet wage demands have been lower than expected. After a long period of low inflation this has now arguably been baked in to expectations. The demise of public sector wage growth is also a factor, especially in

Europe where, since the crisis, we would normally have expected a strong fiscal response to low growth, but in fact the trend has been in the other direction with a period of austerity and fiscal restraint after the crisis, which has kept public sector wages low. This has also had a spillover effect on the private sector. UNDEREMPLOYMENT The degree of underemployment in the economy is high, as indicated in Figure 2 showing Euro zone employment and hours worked since the crisis: while employment has been very strong in the Euro zone, the number of hours worked has simply not caught up. This is partly the rise of part-time work and flexible contracts, as well as labour market reforms in Europe, which now make it easier for companies to hire flexible workers. In Europe and in the US we are seeing a trend of increasing involuntary part-time work; while in Japan non-regular employment occupies a larger share of total work than it did precrisis, and increased female participation in the workforce is an accompanying trend. The increasing flexibility of labour markets has resulted in jobs that typically pay less and are less secure— clearly, people in part-time jobs are less likely to demand higher wages because their positions are more precarious.

There is also an understandable economic phenomenon where companies are not hiring full-time workers to the same degree because uncertainty about the future remains higher post-crisis. In the US in particular the participation rate has fallen steeply since 2008-09, a result of the skills of people who became redundant no longer being in demand and the industries in which they worked being drastically reduced. This means the proportion of people out of the labour force for more than a year has risen relative to the rate of unemployment. While participation is so low, the pent-up supply of labour can respond to an uptick in employment and undermine the wage demands of those already working. Perversely, this might arguably have already happened and been responsible for holding down euro area wages. Average regular pay in the UK, for example, may have risen marginally in recent weeks, but is still below the pre-crisis peak of GBP 473 per week in March 2008. GLOBALISATION When the Phillips Curve was being developed in the late-1950s labour markets were overwhelmingly domestic, but in recent decades developed market economies have had

Figure 1: Developed market unemployment 10 9 Per cent (%)

PHOTO CREDIT: Shutterstock/Andrejs83

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8 7 6 5 4

2010

2011

2012

2013

2014

Germany, rate, as a per cent of civilian labour force United States, national, 16 years and over, rate

2015

2016

2017

United Kingdom, rate

Source: Bloomberg, as at 16 April 2018.

wealtharabia.net

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access to a much broader global labour supply. Globalisation has allowed corporates to source cheap labour from around the world, enabling companies to increase profit margins through efficiency savings. Crucially, the multi-decade bull market in bonds has been a by-product of globalisation, with the rise of the global labour force playing a key role in creating a disinflationary environment leading to falling neutral real interest rates, tumbling labour costs and lower bond yields. Clearly, workers in emerging economies have benefited from this trend—in China alone millions of people have been lifted out of poverty, with China’s per capita income increasing fivefold from $200 to $1,000 between 1990 and 2000, and again from $1,000 to $5,000 between 2000 and 2010. AUTOMATION There is no doubt that technology and innovation is improving people’s lives. Whether it is making everyday tasks simpler and quicker, freeing up more time for us to spend with our friends and family, or improving healthcare, the benefits are clear. We can order goods and services from wearable devices, the sun and wind are increasingly powering our planet, and the world has never been better connected. But with technology comes an increasing fear that ‘automation’ is already having a negative impact on jobs as robots take paid employment from people. These fears are not unfounded. Research conducted by Deloitte and think-tank Reform in October 2016 predicted that 861,000 UK public sector jobs could be lost by 2030 through automation, which would save GBP 17 billion annually in public sector wages compared to 2015. In September 2013, a study by Carl Benedikt Frey and Michael A. Osborne for the University of Oxford looked at 702 occupations in the US and used a unique methodology to work out which jobs would be most 46

Figure 2: Employment and hours worked (rebased to 100 in 2008) 102 100 98 96 94 92

2008

2009

2010

2011

2012 Total employment

2013

2014

2015

2016

2017

Hours worked

Source: Bloomberg, as at 16 April 2018.

at threat from ‘computerisation’. The authors found that 47 per cent of total US employment is under threat, with the most at-risk occupations being telemarketers, insurance underwriters, watch repairers, library technicians, loan officers and credit analysts. Thus far, automation has arguably increased employment, as the amount of activity that automation generates is enough to create net positive jobs growth, but it hasn’t thus far generated productivity or wage growth. Why? In order to meet labour demand, the ‘robot army’ workforce is merely being added to the existing pent-up labour supply, which means corporates are not currently having to concede wage growth. This may change, but not in the short term. Also, productivity, while slow in general, has increased mainly in areas that are not employment intensive, such as technology and information, which have been the real productivity winners. By contrast, areas that require larger numbers of employees, such as personal care, manufacturing, services, leisure and restaurants, have seen lower wage growth. This has also created a way to disenfranchise labour—job creation in technology, for example, is rarely in the technology itself but in ‘gig economy’ roles and short-hours contracts. It is

labour selling itself not by the hour or the week or month, but by the gig—and that is clearly less beneficial to labour and more beneficial to capital. This ultimately means wage growth is seen mainly at the top end, while the skills gap means that mobility from lower-paid jobs to higher-paid jobs is ever-widening. This may change over time as digital natives become a bigger part of the economy, but again this is unlikely in the short term. IDIOSYNCRATIC FACTORS Unionisation across the Euro zone has declined from around 30 per cent to 15 per cent, further eroding the bargaining power of labour. Moreover, immigration in Germany recently and in the UK since the mid-2000s has added to labour supply, while demographic effects such as people working longer and retiring later has also had an impact on wages. We have also had three decades of positive shocks to the labour force (baby boomers in the 1960s, the emergence of the Soviet Union in the 1970s and an increase in workers in China in the 1980s), which has added to the labour market. All of this suggests that the labour market is much better at absorbing employment growth than it has been in the past, creating less friction and less upward pressure on wages.


