Middle East has 'unrivalled opportunities', Rothschild Trust executive vice chairman explains

03/12/2018 Katie Royals,

The Middle East currently presents unrivalled opportunities in an increasingly volatile region, Paul Stibbard, executive vice chairman of Rothschild Trust, told an audience of senior trust professionals at PAM Insight’s annual eprivateclient Trust Dinner held in London on 27 November 2018.

He commented that in the next ten years, it was predicted that regional wealth of around $1 trillion was due to be passed to the next generation. Within Muslim families, this wealth transition raised key inheritance law issues. Subject to a freely disposable one-third portion, Islamic law set fixed fractions for heirs. These include parents, spouses and children. With men usually permitted to take up to four wives, and heirs normally inheriting by way of co ownership, the scope for dispute in larger more wealthy families following death was considerable 

Mr Stibbard highlighted some serious regional issues, particularly the bitter rivalry between Saudi Arabia and Iran as a major driver of regional tension. This was partly reflected in proxy wars between Sunni and Shia groups in Iraq and Syria, with Lebanese and Iranian militia increasingly involved.

Another source of tension was the region’s very high birth rate, endemic corruption and low economic growth. This all contributed to high levels of unemployment. For example, in Yemen, two thirds of the population was under 25.  In many other Middle Eastern countries at least half the population was under 25.

Previously, when countries in the region had problems with a very restive young population, and spiralling unemployment, governments were able to shell out largess to key groups.  Now with oil prices teetering around $60 a barrel, and many countries facing steadily rising budget deficits, those countries dependent on oil no longer had that latitude. This made many parts of the region relative powder kegs, Mr Stibbard explained.

This regional Sunni/Shia rivalry had also contributed to increased religious extremism. Many of the religious and racial minorities, such as Coptic Christians, Druze, Yazidis and Kurds had become “very fearful of the way the wind is blowing.”

Against this background of autocratic governments and regional instability, “political risk planning” had become a central wealth preservation pillar. This manifested itself in the increased demand for overseas investments in safer jurisdictions, and a greater use of trusts for wealth succession.

The introduction of common law trust regimes enacted in the latest version of the Dubai Trust Law earlier this year in the Dubai International Financial Centre (DIFC) was one regional development to meet this need. However, this was potentially subject to an overarching limitation that any such trusts should not be against public policy. 

Therefore, “if DIFC trust structures are directly contrary to Islamic law because they are intended to circumvent Sharia law”, Mr Stibbard’s view was that it would not be surprising if parallel litigation by aggrieved heirs would be issued in the dominant UAE Islamic Courts to challenge such DIFC trust structures perceived as against public policy. This possible litigation shadow may point wealthy families more towards using traditional Anglo-Saxon trust jurisdictions for wealth succession objectives.

The extent of female wealth ownership in the Gulf region remained highly significant. It was estimated that 22 percent of wealth was now owned by women. This may lead to an increasing demand for female advisers in the region to service their needs. Somewhat remarkably more than half of Saudi graduates were now female. With Saudi women now having more flexibility to drive, it remained to be seen the extent to which this might be translated into greater career opportunities.

In conclusion, Mr Stibbard commented that although there “is much greater activity and opportunity, there are also much more worrying problems in the region than in earlier decades”.

The second eprivateclient Annual Trust Dinner was held on Tuesday 27 November at The Goring Hotel in London. The dinner was attended by heads of trust or fiduciary services (or the like), senior & managing partners, chief executives and managing directors. It included speeches from Edward Raymond, Jennifer Smithson and Vladimir Dimitroff and was co-chaired by executive vice chairman at Rothschild, Paul Stibbard, and James Anderson, founder PAM Insight. The Dinner was kindly sponsored by Julius Baer International.

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