Middle East family offices adopt prudent approach to wealth management

Much of the region’s family wealth comes from commodities, which is prey to price fluctuations
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The late literary critic Edward Said famously invented the concept of “Orientalism”: the idea that the west’s perception of the east is coloured by western political ideology. A good example, arguably, is the US television drama Homeland, which follows the fictional adventures of American spies in the Middle East and is widely seen by people in that region as depicting Arabs as suspect, dangerous and untrustworthy. This, say the critics, reflects and reinforces the dominant US view of the Middle East.

Perhaps because this “Orientalist” view is so embedded in western culture it is easy to picture wealthy families in the Middle East, especially the Gulf, as patriarchies populated by sheikhs in dishdashas and Lamborghini-driving playboys. The reality, of course, is completely different, as family offices in the region illustrate.

The idea of “putting everything in a box called a family office” is a relatively new phenomenon, says Sailesh Barchha, an adviser to the Kuwaiti royal family — who differ in several respects from their western counterparts. For a start, there is the sheer amount of wealth generated, which means the money trickles down a long way. “You are having conversations about hundreds of millions of dollars with people who are very young — children, really,” he says.

The source of the wealth is also a factor. If money bubbles out of the ground, it is not surprising there is a more casual attitude to it than in a family that has worked hard to create and preserve wealth for multiple generations, and has embedded ethics of diligence and thrift. Those factors, rather than any innate profligacy, explain the playboys.

Then there is politics. A report by Invesco Perpetual, the investment manager, says 85 per cent of Middle Eastern family offices are connected to sovereigns. The line between sovereign wealth fund and family office can be fuzzy and government policy and spending commitments can affect investment strategy.

Because much of the region’s family wealth comes from commodities, explains Emile Salawi, head of family offices at French bank BNP Paribas, it is prey to price fluctuations. This volatility, he adds, “makes them much more prudent in the management of their assets — they will look to diversify away from the core business”.

These family offices’ assets tend to be less liquid than those of typical European institutions, which can also leverage existing assets more easily. But in terms of investment, the differences come down to style. “The teams are relatively small,” says Salawi. “You probably have one or two individuals who are very close to the beneficial owner or royal family, whereas in Europe you get a more collegial approach. There is one adviser who is predominant and very influential over the royal family or beneficial owner.”

Despite this more informal approach — or perhaps because of it — there is a focus on educating the next generation, particularly female family members, says Alex Hayward, wealth strategist at Vestra Private Office. “There are some really dynamic families doing some sophisticated thinking around governance and succession planning, often more than in some western countries, where a succession can be taken for granted,” he says.

This is being driven partly by the return of the second or third generation who have been educated abroad. For family offices now, the question is about balance: balancing the needs of the older generation with the dreams and aspirations of the young.

Jeremy Hazlehurst is founder of Business Family

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