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4.5

3

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Figure 3: Unemployment and wage growth

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U-3 US employment rate total in labour force seasonally adjusted [lag 1 year] (RHS) United States, earnings, average hourly earnings, production & non-supervisory employees, total private, SA, USD [c.o.p. 1 year] (LHS) Source: Bloomberg, as at 16 April 2018.

Will any of these factors flip? If globalisation, automation, underemployment, unionisation and other factors have created a dynamic where wage growth has stalled despite rising numbers of people in work globally, we must ask how long these factors might continue? In our opinion, it is likely the above trends will persist and the Phillips Curve will remain subject to these overwhelming forces in the medium term. Globalisation became something of a touchpoint globally with the UK referendum on EU membership, the election of Donald Trump, and the Italian referendum. There is a sense that progress at any cost has benefited wealthy innovators who have introduced new technology and created new sectors of industry at the expense of ‘ordinary’ people who have seen wages stagnate. Brexit and Trump have shown us that the public are not beyond rejecting globalisation in their millions, and if globalisation is stopped, the forces of disinflation that supported the 35-year bond bull market could be undermined, threatening the valuations of all financial assets. However, deglobalisation pressures appear to have ebbed away, with less geo-political risk now than we had 12-18 months ago, and labour is still

relatively cheap versus capital and automation. But the threat of trade protectionism remains, and even has renewed momentum as President Trump seeks to introduce tariffs —if left unchecked these could make emerging market workers more expensive to developed market companies and enhance developed market labour bargaining power. But this is likely to be a medium-term impact, if at all. That said, there is a strong argument to suggest we might still currently reside in the normal lag you would expect between economic growth and wage growth. Figure 3 indicates that the gap between unemployment and wages in the US is not unusual in historical terms. We also expect some transitory factors to drop out of inflation, such as the steeply lower contribution from the telephones services area of CPI that occurred in the US last year, the depression in US used car prices, and lower rents. Also, as the housing market in the US heals we may see mortgage supply becoming less constrained, and this might ease job mobility over the medium term, which could add to labour bargaining power. Meanwhile, immigration has arguably peaked in the UK and Europe, which would also remove exogenous supply shocks from the labour market.

We have also seen a couple of warning signs about inflation, such as a slight uptick in wage inflation in the US in January, which have raised the prospect of interest rates rising more aggressively. This led to the recent short-term spikes in volatility we saw in global markets in February. Clearly, there are heightened tensions following a nine-year bull market that few participants seem to have enjoyed. SIGNALS While we do not expect to have to revise our inflation expectations upwards, we are alert to any signals that would challenge this view. If inflation is to break out of a comfortable range, that might be best indicated by US 10-year or five-year break-evens. Since 2009, US 10-year break-even inflation has been in a range between 1.4 per cent and 2.5 per cent, and is currently in the middle of that. Pre-crisis it was at a level of around 2.5 per cent, so in a scenario where breakeven inflation rises to 2.5 per cent the market could either decide this is within the normal range or that inflation is poised to break out. We are watching these and other signals closely. CONCLUSION We have had a world of low growth, low inflation and low rates, prone to volatility and headwinds. Markets have largely been driven by monetary policy, against which risk assets have performed well. With this as a backdrop, somewhat unusually after nine years of economic expansion the current political regime in the US has decided to loosen the fiscal reins and give the economy a boost, which has the potential to be inflationary. However, the deflationary forces we have examined are still widespread and are likely to continue to depress wage growth. So while the risk of inflation has risen modestly, wage growth in the short- to medium-term should remain at around two per cent to three per cent, helping to keep inflation in cheque and within our forecast range. wealtharabia.net

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THE GOOD LIFE The Rome Cavalieri is an Italian masterpiece all by itself, WEALTH Arabia finds 48


TRAVEL

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n 1960, perhaps the most iconic film in Italian history, La Dolce Vita, hit screens for the first time, depicting the lavish side of modern Roman society. Three years later, the Rome Cavalieri opened at the top of Monte Mario, overlooking the city, and perhaps no building in the city better embodied that image of Rome, and certainly no building maintains that image better to this day. While over Alcove Suite the years it has attracted movie stars

