Recent Family Office Trends in the GCC
The majority of family offices were founded in the past two decades, and as the number of these organizations grow, their investment patterns have transformed.
New Growth Outlook
In the past, family offices in the GCC traditionally operated with a more preservation-driven mindset in order to protect their assets for future generations. In recent years, however, they’ve altered their focus to diversifying family holdings and growing wealth. This new, proactive attitude has led to a change in investment preferences, bringing an increased interest in direct private investments and co-investments to private companies. These direct investments have typically lead to higher return potentials, better diversified risks, and lower investment management fees paid by family offices.
Expanding Investment Range
Previously, wealthy individuals in the GCC typically managed their assets without a centralized dedicated team and designated set amounts to put into stocks, bonds, and cash. Now, having created their own funds, family offices are investing in areas that diversify their assets. This allows them to have more control as to where their money lands, as well as holdings in assets that better balance the financial risks involved.
With the growth of financial markets and globalization in recent years, there are more opportunities for family offices to invest in real asset holdings such as real estate, land, and collectibles; private equity classes; and hedge funds. Family offices have also become more competitive in bidding directly on private companies for sale.
When buying operating companies, family offices typically take a so-called Warren Buffett approach and look for investments with an indefinite time frame rather than mapping out a short-term plan in hopes of modifying the business and selling it again in a few years. They typically seek companies that have a long, sustainable growth trend or are rooted in a specific region. They’re also often interested in companies with a strong history of stable cash flow and dedicated customer base, as stable cash flow yields are the primary source of return on investment for family offices.
Overall, however, family offices tend to have less of a defined thesis relating to their investments. They don’t necessarily seek to operate in one sole industry; they’ve traditionally focused on family-owned businesses that haven’t taken capital from third-party groups.
Family offices also typically seek owners who are looking to stay involved with their business rather than obtaining 100% control.
Benefits of Family Offices
Working with family offices can have several advantages, including the prestige and reputation boost that can come with partnering with a prominent or philanthropic family.
For owners looking to retain a portion of their business, partnering with a family office that shares similar cultural values to your own may make for an easier transition process compared to selling to a private equity firm. Family offices are usually interested in a long-term investment so this can create a sense of relief for employees who, after a sale, may fear the common myth surrounding mergers and acquisitions that new owners are looking to cut costs or alter the organization before another sale. Family offices also typically request fewer seats on a board of directors and can be less involved in financial and operational reporting. They will also be less likely to seek changes in management.
All of this can help business owners looking to alleviate some of the burden of their current ownership arrangement, a common scenario for business owners ready to retire but whose finances may be tied up in the business. These transactions can also be appealing to business owners who hoped to pass their business down to a family member or other close connection, but don’t have an obvious beneficiary or one who is able to or interested in assuming that responsibility.
With their assets confined to the smaller group of the family rather than a larger organization, the offices also have more operating flexibility when considering investments.
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