This article is part of an Executive special report on wealth management and private banking. Read more stories as they’re published here, or pick up September’s issue at newsstands in Lebanon.
Roula Habis is a new managing partner at Optimum Invest, a Beirut based financial company. Formerly the general manager of Middle East Capital Group, she has 20 years of experience in financial products and joined Optimum to complement the firm’s fixed income business with her wealth management expertise. Executive sat with her to chat about the long term trends in the sector.
Optimum Invest describes itself as a boutique firm, meaning not a large player. Can a small firm offer value in wealth management?
Classical wealth management is what people describe as asset allocation and diversification. You build a portfolio of stocks and bonds and might add some private equity into it. We will have this, but our approach is to go out of the box and find ideas for wealthy people in a way that is more like partnering with our clients and being their open eyes and ears.
Ten or fifteen years ago, local wealth advisors were mainly preoccupied with marketing fund products that were designed abroad, different from the tailored approach you’re talking about today.
It’s the evolution, it’s the change. It used to be simply being an advisor or an intermediary, where you give them access to an open architecture. You would take funds from everywhere and you just build it for clients according to their profile and according to their needs in terms of liquidity. But this is offered by everybody, when you go to Citi, to HSBC, to all these big banks. You go and tell them: “I have a million, 10 million, 15 million dollars,” and this is what they would do for you. They will do an asset allocation and they will diversify according to the sector, to the geography, to the needs and to the rating from A to CCC. This is something which we still do. But we have to do something more.
How do you compete for Lebanese clients against those big name wealth management providers in Switzerland or in Dubai?
You know, it’s not that we are competing [against the big banks]. They are bigger, they have research departments, but their services are not as personalized as ours. And this goes back to what I started saying, which is that we in the Middle East, or in this part of the world, trust and knowing the person is very important before we go into placing their money.
Has there been any real progress in quantity or quality in the wealth management culture that we have in our region? Has there been a learning curve?
If you compare how much was invested in bonds and stocks versus private equity in 2004 and 2014, you would see that today there is a huge demand for private equity (PE). [Clients] know that it is long term but they know that it works well, it will pay well. If you go back 10 or 15 years, few people knew about private equity; those were really only the elite people who have always been investing abroad. But when you say private equity today, most investors would understand. They have seen the dotcoms, the internet bubble and then the biotech and the pharmaceutical companies, how they initially started with a clever idea or product and some PE investors who believed in it. There are many examples of great successes in this field but also resounding failures, and investors have become better at identifying good opportunities.
After the 2008 global crisis there was a lot of distrust among the HNWI (high net worth individual) community globally concerning wealth managers who were unable to anticipate or balance their losses. In response, global wealth reports were talking a lot about the need to rebuild trust. When looking at the industry today, what do people want most from their wealth managers?
You know what the people wanted in this crisis? Transparency and presence. Because when everything is great, everybody is calling you. However, when there is something that is bad, human beings have the tendency to, you know, disappear. This is what happened during this crisis. What people really wanted was for you as their advisor to be directly by their side, telling them exactly what was happening, why their portfolio was going down and perhaps take the appropriate decisions together.
The rebuilding of confidence came with the market as it started to recover. What mattered in the time of the crisis was to make sure that you stopped your leverage. If you were leveraged, instead of having to totally lose or double your losses because you were leveraged, the most important thing was either to liquidate to cover your leverage, or bring in cash from somewhere to cover your leverage. So the problem was the presence. This is why I am telling you it’s servicing. The most important thing is for the client to feel your presence near them, and this is what will make you different from everybody else.
How many wealth management clients are in Lebanon?
I don’t have a number. It is not large. But it would also depend on the threshold that you use to classify clients. Some would use $5 million, others $10 million. Each firm has its own threshold.
We have seen a global wave of new regulations on almost everything in the financial industry after the 2008 crisis …
Which was a good thing.
Has this increased the cost of doing business?
Of course. The regulatory environment is much tighter than before. In Lebanon, measures have been imposed by the central bank, the Banking Control Commission and now the Capital Markets Authority where you have to have a compliance officer, a legal officer and so forth. You need at least three or four persons in your back office and have a much bigger payroll on the back office side. This is okay for big financial institutions which can handle the cost, but small ones that are not performing well cannot really go on and have to shut their doors or sell their operations.
And have regulations become a bit more relaxed or are they still on the increase?
Definitely on the increase. Right now things are stable in the sense that authorities have put the rules in place and are auditing you to see if you are implementing the regulations. But everything is still evolving. I would expect even tighter controls in the area of compliance and anti-money laundering, and more costs associated with that.
The World Bank said in an assessment of Lebanon’s financial sector that our capital markets are weak and should be developed by, among other things, growth driven by non-bank financial institutions and incentives for investment funds domiciliated in Lebanon. From where you are standing, is that realistic?
In Lebanon? Not yet.
The development of the Lebanese capital market, from what you are telling us, is not a very hot short term issue.
How can it be, with the situation the country is in?
So if the World Bank says there should be more efforts to increase the supply and demand of securities, or more mutual funds, or initial public offerings by more of the regulated entities such as unlisted banks and insurers, what do you make of that?
In principle it should [happen] and in absolute terms, [the development of our capital markets] has to be done in this way. What the World Bank wants is what we want. Don’t you think we want a bigger stock exchange? You can have good returns on Lebanese Eurobonds and the risk is limited and the country is very well controlled in terms of the banking and financial sector. Don’t you think we want to be active and create something? But we have a problem, and it is political and regional and this is what is stopping us. The problem is not local anymore. It used to be local, but what is happening today is beyond us.
Knowing that there are many problems of regional and wider scope that no one in Lebanon can control or remedy, what is the biggest problem for wealth management in Beirut today that you can solve?
Transparency and knowing what’s happening. Being clear and transparent so that you know what are the risks at all levels and before investing or doing anything you would know that this is the added value.