and the elite from across the world, it maintains that level of quality today. Even as I walked the halls to my room, adorned with sumptuous art pieces on every floor, I overheard guests say that it felt like they were staying in a museum. The building was designed by some of mid-20th century Italy’s most famous architects, Ugo Luccichenti, with help from Franco Albini (about whom you can read more about later in this very issue of WEALTH Arabia) and Pierluigi Nervi. Even famed landscape designer Maria Tersa Parpagliolo helped execute the functional yet refined style, the only woman to rise to that level at a maledominated time. As a result, the building and its grounds feel truly special, not just a hotel to rest your hat during your stay in Rome between visits to the Vatican and the Colosseum, but a destination all its own. One thing for guests to keep in mind—the hotel features the only Roman hotel to have been awarded three Michelin stars for seven consecutive years, La Pergola, where Chef Heinz Beck has created a worldrenowned menu. Just be sure that you must book months in advance. Besides La Pergola, guests can visit L’Uliveto for an evening pasta, or Tiepolo Lounge and Terrace, home to some of the artist Tiepolo’s masterpieces in the lounge. Keep an eye out for art all over though, as there are tapestries, period furniture, statues and historic artefacts hiding more or less everywhere. If you’re lucky enough, you’ll be staying in a room featuring a painting by Andy Warhol, or an original Karl Lagerfeld sofa. The grounds themselves are steeped in history, long before the days of La Dolce Vita, it was alongside the Via Fracigena, were pilgrims came from Canterbury in England to Rome. As a result, the road was full of merchants and soldiers, and often travellers would rest with their horses on Monte Mario, hence the name 'Cavalieri', much like cavalry in English. When staying in Rome next, WEALTH can think of no finer option than the Rome Cavalieri. wealtharabia.net

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FOOD

Nicolas Boujéma

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A Michelinstarred French chef in Tokyo Nicolas Boujéma, Executive Chef, Signature at the Mandarin Oriental Tokyo, sits down with WEALTH during Sakura season to discuss what sets a Michelin-star kitchen apart

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t’s no secret to discerning Gulf travelers that Tokyo is one of the greatest food cities on earth—not just for Japanese food. At the Mandarin Oriental Tokyo, towering above the rest of the city, sits Signature, a Michelin-starred French restaurant that has held that distinction from Michelin since the guide first started rating Japan more than 10 years ago. There, Executive Chef Nicolas Boujéma, French himself, crafts exquisite French dishes in the traditional style, in an era where gastronomy and fusion is all the rage. Boujéma first started work in a kitchen at 14 years old as an apprentice, before moving to a small restaurant on the Mediterranean, a time that he remembers fondly. “It was the good old days—we cooked only fresh items, we had a big team—12 chefs to make food for 90 guests. There was more knowledge around,” says Boujéma. Just after turning 21, Boujéma was first able to work in a Michelin-star kitchen. “I moved into a two-star Michelin restaurant because I was very interested

Japanese beef sirloin in Rossini style, pomme Anna, black truffle sauce. wealtharabia.net

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to learn what a two-star restaurant meant. It was a big experience. The restaurant made very traditional oldstyle dishes, such as Canard á L’Orange, Pa Souffle. It was 85 per cent French classics on the menu, and that’s where I built my base, such as how to make the perfect hollandaise, béarnaise, sweet and sour sauces—everything. “I learned when I was 21 that being in a Michelin-starred restaurant was the real place to learn. I went to a twostar restaurant in the French Riviera, and in my first visit, meeting the head chef who was so fantastic that I asked myself, how could I reach this level of perfection? He really woke me up. Since that moment I never quit again a Michelin-star restaurant.” At the age of 27, he set his sights on one of the most lauded restaurants in the world, the three-star Michelin rated Auberge de l’Ill in Alsace, France. “I’d never worked in a three star! When you applied to this restaurant, the rules were that you had to restart at the bottom, even if you were an incredibly experienced chef. I waited 12 months to get that position, and then started at the lowest level, then worked my way up to Sous Chef in the four years that I stayed there,” said Boujéma. With his extensive Michelin-starred restaurant experience, Boujéma notices a big difference between them and your average restaurant—though not always immediately. “I notice it from the inside. Sometimes you don’t understand on the spot—you understand two to three years after working there. Even just now at 37, I understand the advice that I received from Michelin-star chefs during my training, or people I worked with. I’m understanding why they did things a certain way. When you become a chef on your own, you want to do everything your way, because now you are the chef. You start something from scratch, you take a recipe, you go left and right, and after one year, you come back to the point where the thing you learned at the very beginning was way it works best,” said Boujéma. 52

Moving to Signature, Boujéma was able to make the menu his own, while still maintaining the philosophy and attention to detail that won Signature the Michelin-star in the first place. “The previous general manager gave me his vision—he wanted to start with the old chef style, but he wanted something a bit of more modern, while keeping the French identity pure. We are happy and proud to keep that with absolutely no fusion. When I arrived, I changed the recipes, I trained the waiters with how I see the food, but we kept our philosophy the same as before. I didn’t make a revolution—my style is modern classic, I’m not the guy to make a revolution!” said Boujéma. Maintaining excellence requires a level of dedication that not many could match. Bouejma finds keeping self-discipline to the levels needed not only for himself but for his staff to be his greatest challenge. “To be rigorous with yourself, that’s the most difficult thing. Some people are born with that, but when you’re born lazy, or you need to put all of yourself in the job, that is hard. I was already a hard worker, but when you want to reach the level of a restaurant like this one, it’s not 12 hours, it’s 14-15 hours every day. You need to be super rigorous to survive that, and only if you are rigorous with

a post-dessert snack selection along with coffee.

yourself then you can ask your team to follow you. If you are not strict with yourself, no one will ever follow you. You will go nowhere,” said Boujéma. As most of the guests are from Japan, Boujéma has had to adjust his preparation to suit the tastes of the Japanese clientele, something that he has had to learn by trial and error. “When you arrive, you cook your way, and the complaints came that it was too salty, and too big. You see my size— I’m triple the size of a Japanese lady! I’ve

Green asparagus cream, tangy rhubarb jelly, chervil salad.

Various sorbets and chocolate desserts.


