A growing trend for specialist teams is changing the way the wealthiest families are managing their assets.
The Family Office has really come to the fore in the Middle East over the past 20 years. Their importance has been supercharged by the global trend for wealth to pass from corporations to individuals, a shift projected to reach new highs in the coming decades.
All this wealth transferring into the hands of individuals must be carefully managed. So where once Family Office teams were hidden deep in the operations of a family-owned business, staffed by ‘enthusiastic amateurs’ whose day job was to run the company, now families are increasingly seeking formalised specialist units.
Highly professional, independent teams that focus solely on a family’s personal wealth are emerging, with more non-family members involved in running Middle East Family Offices. Often these are the highly experienced employees of global firms, bringing with them institutionalisation and a change in behaviour.
This has not only affected the structures through which investments are made – introducing standard policies and procedures to embed governance and accountability into all activities – but it also fosters a more global outlook.
More than 74% of advisors taking part in our 2020 Intertrust Group Middle East Survey expected ultra-high net worth families to become more global in the next five years.
Professionalising the Family Office allows the asset base to be diversified away from sentimental investments, with less reliance on traditionally operating businesses. A desire for fiscal sustainability requires a strong flow of deals and attractive investment opportunities to allocate liquid funds.
Reflecting broader financial industry trends, Family Offices are also embracing technology in a significant way, to embed robust governance into processes, reduce risk and increase the visibility of underlying asset performance.
One way to attract the best professional talent is to allow recruits to co-invest alongside their employers. For their part, families can take reassurance from the knowledge that their employees also have “skin in the game”.
This trend brings opportunities for both inward and outward investment in member countries of the Gulf Cooperation Council (GCC). Rather than a simple outflow of funds from the region, asset allocation is balanced. Some 90% of advisors in our Middle East Survey expected the coming generation of tech-savvy families to further expand their activities beyond the region.
Adapting to the pandemic
The Covid-19 pandemic has seen families increase their focus on investment sustainability and professionalising their businesses. One standout issue highlighted by Covid-19 is key person risk.
In one case, a key decision-maker was incapacitated by the virus, hugely affecting the ability of the Family Office to function effectively and react to change. As a result, the family has now accelerated the professionalisation of its leadership teams, simplifying and consolidating its structure and strengthening its governance.
For most of our clients in the GCC, however, the primary concerns remain enhancing wealth through existing or new business opportunities, succession and the transition of wealth between generations.
The pandemic may have put succession planning on the back burner for now, with attention focused on short-term concerns such as addressing liquidity, efficiencies within businesses and cash collection. But as the Covid-19 threat recedes, the increasing focus of professional Family Offices on governance will help to achieve the harmonious transition.
Some 80% of firms in the Forbes list of Top 100 Arab Family Businesses have transitioned once, showing that the size of financially dependent family units in the region is growing.
Therefore the concern is not simply about passing on the family leadership baton, but also about how to maintain fiscal sustainability, especially in times of difficult market conditions. Some families now consider this the greatest challenge for future generations.
Families are pushing on with plans to adapt to the changing environment by diversifying their investment base; strengthening financial and structural operational resilience; and pursuing opportunistic M&A transactions.
Direct investment into specialist asset classes has increasing appeal when this can be achieved by drawing on the skill of in-house team members with expertise in the relevant market segment.
For many families, ultimate control over investments is essential. They want to decide the right time to exit an investment or enter a market and to control the negotiation of deals. Direct investing ensures just that, enabling Family Offices to build an investment portfolio to their own timeframe and needs, not those of other investors.
About Intertrust Group
We have been present in the Middle East for over 20 years, providing world-leading, specialised administration services in more than 30 jurisdictions. Our focus is on bespoke corporate, fund, capital market and private wealth services that enable our clients to grow and thrive.
Our exceptional client service and the ability to navigate the complexities of conducting business in the region has cemented our position as one of the leading service providers. We operate in both the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), offering a full suite of services in most of the free zones and assisting with mainland entities.
If you wish to discuss your business or personal structuring needs, please contact one of our team. We can help with everything from simple company administration matters, information about SPACs and assistance with an Initial Public Offering SPA, to wealth structuring matters or family governance.