Multi-family offices are
increasing their reach and professionalisation in many wealth
management markets, but barriers still exist for the Middle East’s
very wealthy making the leap from single-family offices. Mounting
US regulation could cloud the horizon but is driving moves back
into the region.
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By GlobalData
Private Banker
International (PBI):The last 18 months have seen
single-family offices increasingly appointing external risk and
investment consultants, refreshing in-house teams and combining to
form multi-family offices. Is it fair to say we are currently
witnessing the professionalisation of family office
services?
Walid S
Chiniara, founder of Shoora
Principal, Shoora Principal: I would not
use professionalisation, I would rather use the term
institutionalisation. Family offices are starting to use more
tools, techniques and processes to manage their wealth.
In the United Arab Emirates the level of
trust is very low. People tend to want to work with a single-family
office, work with people they can trust and work with people who
basically report to them as opposed to working with different
parties whom they do not know much about.
We are starting to now work in a different era
where we are doing a lot of coaching and support to help them
understand a bit more broadly what their needs and opportunities
are and this is very important with the new generation.
The old man dies and the younger generation
take over the wealth. Are they qualified? No, they are not
qualified – but they are still the owners and this is where we are
headed.
PBI: Do
you see the trend of single-family office teaming with a
multi-family office to share a few costs around the managed asset
continuing.
Gary
Dugan, chief investment officer, Emirates NBD Private
Banking: Merrill did a survey in the last couple of
years and one of the key things that came out of this was the
increasing burden of cost for a single-family office if its assets
were below a certain threshold then they really could not afford to
be as institutionalised as they would like to be.
A half-way house really does not work as it
just becomes a bit of an amateur outfit. I think the consolidation
of families into broader family offices was very likely given the
numbers that we have seen and I think given the increasing burden
of regulation from the US this is a trend that is likely to
continue.
Sandy Shipton, wealth management executive director, Dubai
International Financial Centre (DIFC): If
we look at the Middle East family offices versus the US and Europe
there are similarities in the type of portfolio, but there might be
more concentration on real estate.
The US family offices have shifted
their concentration from private equities into sovereign wealth
where there is a bit more safety. What is interesting is that
in general, all family offices behave in a similar way in terms of
size and diversification and how they build and manage their
portfolios.
In some markets there might be a bit
more concentration on one asset versus another, which seems to be
something that is on the rise and the number of family offices is
not decreasing.
A CapGemini report said there was
concern over increased costs and people were looking for better
solutions when it comes to their structures. When it came to
location, people were looking for more cost-effective work
environments to establish their offices.
Tim Casben,
partner, Lawrence Graham LLP, DIFC: It is worth
establishing what the intended function of a family office is – is
it administration, concierge, investment management, or a
combination? There does appear to be an increasing trend towards
the outsourcing of the investment management function,
increasingly driven by regulatory requirements.
While running a single-family office is
potentially restrictive from a career perspective, other than for
the ultra high net worth families, running a multi-family office
can be challenging.
I know a team that had run a family
office for six years and tried to expand to a multi-platform.
While it may have worked from an
investment management perspective, from the concierge side it was a
disaster because the person they had been working for, for the past
six years, was used to a personal 24 hour/seven days-a-week
service.
There is clearly a certain level of
wealth, particularly in this region, which makes it more viable to
have a single-family structure.
Certainly on the concierge side it is
more difficult to build a multi-family platform. If you outsource
the investment management or put together a multi-investment
management platform, that might work.
PBI: Setting
expectations is a very key part of the relationship for private
clients and objectivity is key. In recent times has there been a
lack of objectivity in the industry and is there a conflict between
investment and private banks?
Dugan: Not from my experience
in Europe, Middle East and Africa.
Any deals that come along, it is very
arms-length even when you talk about in-house asset management –
there is never any pressure to take those products. I think across
the industry regulators have tried to make every effort but I do
not think it has necessarily worked.
I still think a lot of pressure has been placed
on private banking businesses. When I worked for Barclays and Bob
Downing’s group came in, they thought this was a distribution arm
and for the first year we spent time battling with them that we had
to give independent advice.
“I think the problem in the region is that the
banks get such small investment management departments working
within the private bank that the pressure is applied quite easily
now and how that manifests itself remains to be seen.
From the outside in it might appear that there
are not the Chinese walls and the regulation is not as strong as it
is in the rest of the world.
PBI: As the
wealth markets in the Middle East have evolved, what is the
relevance of the Sharia-compliant wealth management? Have the
domestic and international banks been able to exploit its full
potential? How do you see this segment developing?
Navid Goraya, adviser to the chairman, BMB Group:
Islamic wealth management works very well from the perspective of
family offices.
This works better in this environment
because they are dealing with internal advisers and with external
asset managers to customise their portfolios on a bespoke basis
which cuts down time to market.
In Islamic wealth management, product
push generally does not work that well because they never have the
full range of products to create complete solutions for their
clients.
I see an opportunity on the services
side of Islamic private wealth such as succession planning and
portfolio customisation.
PBI: What impact,
if any, do you feel recent efforts by the US to introduce stricter
reporting requirements will have on single-family offices based
here in Dubai? Do you at the DIFC, for example, see a similar
tightening here?
Shipton: What is going on in New York
has made a lot of people uncomfortable. The DIFC has a pretty large
footprint and many are locating their wealth back to this
region.
We also find that foreign family
offices are looking at relocating and some have an interest in this
part of world. Do I see a similar type of tightening here? I would
have to say no. I think what the US is doing is going to
involve a migration of single-family offices and a lot of them will
look for alternative structures, a trust for instance to avoid this
requirement. How will it affect the United Arab Emirates? I would
say positively – if anything our numbers might even increase.
Casben: The Single Family Office
Regulations (SFO Regulations) were introduced in the DIFC for the
primary purpose of excluding family offices from onerous regulatory
regimes and attracting family offices to the DIFC on that
basis.
Under the SFO Regulations as long as
services are being provided to a single family, the services fall
outside of the DIFC financial services regime. I would be very
surprised if the DIFC or Dubai Financial Services Authority would
see the need to tighten requirements.
PBI: This has
been very much based on the US’ push for transparency in the
financial system. But you don’t really see that as something that
is going to be taken on board locally?
Casben: No, this is a US reaction to
recent scandals such as Madoff. Previously, there were various
exemptions under the US Securities Laws if you were advising less
than 15 people.
These exemptions have been withdrawn which is
likely to result in wide ranging and extremely onerous reporting
requirements for family offices.
The DIFC provides that as long as the
single family knows that they are not being regulated and they
conform with certain other criteria, they are not subject to the
same reporting requirements as an investment adviser managing
third-party assets.