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Four meats terrine in a crust with beetroot.

had to adapt the portions, adapt the salt, and you start to see that the guests get emotions from very simple things. You can’t put ten flavors in one plate; you can have a max two to four per plate.” Boujéma is ever the traditionalist, something he announces with pride. While he fears that young chefs are not keeping to those traditions as much as he would hope, he believes that the strength of French cuisine, and its undeniable influence, will keep it strong for centuries to come. “I feel that French cuisine is the base of all the kitchens in the world, in terms of technique. When other cultures want to elevate their cuisine, they have to put a French mindset into it. Some chefs are loss because

there is a big boom in French cuisine worldwide, and I’m scared about the young chefs. I’m scared they will be lost in the future. I’m scared they will not learn the basics. While some restaurants are doing good, innovative food, there are chefs who after five or six years cannot do the basic staples of French tradition. I’m scared about that the tradition will be lost. “I’m sure French cuisine will come back with a new ambassador, someone who knows the basics, and wants to stage a revival. It will need to be adapted, but French cuisine will shine again, and brighter than ever before. Everyone in the world learned from the French kitchen, but now French people will have to learn again, too,” said Boujéma. wealtharabia.net

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Peter Paul Rubens' Portrait of a Venetian Nobleman, which goes on auction 4 July in London at Sotheby's.

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Investing in the old masters Ahead of Sotheby’s auction of Rubens’ Portrait of a Bearded Venetian Nobleman on 4 July in London, Co-Chairman, Worldwide Old Master Paintings & Drawings speaks to WEALTH Arabia about the asset class’ rise

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hen Salvator Mundi, considered possibly the last remaining masterpiece by legendary artist Leonardo da Vinci to make it to public auction, broke the record for an ‘Old Master’ painting sold at auction last year, selling for $450.3 million, it broke a 15-year old record held by Flemish painter Peter Paul Rubens’ masterpiece Massacre of the Innocents (1611-12), which sold at Sotheby’s London in 2002 for GBP 49.5 million. In London on 4 July, Sotheby’s will be auctioning off another of Rubens’ most striking works, Portrait of a Bearded Venetian Nobleman. Ahead of that trip, Sotheby’s has taken the painting all around the world—first to Dubai, the first time it has ever taken an Old Master painting to the city.

The UAE has, in the past few years, become one of the most talked about destinations in the art world. The Louvre Abu Dhabi has proven to be the premiere destination that the country promised it would be, opening up the region to the type of museum experience that other great cities have enjoyed. To go along with it, the museum acquired the world’s most sought after piece of art at auction—Salvator Mundi—and is sure to have other key acquisitions in the future. “We are delighted to see this remarkable painting will be available for public view at the Louvre Abu Dhabi,” said the UAE’s Department of Culture and Tourism in a statement at the time. According to George Gordon, CoChairman, Worldwide Old Master

Paintings & Drawings, Board Director, Old Master Paintings, the museum will be a true paradigm shift for the region and the world, bringing art to the fore in the country, as well as bringing the UAE and the region to greater visibility in the art world. “I think the Louvre Abu Dhabi is particularly important because, for one thing, it’s something which the region should be and is I’m sure is very proud of. When I went, it was absolutely packed full of people. It’s doing its own communicating. I think that it will make all art, including Islamic art but also art from other cultures, more appreciated, understood, and, in terms of collecting and sought after, that will increase too,” said Gordon. Why did Gordon decide to bring another Rubens masterpiece to the UAE? wealtharabia.net

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George Gordon, Co-Chairman, Worldwide Old Master Paintings & Drawings, Board Director, Old Master Paintings

“When I was standing in front of it when it was still in the owner’s house, I just thought that this would be the perfect picture to the UAE because Rubens was one of the greatest communicators as an artist,” said Gordon. “He was a great communicator full stop. He’s a very accessible painter, no matter what he’s painted, and sometimes the subjects are rather arcane. “He’s a very visceral painter. He loves the brush. He communicates 56

with us so strongly and so vigorously. Being a portrait, in which he’s really putting his own character in the sitter, he communicates particularly strongly to us. I thought, well, it’s an obvious picture to bring in the way,” Gordon said. “It wasn’t that we were looking for a painting to bring, it was the other way around—it’s a painting that will have a very broad and immediate cultural resonance.” The painting previously was held in a collection from Hans Wetzlar, the famed art collector, who bought it in the

mid-1950s, according to Gordon. “It comes to us from his grandson. Before that, it was in the collection of a great Berlin banker and collector who bought it sometime before 1914, and whose son sold it in the early 1950s, and it passed very quickly after that to Wetzlar. “It is one of two similarly signed paintings in Rubens’ own inventory after his death in 1640. His descriptions are not precise enough for you to be sure, but it’s most likely that he painted this on commission or within the intention


