Family Offices in the Middle East: trends and implications for recruitment in the region.
With high profile Principals such as Ray Dalio setting up a branch of his family office in Abu Dhabi and a steady stream of headlines highlighting ultra high net worth individuals moving to the region, we examine family offices in the Middle East and identify several themes. A significant proportion of family offices in the region are based in Dubai and Abu Dhabi (United Arab Emirates).
1. Navigating Generational Wealth Transition
A pressing concern for MENA family offices is the transfer of wealth and leadership across generations. Indeed, globally, it is estimated that approximately 40% of family offices will undergo generational succession in the next decade. The MENA Family Office Landscape Report (“MENA report”) indicates that nearly 70% of family offices in the region have transitioned to the second or third generation. However, this transition can present challenges, including potential family disputes and opposing visions. To address these issues, many are implementing structured succession plans and robust governance frameworks to ensure continuity.
One critical aspect of succession planning is preparing next generation family members for leadership roles. Globally, a significant proportion of family offices express concern (in a recent Deloitte survey, one-third of family offices) that the next generation is unprepared for succession to a formal role in the family office. It’s no different in the MENA region with many family offices now implementing relevant education, external work experience, and mentorship opportunities.
Moreover, succession planning goes beyond financial and operational continuity – preserving the family’s legacy and values is paramount. Implementing clear governance structures, such as family constitutions and advisory boards can mitigate the potential for conflicts.
2. Distinct Investment Preferences: Emphasis on Liquidity and Real Estate
Globally, private equity is the foremost asset class for family offices. MENA family offices demonstrate their own distinct investment behaviours. According to the MENA report, they allocate approximately 18% of their portfolios to liquid assets, nearly double that of North American and European single family offices.
A preference for liquidity can be attributed to factors such as economic uncertainty, geopolitical risks, and the need for investment flexibility. Maintaining high liquidity levels allows family offices to respond swiftly to emerging opportunities and mitigate risks associated with long-term commitments.
It’s no surprise that real estate as an asset class dominates, with the MENA report suggesting that around a one-third of portfolios allocated to this asset class, reflecting a cultural and strategic preference for tangible assets. Despite this conservative approach, there’s a growing interest in diversifying into private equity and venture capital, indicating perhaps a more versatile investment strategy.
A bias towards real estate among MENA family offices stems from its perceived stability, desire for control and income-generating potential. Perhaps more important, historically many families have deep-rooted ties to the property sector, often originating from family businesses in construction and real estate development. However, there’s a growing trend of exploring alternative asset classes, including infrastructure projects, logistics hubs, and hospitality ventures, to diversify portfolios further.
Recognising the importance of diversification, more family offices are allocating capital to private equity funds, direct investments, and venture capital opportunities. This shift aims to capture higher returns and participate in innovation-driven industries such as technology, healthcare, and renewable energy.
3. Advancing Professionalism and Governance
In line with their global counterparts, the MENA report highlights a continued drive towards a more institutionalised operating framework and professional management within MENA family offices. While many have established governance structures, there has been a discernible shift toward addressing areas such as succession plans, formalising investment approaches and mitigating cybersecurity risks. Notably, the trend towards hiring non-family professionals for specialised roles is evident and has been for some time.
A significant development in governance is the growing reliance on external advisors and independent board members. Traditionally managed predominantly by family members, family offices are now receptive to recruiting experienced professionals to bring additional expertise and objectivity to decision-making, particularly within an investment context, legal advisory, and wealth planning. This has implications for recruitment for family offices across the Middle East with family offices increasingly looking at talent outside the region as demand increases.
Risk management is now a top priority for family offices in the region. Concerns such as economic uncertainty, geopolitical instability, and cyber threats are prompting the implementation of robust compliance frameworks, enhanced data security protocols, and diversified investment portfolios to mitigate exposure to market volatility.
Additionally, technology’s role in family office operations is becoming increasingly significant. Investments in digital transformation, adoption of sophisticated portfolio management systems, and leveraging artificial intelligence for data analytics are enabling more informed decision-making, better risk assessment, and enhanced operational efficiency.
Conclusion
The region is evolving rapidly, embracing the future while respecting traditional values. Family offices reflect this approach by carefully balancing their heritage with a fast changing landscape and multiple challenges. By focusing on structured succession, diversified investment strategies, and enhanced governance, MENA family offices are positioning themselves for a period of growth in a complex global environment.
True House Partners specialises in recruitment for single family offices worldwide including the Middle East. For more information, please call +44 (0)20 7846 0025 or contact@truehousepartners.com