Ultra-wealthy pinpoint Gulf to set up family offices

Reuters/Jochem Wijnands

• Most interest from US and Asia
• Dubai making set-up easier
• Favourable taxes a big advantage

US private equity investor Leon Black, who has a net worth of around $14 billion, last week confirmed he was opening a branch of his family office in Abu Dhabi.

The co-founder of New York investment giant Apollo Global Management joins the likes of Egyptian tycoon Nassef Sawiris, Binance co-founder Changpeng “CZ” Zhao, India’s Adani family and hedge fund billionaire Ray Dalio who have set up offices in the UAE, but they are unlikely to be the last.

Wealthy individuals in North America and Asia are increasingly investigating setting up family offices in the Middle East as they seek to take advantage of the growth opportunities in the region and the Gulf’s desire to increase foreign direct investment.

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The number of family offices around the world has risen by almost a third to just over 8,000 in the past five years, with this number forecast to grow to more than 9,000 by 2030. 

These control wealth of around $5.5 trillion, approaching $700 million each, with the total expected to rise to nearly $7 trillion by next year, according to research by Deloitte. 

Around 3,200 family offices are located in North America, 2,300 in Asia Pacific, 2,000 in Europe, 300 in the Middle East, 200 in South America, and 60 in Africa.

“The number of family offices in the Middle East is predicted to grow rapidly over the coming years, with Dubai attracting the most attention, due to its cosmopolitan character and favourable tax and investment offering,” said Richard Nunn, family enterprise leader at Deloitte Private Middle East.

Around a quarter of family offices surveyed say they have multiple branches. North America is the location of choice for 90 percent of families setting up a secondary office, but the Middle East is growing in importance for those looking outside of their home markets.

Of the offices surveyed in North America, Asia is generally the second favourite region. However, one in seven say they are interested in opening a third branch in the Middle East, tying it with Europe in importance.

In Asia the appetite is higher. North America is seen as the second most likely location, with one in five looking to the Middle East for a third branch, again equal in importance to Europe.

Despite the growth, Suchitra Ravi, from Sovereign PPG, which helps companies set up in the Gulf, says the Middle East is still seen as a challenging emerging market for some overseas.

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“They might be attracted to those more established options elsewhere,” Ravi said.

“The UAE market is yet to mature in terms of family office and wealth management regulations, infrastructure and facilitating.”

Deloitte says that while the Middle East is on a par with Europe, it is unlikely to eclipse its rival. By 2030, Deloitte expects the number of family offices in the Middle East to rise to 350, while Europe will have around 2,650. 

Dubai, in particular, is taking strides to make entry much easier. The Dubai Centre for Family Businesses has been set up under the umbrella of the Dubai Chambers, and the Dubai International Financial Centre free zone has set up the DIFC Family Wealth Centre.

The method by which wealth is recorded across global jurisdictions is different. This poses various challenges, according to Adam Ladjadj, chairman of the Emirates Family Office Association.

Family wealth in North America and Europe is typically measured through assets under management (AuM) – the total market value of the investments managed on behalf of a family. In the Middle East, it has been historically displayed through the wealth held in family businesses and holding companies.

“This perception is increasingly changing,” Ladjadj said. “We are seeing more capital specifically allocated by families for this reason, and in the next few years I expect that the gap between the Middle East and North America, Europe and Asia will close in terms of AuM figures.”

Middle East family offices account for $159 billion at present. While the region has a long way to go to catch up with North America ($1.3 trillion) and Europe ($949 billion), Wayne Merrick, managing director at CBD Corporate Services, a business management consultancy in Dubai, says it is fast catching up.

“What makes the region, specifically the UAE, stand out is its tax-friendly environment,” he said. “There’s no personal income tax, no withholding tax, no capital gains tax, and no estate or inheritance taxes.”