ART

of selling it, and he must have kept it because he himself had a print made of it a while after he painted it. He painted it for his own pleasure and enlightenment. But from 1640 to the 20th century, we don’t know where it was—which is often the case,” said Gordon. ART INVESTMENT ON THE RISE Art investment has, according to Knight Frank, become increasingly important for investors throughout the world. Investment in art showed a

complete rebound in 2017 after several years of lagging behind other luxury investments, according to a new report. While art has always maintained its place as one of the top luxury investments, it has lost some of its colour in recent years, falling behind other asset classes such as classic cars and wine. While investment in luxury assets rose seven per cent in 2017 across the board, according to data from Knight Rank Luxury Investment Index, art outpaced all other asset classes, growing 21 per cent in the year.  Investment in luxury assets is about much more than ROI, according to Knight Frank’s research. Joy of ownership was the number one reason for investment in these classes, according to a survey amongst individual investors, with status among peers also being mentioned as a motivating factor. In the last 10 years, art investment has grown 78 per cent. “We’re seeing a big increase in the number of people who are bidding in our sales of old master paintings, but they are not buying, because there can only be one buyer for each lot, obviously—but participants in sales are increasing quite rapidly across the whole globe,” said Gordon. “We think that people are more gregarious in their taste than they used to be, less precise in their collecting categories, and more open to other cultures. I think this is bringing people into the old master market. Artists that communicate the best across the centuries, either because they’re famous artists that people have heard of, or whether the nature of what they’ve created they communicate, are the ones becoming the most sought after and the most widely bid on in our sales,” Gordon continued. Will the record ever be broken again? “I’m not going to answer that question, because if you’d answered that question at presumably at any stage at five year intervals throughout my career, presumably any answer I would have given would have been wrong,” Gordon said.

“When we sold another Rubens, which until the Salvator Mundi was the world record auction price for an old master, though unlike this one a discovery, we didn’t think that record would be broken for a while. Probably we didn’t realise how soon it would be broken, and people didn’t think that painting would break the record back then. If we knew the answers to these questions our lives would be a lot less interesting—though, for investors, I’m sure that’s less precise of an answer than you’re looking for. People who buy old masters know that there is a surprise factor, and it’s usually a pleasant surprise,” said Gordon. Gordon first fell in love with the old masters because of museums— something that UAE’s young people now have better access too. “I started my career in old master drawings rather than paintings— the same artists but different media. It was when I was in school I used to go to the Fitzwilliam Museum in Cambridge. Which picture I cannot remember, but that was the window to what subsequently became my world. It’s usually museums that make people excited, motivated, interested, and engaged, which is why the Louvre Abu Dhabi is so important to this region,” said Gordon. Internationally, cultures are in dialogue more than ever before, causing an increased appreciation in both directions. “There is openness to Islamic art. People of my generation remember Kenneth Clarke’s television series Civilization—the new version is going to make people more aware as well. The Louvre Abu Dhabi tells the story of art and civilization from somethinglike 100,000 years ago,” said Gordon. When Rubens latest masterpiece goes on auction on 4 July, there’s no telling how high the bidding will go, or whether it may find its way into the Louvre Abu Dhabi as Salvator Mundi did. “I can tell you there’s going to be competition from all over the place. I’m sure we’ll get bidding from four if not five continents,” said Gordon. wealtharabia.net

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WHY WHY ROLLS-ROYCE ROLLS-ROYCE MADE MADE CULLINAN CULLINAN Torsten Müller-Ötvös, CEO of Rolls-Royce talks exclusively with WEALTH Arabia about the brand’s launch of its first all-terrain vehicle and why it’s made for the Gulf consumer

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Torsten Müller-Ötvös, CEO of Rolls-Royce

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olls-Royce is the pinnacle of automobile car creation. That isn’t WEALTH Arabia’s opinion—it’s the global consensus. “Bloomberg did an analysis on which brand is the most cited in top pop songs, and Rolls-Royce was the number one—even though it doesn’t rhyme with anything!” Torsten Müller-Ötvös, CEO of Rolls-Royce tells WEALTH Arabia. Müller-Ötvös is not humble about the quality of his cars. In fact, the success of the eighth Phantom model, launched in 2017, is something that Müller-Ötvös is still beaming over. “Phantom is for us the pinnacle of the brand. It’s not us saying that it’s the best card in the world, it’s the whole world who have said it. We have just launched the latest generation, and it’s again called the best car in the world. that is a great reward for us. Phantom is the best money can by when it comes to luxury transportation. We have put all efforts into the car to go the extra mile in nearly every dimension in comparison to what a Phantom 7 was, and that was already a fascinating fantastic car. Phantom 8 tops it in every dimension,” he tells us. “It’s the feeling that you’re not touching the street when you drive on it— you’re floating. You’re flying. It’s a magic carpet ride, and that is our fundamental brand promise. In terms of serenity, it’s like an acoustic chamber when you close the doors. It’s so silent, so serene. People thought we had to put artificial measures to make that happen—but instead we just engineered it to be sound-proof, and made even the tyres sound-insulated,” he says. Though Rolls-Royce is synonymous with quality, things were not perfect when Müller-Ötvös took over. One issue was that clientele was trending older and older. “When I joined the business, the average of customer was 56. Now we’re sitting on 45, and that is a remarkable achievement. What was needed for that was you needed to create product substance which was catered not only for younger customers, but which had different customers in mind,” he tells WEALTH.

The Cullinan was tested across both deserts and snow in the stages before release.

