The great wealth transfer
As Millennials and Gen Z increasingly take their place in the boardrooms of family businesses, particularly in the region, it’s crucial that wealth advisory is customised for the new generation
The world is currently experiencing the “Great Wealth Transfer”, during which the world’s wealthiest individuals, each with a net worth of more than $5m, will transfer an estimated $18.3tn to their children by the year 2030. This figure represents onefourth of the global wealth of $62tn held by high-net-worth individuals (HNWIs). Of this, generational wealth transfer by HNWIs in the Middle East will see 19,038 individuals pass on $604bn to their kids.
The UAE’s leadership, from the time of the founding fathers, has always believed in the potential of youth to change the world for the better, entrusting the young with a place in the driver’s seat when it comes to development. The Emirati model of youth empowerment treats the young as the most cherished assets for ensuring creativity and innovation, while enshrining the positive values of society.
“AS MILLENNIALS AND GEN Z BEGIN TO ACCUMULATE WEALTH, THEIR INVESTMENT NEEDS ARE LIKELY TO TRANSFORM THE INSTITUTIONAL WEALTH MANAGEMENT FUNCTION”
A DIFFERENT APPROACH
The generational wealth transfer has implications for wealth managers so that the great potential of this transition can be realised. Wealth advisors must adapt to the many ways in which the Millennial or Gen
Z investor differs from older counterparts, particularly in view of findings that suggest that one in five businesses have a next generation member (aged 40 or younger) on the board or on the management team.
Millennials, for instance, are starting out with the greatest amount of formal education of any generation in history. Coming of age in a digital, borderless world, their concerns are more global than those of previous generations. In a multicultural nation such as the UAE, it is not surprising that this generation has embraced diversity in investments, markets, and in management styles. These inheritors have the potential to globalise a business; in fact, 58 per cent of Middle East family businesses consider expansion into new markets a top priority.
As Millennials and Gen Z begin to accumulate wealth, their investment needs are likely to transform the institutional wealth management function. Impact investing, which combines financial returns with social and environmental benefits, is seeing an upsurge in interest, with 59 per cent of the region’s family businesses ready to take the lead in sustainable business practices. Investments in emerging technologies and digital transformation and assets are also gaining traction.
REGULATORY SUPPORT
With preservation and innovation as the two pillars ensuring the future of family businesses, UAE laws have kept pace to support and enhance the role of family offices in the diversification and growth of the national economy.
The Onshore Trust Law introduced in 2020 puts in place frameworks for the organisation of family offices in the UAE and abroad to ensure stable and sustainable asset protection and succession planning. Also in 2020, Dubai introduced an opt-in law to regulate family business ownership. The law not only underscores the importance of family, enshrining a collaborative approach, but also provides for the new generation’s entrepreneurial vision.
Dispute resolution too has been in the spotlight, with Decree No. 34 of 2021 concerning the Dubai International Arbitration Centre (DIAC) making significant changes to arbitral institutions in Dubai. Issued in 2022, Abu Dhabi’s new family business ownership governance law addresses the issue of continuity in the contribution of the thriving sector to the economy even as it facilitates a smooth transition to the succeeding generation.
Globally, family businesses and family offices remain the the largest contributors to GDP, and the largest employers in the private sector. They hold the key to economic growth and wellbeing. Being attuned to the needs of those who will be entrusted to manage these businesses in future will usher in better business practices, while delivering results that ensure the continued relevance of advisory services across generations.
Aformidable group of Muslim consumers are seeking to fulfill their faith-inspired needs, driving the growth of the Islamic economy. Several key factors are rallying its growth, such as growing engagement and product diversification, a burgeoning Muslim consumer base and a number of strategies dedicated to halal product and service development.
Numbers back the optimism: The world’s 1.9 billion Muslims spent $2tn in 2021 across the food, pharmaceutical, cosmetics, fashion, travel, and media/recreation sectors, according to the State of the Global Islamic Economy 2022 report, produced by DinarStandard and supported by Dubai Economy and Tourism. The total spending signalled an 8.9 per cent year-on-year growth from the previous year.
“Growing consumer demand for diversity and inclusivity in cosmetics propelled halal cosmetic players. Muslims spent a total of $70bn on cosmetics in 2021, which is anticipated to increase to $93bn in 2025”
Muslim spend on food increased by 6.9 per cent to equal $1.27tn in 2021, and is forecast to reach $1.67tn by 2025.
Also, Muslim spend on travel was valued at $102bn in 2021 and is anticipated to reach $189bn by 2025, the report added. Muslim-friendly hotels and restaurants are also expected to record growth in the coming years. Indicating notable investment activity, HalalBooking.com secured $5m in preSeries B funding, while Pakistani travel startup FindMyAdventure raised $600,000. Meanwhile, Muslim consumers spent $100bn on pharmaceuticals last year, which is expected to scale to $106bn this year and total $129bn in 2025. As much as $2bn in halal-related pharmaceutical investments were made in 2020/21. Abu Dhabibased ADQ acquired Egypt’s Amoun Pharmaceutical Company, while Malaysia’s MiCare received $30m in funding from the International Finance Corporation. Simultaneously, Muslim spend on fashion totalled $295bn in 2021, and is forecast to rise to $313bn in 2022, the report added. While modest fashion was garnering traction even prior to the Covid-19 pandemic, the key shift has been into e-commerce. Among notable collaborations, Malaysian brands Mimpikita and CalaQisya partnered with Disney for their modest wear collections. Growing consumer demand for diversity and inclusivity in cosmetics propelled halal cosmetic players. Muslims spent a total of $70bn on cosmetics in 2021, which is anticipated to increase to $93bn in 2025, the study added.
Muslim spend on media and recreation also increased by 7.2 per cent in 2021 to equal $231bn. New mobile apps such as ImamConnect and Sango sprung up to cater to Muslim lifestyles, while digital advancements in the regional art scene were also witnessed. Last year, UAE-based Behnood Javaherpour launched the country’s first NFT (nonfungible token) digital Islamic art agency.
However, Islamic finance was estimated to value $3.6tn in 2021 and is forecast to reach $4.9tn by 2025, the report added. Global sukuk issuance escalated to $250bn in 2021, according to the Institute of International Finance. Meanwhile, Nasdaq Dubai recorded $11.9bn in new sukuk listings last year.
With Muslim spend forecast to reach $2.8tn by 2025, growth across the Islamic economy space appears promising.
12 June 2022