Despite having many substantially wealthy families, there are few single family offices (SFOs) and even fewer multifamily offices (MFOs) in the Middle East. Some estimates put the number of SFOs at between 60 and 75. Whether that’s right or not, most analysts think that there are many more families that could afford to run a family office than are currently doing so.
But this is going to change – not least because the level of expertise available to service family offices in the Middle East has improved substantially in the last five years.
Traditionally, family businesses in the Middle East set up family offices outside the region. They were based in Geneva or London, for example. Security was one reason for this: faced with the risk that an unfavorable regime could come to power, many families felt it was best to have their money in politically stable locations. But another factor was that, until quite recently, the local expertise and legal frameworks didn’t exist in the Middle East to support family offices.
Today, places like Qatar and the United Arab Emirates (UAE) are politically stable. And they have also developed the level of expertise required to service family offices locally – expertise that is centered within the Dubai International Financial Center (DIFC) and Qatar’s equivalent, the Qatar Financial Center (QFC).
These centers have enacted regulations to aid the development of SFOs and MFOs. Recent regulations include Qatar’s Single Family Office Regulations in 2012. Similar regulations governing SFOs in Dubai were passed a year before.
This has meant that wealthy families in, say, Riyadh can now get on a short flight to Qatar or Dubai when they want expert management of their wealth, rather than a seven-hour flight to Geneva.
There are also more examples of very well-run and extremely sophisticated family offices in the region, which serve as good role models. The Al Touq Group and Manafea Holdings in Riyadh, and the Future Group and Majid Al Futtaim Group in Dubai, are just a few examples. Most are, of course, discretely “hidden” and aim to keep away from public attention.
As centers such as QFC and DIFC further develop their expertise in money management for the very wealthy, they will see more of the Middle East’s wealth stay in the region. Indeed, instability in the wider Middle East, Levant and North African region has led to considerable amounts of money being placed into accounts in Qatar and the UAE. Whereas this money used to go to Europe, more and more now goes to the main financial centers in the Gulf.
This trend will also fuel demand for MFOs, which have been slow to get going in the Middle East. Some say that’s because other families don’t like to place their money in an MFO structure, because they feel they will share too much information about their wealth with others. Middle Eastern money likes to be very discreet. But I’m not so sure that’s the real reason.
I think it’s more that MFOs’ structures have not yet been tried in the region – or at least they are very much in their infancy. They need to show that they are worthwhile, that they can add value. As time goes by, I think new MFOs will prove they can do this, backed by legal and other professional expertise. They will become more common in the years ahead in the Middle East – as indeed will SFOs. That will be good for family business owners in the region and will help to professionalize the management of their wealth – and keep it close to home.
Stijn Janssen, Partner, International Tax Services, EY