As part of that, Müller-Ötvös has moved the direction ahead in bold new ways—including the remodelling of the Wraith and the launch of the Black Badge brand, divisive for some customers, but that is something that he was comfortable with—as he thought, rightly so, that it would not lose the brand any customers. Now, Rolls-Royce move ahead in perhaps its boldest direction yet with the launch of Cullinan, the first allterrain vehicle the brand has brought to market. “We have tested in in the deserts, in snowy conditions. I even call it the Cullinan effect. People have been highly excited about Cullinan, and some people are even nervous about coming up with their own ideas of what a luxury SUV should be in light of the launch of Cullinan. I like that. Let’s see how that pans out. I’m very confident that we will see an excellent market reaction for Cullinan,” says Müller-Ötvös. The Middle East is one of the most significant markets in the world for

Rolls-Royce—though not exactly what it used to be. “The United States is still our biggest market worldwide, and the Middle East used to be number two worldwide, but that has changed now, as the economy is not as strong. We as Rolls-Royce, and I believe all luxury brands, are not immune against consumer sentiment. When consumer sentiment falters, we feel it. That has happened in the Middle East. But I’m confident that this regional is unbelievably powerful economically, and I think this region will come back. It’s a matter of time,” says Müller-Ötvös. One thing that the Gulf desires is cars that work both on-road and offroad, equally comfortable cruising up to the valet as they are to a weekend getaway camping site. It is with those customers in mind that Rolls-Royce designed the Cullinan, a car that may help the Middle East become the number two market for Rolls-Royce once again. Customers need an allterrain vehicle, so all-terrain became Rolls-Royce’s focus. wealtharabia.net

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“That is the reason that we’re bringing the Cullinan to the market,” he tells WEALTH. “The region is not so much just to make an all-terrain vehicle in its purest form, even though the Cullinan is fully capable as an allterrain vehicle, it’s more of a lifestyle vehicle. That comes with these types of cares. The lifestyle is obvious. When you look at the roads here in Dubai, this is such an SUV kind of country, and region. I bet you the Cullinan will be a stunning success here in the Middle East. It will be, at the end of the day, the Rolls-Royce of SUVs,” says Müller-Ötvös.

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FOCUS ON BESPOKE The Middle East is not only driving the market towards SUVs—it is also one of the forerunners of driving RollsRoyce towards bespoke. “Nobody wants to own a regular Rolls-Royce, everyone wants to make his or her own choice. Over the last years, more and more customers have been coming directly to work with our designers to create their own piece of art. The Middle East has always been leading with bespoke, as well as flamboyant ideas of bespoke, and the region has inspired the rest of the world to show them what is possible.

“Many customers worldwide have been highly intrigued by what Middle Eastern customers have commissioned. It’s set the tone for many international customers. For that reason, you can say that the Middle East is the leading region for us worldwide when it comes to bespoke. That has spread of course to the US, UK, and China. Ninety-five per cent of all Rolls-Royces now are fully bespoke, and a very fragmented part of our built cars are without any bespoke aspects. Bespoke is growing more and more,” says Müller-Ötvös. Middle East customers are not only driving bespoke, they were hand-


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selected to be some of the first drivers of the new Cullinan. “As always, we showcased the product to hand-picked, hand-selected customers up front before we went public, and I think that is usual. If you’re a loyal Rolls-Royce customer, you can expect to get the opportunity to see new product from Rolls-Royce first before the public eye sees it,” says Müller-Ötvös, who then confirms that some were indeed from the region. It is not just the cars that are pieces of art—Rolls-Royce has even added in the option to build a work of art directly into the vehicle.

“We have now made bespoke up to a whole new level. Our customers love to generate their own masterpieces when they commission a Rolls-Royce. We have a dashboard behind the glass, which allows the customer to commission an artist to generate a piece of art and then you can put it in the glass cabinet. That is something nobody else has ever done before,” says Müller-Ötvös. “The future of luxury is personalisation in every detail. You do not want to have, in that league of customers, what others can have easily. You want to have something that is truly you, truly unique, truly special.”

It’s the feeling that you’re not touching the street when you drive on it—you’re floating. You’re flying. It’s a magic carpet ride, and that is our fundamental brand promise. In terms of serenity, it’s like an acoustic chamber when you close the doors. It’s so silent, so serene. People thought we had to put artificial measures to make that happen—but instead we just engineered it to be soundproof, and made even the tyres sound-insulated. Torsten Müller-Ötvös, CEO of Rolls-Royce

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ADORE THE FOUR-DOOR WEALTH Arabia re-examines the Maserati Quattroporte after its 2018 update to find the model has truly surpassed its great predecessor in every day

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hat is the allure of a Maserati? It starts with how they’re made. Each one is made with care by a small team in Modena, Italy, a welcome change from the days of the robotic assembly line. But while the name inspires one to think of the classic Italian sports car, the Quattroporte has always been the model, since the first iteration designed by Pietro Frua hit Italian roads in 1963, made for a more practical life style. After all, Quattroporte literally means ‘four-door’, telling drivers that this is built to not just be the experience of a driver but a car built for passenger comfort—a car for a family drive, with the spirit of a supercar. wealtharabia.net

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The Quattroporte has gone through many iterations since it debuted in the 1960s.

