Recent
data from Campden Research suggests that the number of
family offices worldwide has experienced a 38% surge over the last five years,
with around 7,300 currently in operation. Not only that, but the global wealth
under management by these family offices is about $5.9 trillion.
This
robust growth is underscored by the increasing prominence of family offices
serving ultra-high-net-worth (UHNW) individuals.These offices are significantly
contributing to economic growth in the Middle East, where they manage the
assets of some of the region's most wealthy families.
With
an almost 25% increase in UHNW individuals expected
in the Middle East region over a five year period, 224,000
millionaires in Saudi Arabia alone and Qatar having the most
millionaires per capita in the world, it’s not surprising that the number of family
offices to service this wealth is also growing.
The Middle Eastern boom: what factors are fuelling
this growth?
1. Rapid wealth accumulation
One
of the major catalysts of this expansion is the extraordinarily rapid growth of
wealth in the Middle East.
This
surge is creating a corresponding increase in the number of family offices in
the region. Almost 6,000
UHNW individuals in the Middle East possess a
combined net worth of $995 billion and this figure is set to increase.
2. A growing
need for professional wealth management structures
Family
businesses are the economic heartbeat of the Middle East. They’re an integral
part of the social and economic landscape and contribute 60% of the region’s GDP, benefiting from a highly
supportive regulatory environment. Many of these families have experienced
significant growth leading to more Initial Public Offering (IPO) events. These
liquidity events necessitate a corporate-like structure, such as a family
office, to effectively manage post-IPO wealth creation.
Naturally,
as wealth has grown, there has been a polarisation between the risk appetite
and investment strategies for the personal wealth held by the family and that
generated by their business, with distinctive approaches required. This
scenario has led to the rise of family offices to help both bridge this gap and
help families professionalise and institutionalise their wealth. They also
allow families greater control over investment decisions and increased privacy
than they may otherwise expect if their wealth was managed by a larger
institution.
3. First time
focus on wealth transition
Wealth
transition and succession planning are now major focal points in the Middle
East. Most wealth in the region is first-generation, making the establishment
of structures for managing wealth transition necessary.
With
nearly $2 trillion projected
to move from the current generation to the
next in the GCC alone in the next decade, family offices are playing a crucial
role in organising this significant wealth transfer amongst family
stakeholders.
The
COVID-19 pandemic and our increasing awareness of mortality has further
compelled families in the Middle East to plan for wealth transition to the next
generation and professionalise their family office setups.
4. Diversifying
family holdings
Historically,
family offices held a more wealth preservation mindset - but this is now
shifting towards identifying real opportunities to grow wealth. Real estate has
always been a key asset class for MENA families, however today, family offices
are evolving their investment outlook as the influence of the next generation
grows.
As
an example, private investments into the digital and fintech sectors are
becoming increasingly attractive, along with sustainable investment practices.
This is reflected in a recent survey by Lombard Odier who noted that 81% of
regional investors now already consider
environmental, social and governance (ESG) factors in their investment
decisions.
Recruitment into the family office space
Recruiting
top talent has historically been challenging for family offices as they haven’t
always been viewed as a long term career choice. It is a common tale that bankers
who joined family offices over a decade ago found themselves providing
something akin to a concierge service for their clients, whether it be
overseeing their children’s university applications or making travel
arrangements and restaurant bookings, alongside the day job of managing the
client’s wealth. This in turn led to staff churn and a lack of
continuity.
Today,
as family offices establish better corporate structures, I believe this tide
will turn and they will now compete with the largest private banks when it
comes to attracting talent.
Family
offices will also be the beneficiaries of the shrinking landscape of
international firms in the region. The consolidation that has taken place
amongst the larger international banks has meant that there are effectively
fewer alternative employers for bankers wanting to move to consider. In
addition to this, there is an increasing perception that some of the larger
banks are no longer as stable or committed to the region as they once were.
This, I believe, will further underpin the ability of family offices to recruit
top talent.
Against
this backdrop, family offices can provide a compelling proposition for bankers
looking to enhance their careers. They offer bankers an opportunity to be even
more client-centric and have greater independence in decision-making with swift
outcomes as compared to some of the larger banks. Some family offices have also
started to allow bankers to co-invest with them, ensuring they have real 'skin
in the game' and can benefit from the firm’s growth.
This
is all helping to increase the attractiveness of family offices as a legitimate
career choice for those who have experience of working at big international
banks and are looking to take a more entrepreneurial step with their next
career move.
If you are a family office looking to recruit senior executive candidates
with a proven track record of building businesses and strong performance
delivery, please contact me directly
and let’s set up time for a chat.
