Middle East Family Offices Keep Investments Close To Home - Invesco Study

Tom Burroughes

21 May 2012

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 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 , the attraction of corporate returns and corporate opportunities . In contrast, the flow from corporate to personal assets is in large driven by succession planning , diversification and stock market returns .

“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 is because of a culture 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 , corporate returns and corporate opportunities appearing as the key drivers of personal and corporate capital flow. In contrast, succession planning , funding and corporate returns 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.