When the Quattroporte debuted in the 1960s, it was the world’s fastest sedan, with a then-groundbreaking 4.2 litre VI engine that powered the car to a top speed of 220 km/h. The V8 disappeared for a time in the mid70s in favour of the Bertone-designed mark II, housing a 3.0 litre V6 engine—which was much less popular, with only 11 units in total hitting roads. The V8 returned in 1979 via designer Giorgetto Guigiaro with the mark III, which also featured a three-speed automatic transition. This was what drivers wanted—the production run increased from 11 to 2,100. Maserati went back to the V6 with a Bi-Turbo engine, hewing closer to the entry-level Ghibli models, in 1995, and I wasn’t until 2004 that a 4.2 litre V8 returned with the Quattroporte mark V, more a GT than a Ghibli at heart. When Maserati’s iconic trident last graced the review pages of WEALTH Arabia, it was with the previous edition of the Quattroporte, 2013’s mark 6, back in 2015. The question we had for ourselves when we got behind the wheel was—has enough changed to warrant a new look? Once we did the answer is—unquestionably. Since the 1960s, a new Quattroporte was something like a Terrence Malick film—stunning, and only appearing once a decade. Why do we have another, then, five years later? For one, cars built around technology are ageing faster. Even in 2015, the 2013 Quattroporte felt as if it were lagging behind its luxury sedan peers, as if it were just short of where it needed to be. Though Maserati has produced some of the most beautiful and best cars in its active decades, it was still figuring out where it needed to be in this new decade. That wasn’t to say it wasn’t excellent on its own. In fact, from 2013 to 2017, Maserati shipped 31,400 of its flagship sedan, making it truly the bestselling model in the line’s history—a huge leap for a car that previously only saw a few thousand sold at most. The 2013 Quattroporte also sold to more than 69 countries—making it the most wealtharabia.net

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global model as well. In Dubai, where WEALTH Arabia is headquartered, we have noticed many more Maseratis on our streets this decade than in the previous one, proving that the brand has truly found a new level of appreciation from the region’s car collectors. So what has changed? First and foremost, the technology—the one thing that has most changed since 2013 edition hit stores. The headlights have adopted adaptive full LED technology that provides remarkably better visibility, cooler light, glare-free high beam functionality and double extended lamp life. The central dashboard accommodates a highresolution 8.4 inch multi-touch screen, the centrepiece of what Maserati calls its ‘infotainment’ system, that is now fully compatible with both Apple CarPlay and Android Auto smartphone mirroring functions— something that functions a lot better than it did in the 2013 model, where the biggest difference was felt between the Maserati and its comparable models. The lower console’s rotary knob still offers intuitive control of the system’s basic functions—one thing that did not need to be changed. The exterior of the Quattroporte had also been restyled, with a new front and rear bumper design and an Alfieri-inspired, more pointed and imposing front grille with vertical chrome elements. An electrically-adjustable ‘Air Shutter’ sits in the front grille, providing optimal control of the engine’s fluid temperature while also, according to Maserati, substantially improving aerodynamic efficiency, with the company stating that the Cx coefficient of the new Quattroporte has now reached 0.28. Now, how about the engine? While in the 1970s the switch from a V8 to a V6 hurt the Quattroporte line, technology has developed under the hood to ensure that is no longer the case. The Euro 6, 3.0-litre twin-turbo V6 delivers 350 hp power output at 5,500 rpm and 500 Nm peak torque 70

The new full LED lights create better visibility, cooler light and glare-free highbeam functionality.


MOTORING

wealtharabia.net

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between 1,750 and 4,500 rpm. In fact, 90 per cent of the maximum torque is already available at 1,600 rpm. At 350 horsepower, the 2018 Quattroporte has stayed loyal to the Maserati’s historically sporty character, accelerating from 0-100 km/h in 5.5 seconds with a top speed of 270 km/h—all while achieving the lowest ever petrol consumption in the history of Maserati flagship sedans: just 9.1 litres/100 km and 212 g/km CO2 in the combined cycle. Eco-friendly performance is a welcome improvement. The 2018 model is also fitted with the eight-speed ZF automatic transmission that aims for comfort, fast gearshifting, optimised fuel consumption and reduced noise, vibration and harshness. The chassis has, according to Maserati, been designed to meet the performance and comfort demands of Maserati buyers while maximising safety levels, with double-wishbone suspension layouts keeping to the racing spirit of the brand. The rear suspension has a fivebar multi-link system with four aluminium suspension arms, with a

The new models have been equipped with a more comfortable transmission, with less noise, vibration and harshness.

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standard Skyhook system fitted with electronically-controlled dampers, a mode built to make the drive more comfortable when initiated. Driving it, you can tell, as it does feel to be the smoothest drive we’ve experienced in a Quattroporte, while still able to transform into a sports car at a moment’s notice. Along with the new Ghibli, the Quattroporte is the first Maserati to adopt the Integrated Vehicle Control (IVC) system, which has been developed in collaboration with Bosch to prevent loss of control. The model is also the first to introduce Electric Power Steering (EPS), replacing the previous hydraulic system, which has been built to keep the responsive steering feel of a Maserati. The rest has maintained the excellence drivers have come to expect from an Italian product built meticulously by a small team— impeccable interiors, beautiful build quality and design. Finally the Quattroporte meets all the needs of a top-level sedan in 2018—and we’re so happy we took the chance to experience the model again.

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DESIGN

Legendary architect Franco Albini during his prime in Italy.

