Family
offices in the Middle East are using more of their members’ personal
assets to finance corporate activity, with single family offices showing
a more pronounced trend in this shift than with multi-family offices,
according to Invesco, the investment house.

In its third annual report, based on more than 100 face-to-face
interviews in the region, it found that 40 per cent of family office
interviewees cited a strong shift from personal to corporate assets, and
over a third (34 per cent) more respondents thought capital was flowing
towards corporates than to personal assets.

The research is designed to throw light on the specific
characteristics of the SFO and MFO markets in the countries around the
Gulf, helping wealth managers and other players to craft their service
offerings more accurately, Invesco told this publication.

The study found core factors driving capital flow to corporates are
the need for corporate funding (27 per cent), the attraction of
corporate returns (16 per cent) and corporate opportunities (4 per
cent).  In contrast, the flow from corporate to personal assets is in
large driven by succession planning (18 per cent), diversification (9
per cent) and stock market returns (9 per cent).

“The most significant finding is the extent to which families are
looking to invest in their own businesses or direct their capital into
their own activities rather than invest it in the broader market or
globally,” Nick Tolchard, head of Invesco Middle East, told WealthBriefing in a telephone interview.

“Last year, we looked at the different investments in the region and
their risk and return preferences, and found that institutional
investors as having relatively long term horizons and relatively modest
return expectations. High net worth individuals and corporates, by
contrast, have quite an aggressive time-scale…they are investing with a
one- to three-year view at maximum,” he said.

“One of the reasons for this [timescale] is because of a culture [in
the region] of wanting to have control of your own investment and have
something that is tangible,” he said.

“Over the last 12 months, we have found that private family capital
has been used to invest in family corporate assets, therefore reducing
the potential for diversification. You are also dealing with countries
where there is no broad stock market. If you are going to invest locally
it is via less listed securities than in international markets,”
Tolchard said.

Lessons

Beyond the relevance to the Middle East, what international lessons can be gleaned from the report?

“If we were to look at other regions, the multi-family offices have
quite a wide range of investment vehicles; with SFOs, they would look at
something quite high-Alpha and niche,” Tolchard continued.

“In the Middle East, the growth of high net worth assets at 12-13 per
cent is faster than the global average so its important that family
wealth is ultimately internationally diversified.”

Distinction between single-family and multi-family offices

The shift to corporate assets and the role of family businesses is
most apparent amongst single-family offices, according to the study, who
manage the wealth and assets of a single family, rather than
multi-family offices.

Net flow from personal to corporate is significantly higher for SFOs
compared to MFOs, with funding (25 per cent), corporate returns (19 per
cent) and corporate opportunities (13 per cent) appearing as the key
drivers of personal and corporate capital flow. In contrast, succession
planning (25 per cent), funding (20 per cent) and corporate returns (15
per cent) are the main drivers within MFOs. The concentration of each
model varies by Gulf Co-operation Council region, with SFOs more common
in Saudi Arabia and MFOs more frequently found in Bahrain and the UAE.