This article – part of a series – looks at the complex requirements for family offices in the Middle East, and examines the capabilities they need to be effective.

This article from WealthBriefing is published in conjunction with Emirates NBD Private Banking, and is part of a series.

Single-family and multi-family offices (FO) in the Middle East must embrace a wider range of service offerings to meet members’ increasingly complex needs. 

Whether it is the rising prominence of women within these organisations or help with private market investments into areas such as tech and ESG, the region’s FOs know that they must adapt. Real estate investment – an important area for decades – remains pertinent but is not dominating attention as in the past. Younger family members appear to be captivated by digital and FinTech sectors. They want a slice of the action and need guidance. That creates opportunities for wealth advisors, private banks and other organisations who help.

The Dubai International Financial Centre (DIFC) indicated the sort of services that were in demand when in 2022 it announced the launch of its global family business and private wealth centre. It provides advisory and concierge services, education and training, outreach and high-end networking, undertaking research, issuing publications and providing dispute resolution assistance. 

From our conversations with industry figures, the Middle East is keen to learn best-practice ideas from more established family office markets, particularly in the US and in Europe. More of such cross-pollination of ideas is essential. In the US, for example, organisations such as the UHNW Institute have built ideas on the key skills and habits advisors must have to work with families. Groups such as the Family Wealth Alliance, a US pan-industry group, track the remuneration of family office staff – there appears to be a dearth of such data in the Middle East. But this sort of information is vital for getting value and achieving results. Building these resources is also likely to be an important growth area as the family office sector evolves in the region. 

Structures and models
One area to consider is the kind of structures that family offices should adopt. Globally, the most favoured structure is the limited liability partnership. This appears to fit with a need to remain flexible as younger generations succeed to business roles and wealth management. According to a recent global study of FOs worldwide by law firm Dentons, 53 per cent of them choose a limited liability entity that mixes the characteristics of a corporation with those of a partnership. Some 19 per cent each choose a personal holding company and a private trust company; in the US, 18 per cent choose an S Corporation; 17 per cent adopt an entity where two or more partners enter a business and are not liable for more than their investment; 14 per cent use a company as a "legal person" distinct from its members, with separate duties and liabilities, and 8 per cent choose "other" not defined structures.

In certain cases, more “corporate” structures, based on accepting leadership roles, may make more sense, especially if there are tax implications. 

Pressures and biases
As the world wrestles with inflation, evidence suggests that the Middle East-based family offices worry about price pressures in particular. Dentons said that 80 per cent of family offices in the region are more worried about inflation, while globally, 68 per cent of FOs are very concerned about inflation. Regionally, FOs differ in how they use market falls as opportunities to buy back in. FOs in Asia Pacific (75 per cent), Latin America (58 per cent) and the Middle East (55 per cent) are most likely to be using market falls to buy equities, while those in North America (45 per cent) and Europe (42 per cent) are less likely to do so.

The inflation worry means that FOs will want to keep diversifying investment solutions to hedge inflation, such as in private markets (equity, credit, infrastructure, property and commodities) and require top-class investment management solutions. Some family offices, even the larger MFOs, might not be able to do all this work alone. 

For family offices that are outside the region, but are considering entering it, should realise that they can gain deep insights on energy and real estate by talking to local business leaders. In the UAE, Saudi Arabia and other jurisdictions, business leaders understand that these countries must adapt as the region contemplates a world less reliant on fossil fuels. The dramatic rise of Dubai, and the reform programme of the Saudi government shows that the Middle East is full of people eager to change and build new sectors. Family offices can seize these opportunities.

Inside or outside
Middle East family offices must be clear about what they can afford to do in-house and what they can outsource. As a rule, the bigger the family office, the less it needs to outsource (although it may still make sense to do so). In the US, the role of the outsourced chief investment office (CIO) firm is well-established, this is not so in the Middle East. It is a growth area to watch.

There are opportunities for outsourced CIOs to penetrate this market and offer solutions. The same applies to other outsourcing specialists in areas such as bill payments, cybersecurity, physical security, digital tech support, cashflow management, healthcare expertise, concierge, property management, human resources and philanthropy. We have spoken to firms building “family offices-as-a-service” models to offer standardised offerings in some of these areas so that family offices do not have to build these from scratch. It looks as though the Middle East will be fruitful territory for elite service providers.