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The legend of the impossible bookcase No one could replicate famed architect Franco Albini’s mythic one-of-a-kind ‘Veliero’ bookcase without it falling apart, until his estate forced Cassina to find a way

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he Italian architect and designer Franco Albini passed away in 1977, but since his death, his stature has only grown. In fact, the neorationalist has, at this point, become a short-hand for elegance—the kind that favours simplicity above all else. In fact, the Italian’s philosophy reminds one of influential Italian chefs such as Marcella Hazan, whose famed The Classic Italian Cook Book held a similar philosophy—stripping dishes down to their most essential ingredients, making

their greatness shine by the quality of the cooking and the ingredients themselves, allowing their flavours to burst forth in ways they never had before. In Albini’s pieces, their greatness was in their craftsmanship and the way that they stood out unobtrusively in a room—an influence on design-craft that holds to this day. Albini’s pieces are now in the care of famed Italian company Cassina, who reproduces his back catalogue with permission from its estate. According to Enrico Raggi—Commercial Director, wealtharabia.net

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Cassina, the company originally came into existence to fill a needed hole in the design world—cruise ships, back before they themselves were a luxury. “Cassina is a company established 90 years ago, and the real element of diversity that Cassina created was the industrialisation of this sector by collaborating with the most important architects to furnish the cruise ships that were connecting Europe to the United States before commercial airlines existed. The first class of these cruise ships were fantastic environments where the richest people would live for a month on the way to the US and back, and they had to live in beautiful, elegant places like their own houses. So the architects that created and designed these first class environments needed to have great quality. The brand has always been about creating new shapes, new aesthetics, new materials, and experimenting with new technologies in the industry,” Raggi tells WEALTH Arabia. Albini’s catalogue contains one of his most legendary pieces—a bookcase that sat in his own home 80 years ago. “The start of the project was in 1938. He created one piece for his own living room in Milan. The moment that this became real, it was shown in his living room, the most famous magazine for architecture in Italy at the time made an article about it, and became a myth in the industry. Then an American magazine came and made another article on it, and its myth grew around the world. The problem is that the piece, when his son in the 1960s was 16 years old, he turned on the music so loud that the piece fell apart,” says Raggi. Albini’s son was, after destroying it, never able to recreate the famed bookcase. When Cassina took over the rights in 2011, a clause was put into the contract—if they are to recreate Albini’s pieces, they must find a way to 76

The legendary bookcase, rebuilt by Cassina and now available in Dubai.


DESIGN

recreate the impossible bookcase, and make it available to the world again. “This was a huge challenge, because no one had ever been able to do it before. We took two years, and we involved a polytechnical university in Milan as well as some engineers to do it. We finally discovered that the reason why it was falling apart is because the wood base, because of the change of heat during summer and winter, was moving, creating tensions in the metal wires that connect the glass shelves, causing the glass to explode,” said Raggi. “We put a metal based covered in wood that gives it full stability, disjointed the metal wires to give more flexibility, and put the glass shelves with three layers of glass like automotive glass, so that even if it breaks, it does not explode,” he explains. The piece is now available, selling between 35 to 40 a year, even at a high price. “It’s half a piece of technology and half a piece of poetry—a fantastic beautiful element that wherever you put it in the house, it makes your house a fantastic place. This is by far my favourite piece. It’s very expensive, of course, but it is an incredibly investment.” Around three to five currently sit in the homes of some of Dubai’s elite, priced at AED 175,400. “We’re the first ones to become editors of the most important architects of the past, says Raggi. “We keep all in one line called The Masters. We have become the defenders of authenticity of design, and that is an essential component of our identity and ethos. We both design and defend, as well as reproduce classics of the past, authorised by the families or foundations that represent the greats of the past. We are the protagonists of the modernist movement and design culture and innovation. It’s our mission to rediscover classics, and bring them back to life.” wealtharabia.net

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REAL ESTATE

The Centara planned for Deira Islands.

Deira Island’s highend family experience WEALTH Arabia speaks to Markland Blaiklock, Deputy CEO of Thailand’s famed Centara Hotels & Resorts about their forthcoming foray into Dubai’s hotly anticipated next destination

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eira Islands is coming—and coming soon. Now just two years away, the development that will link four manmade islands in the city, is set to become Dubai’s next big thing, featuring malls, hotels, and homes. Built by Nakheel, who also brought to life Dubai’s world-famous Palm, Deira Island will feature things that hve yet to come to Dubai, including the debut of Centara, a brand renowned in Southeast Asia for its high-end resorts built for families—something ideal for the Middle Eastern market. “We’re the largest Thai operator in Thailand. We have 33 hotels there. A couple in Maldives, Sri Lanka, Vietnam, and we started looking in this area because it’s still relatively close to our headquarters in Bangkok, and we were able to secure a project in Oman just last year. We were keen to get into Dubai. We’re a family business of 26 siblings in the family,” says Markland Blaiklock, Deputy CEO.

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Markland Blaiklock

“It’s a joint-venture, Nakheel is 60 per cent and we’re 40 per cent. With the joint-venture will come the opportunity to bring two other hotels to Deira Island, one connected to the mall, one residences and suites, and another a hotel.” While we are still two years away from its debut, Blaiklock was able to share with WEALTH Arabia details of what inspired the forthcoming property, which turns out to be one of the brand’s most popular destinations. “It’s going to be a family resort, inspired by our Centara Grand Mirage, a Lost World themed family resort in Pattaya. It will have a magic carpet theme—the roof design is a bit like a magic carpet, as well as a water park with a lazy river that one can drift around in. It’s a copy of sorts of the successful one we have in Pattaya, which was recently voted number one family resort in Thailand by Trip Advisor—a list that we also placed number four and number seven on,” says Blaiklock. Centara does not plan to stop there, in the region or in the world. “We have 38 hotels, and a pipeline of 20. The pipeline includes Laos, Cambodia, China, Indonesia, Cuba, and the UAE,” says Blaiklock. To create a truly high-end experience for families, “You need to cater to all family across all ages,” Blaiklock explains, making sure that each family member feels that their stay was truly superlative— not just the kids, or the parents.


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Wealth Arabia #46 - June 2018  
Wealth Arabia #46 - June 2018