Family Offices in GCC

Transcription

1 Family Offices in GCC Arfat Qayyum, Head of Private Banking, Al Khalij Commercial Bank Date: March 14, 2016

2 Key Points 1. Changes in Investment Behavior 2. Evolution of Investment Behavior 3. Factors Driving Change 4. Investment Outlook 5. Brief Survey 2

3 Changes in Investment Behavior We are seeing the second economic downturn in the past 8 years and Investment Behavior of Family Offices in GCC has changed significantly during this time. Investment Horizon Diversification Risk Appetite Rebalancing / Exit How has the market evolved in a historical context?

4 Evolution of Investment Behavior Private Banking and Family Office wealth has been built primarily in 2 different ways: Ruling Family/Tribe owned prime land in the major Emirates. Over 2 generations, this land was divided among heirs in smaller fragments but each fragment is more valuable than the original land Business families setup Trading based businesses that led to other business ventures as the economic activity in the region picked up and population increased, resulting in higher values of the businesses 4

5 Example # 1 Business Family Setup a Trading business in Qatar in the 19 th century Became largest Trading business in Qatar and one of the largest in the region post World War II Setup Auto dealership and other Retail businesses Invested in Real Estate but business continued to be the key driver of wealth Estimated Net Worth in 1950: INR 5 million ($1 million) Estimated Net Worth in 2015: $1 billion Key Investments a) Family business (Trading, Automotive, Retail, Contracting) b) Real Estate (Residential Compounds and Apartment Buildings) c) Portfolio investments with Global Private Banking d) Investments in European Real Estate e) Private Equity Investments f) Local Stock Portfolio The Family office has a professionally qualified CFO who looks after the Holding company as well as the Private Wealth. Family office is well diversified across Asset Classes, geographies and investment horizons

6 Example # 2 Royal Family Owned Large stretch of land in a suburb of Doha Had modest income from a handful of commercial and residential properties Sold pieces of land and constructed properties to benefit from a growing population of expatriates and retail stores Value of $10 / sq ft in mid 80 s: $25 million Value of remaining family land in 2015: $1.7 billion Key Investments a) Real Estate (Residential Compounds, Apartment Buildings, Retail Space and Land) b) Contracting business (primarily focused on the family s own projects) c) Local Stock Portfolio d) Trophy Assets in London and Paris for family use The Family office has a long serving Finance Manager who started out managing a fairly simple family office that has grown more intricate over time but continues to be more Real Estate focused.

7 Key Factors driving change in Family Offices The new generation, a number of whom are millennials are more actively involved in the Family Office. They are generally educated abroad or in an increasingly abundant international standard local university Increasing complexity in business has led to more qualified Finance departments that are consulted for investment decisions Principals are more familiar now with Business Cycles and understand the importance of Asset Allocation Sophistication level of RMs working for local banks has improved along with the product platform leading to higher investment by small-to-medium Family Offices Global Private Banks have reached a larger number of Family Offices and HNWIs Proclivity to Real Estate remains as the alternative Asset classes have only surfaced over the past years (Qatar Stock Exchange: 1997, Dubai Stock Exchange: 2000)

8 Investment Outlook What is the outlook/strategy of family office managers at this point in time? Which investments have they been exiting or looking to exit? Which Asset class are they looking to invest in or have invested in recently? What is their geographical orientation?

9 Investment Outlook Family office # 1 Family office # 2 Family office # 3 Family office # 4 Family office # 5 Location Qatar UAE Qatar UAE Qatar Manager Chartered Accountant, former CFO of listed entity Family Office Management background Family Office Accountant Experienced Investment Manager Family Office Management background Profile Above $1b, Business family Above $1b, Royal family $500m, Royal Family Above $1b, Business family $500m, Royal Family Exiting Cash Nothing on hold Nothing on hold Hedge Funds Nothing on hold Entering Portfolio Investments Direct Real Estate Investment Direct Real Estate Investment Equities and Fixed Income Real Estate New Projects and Acquisition Geographical Tilt Europe and USA UAE, possibly Europe Qatar or UAE Global, based on value Development in Qatar, acquisition in Dubai Comments Knows what he wants to invest in, needs execution through comprehensive platform Looking for direction and new ideas Focusing on core business and Real Estate Assets for efficiency Global Asset Managers promise a lot but don t deliver Not sure where the markets are going, but we are comfortable with Real Estate at attractive valuations

10 Some Key Points.. The small-to-medium Family Offices are not adequately serviced Perseverance is key, it takes months to develop a new Family Office relationships sometimes longer Understand the background of the client what is the source of family wealth and the background of the family office manager Find ways to develop relationships with the next generation they are taking over very quickly Reduce attrition of Private Bankers covering GCC clients

11 Most popular sectors for family businesses in the GCC Business sectors in the portfolio, % active in sector 72% 64% 56% 56% 44% 36% 28% 24% 16% 20% Retailing & Trading Financial Services Real Estate Construction & Engineering Hotels, Restaurants & Leisure Industrial Food & Beverage Production Media Transportation Others Note: Based on sample of 40 family businesses in GCC Source: Zawya; Bloomberg; public company information; A.T. Kearney 11

12 Investment strategies and practices Distinct investment behavior drives asset allocation 2012, HNW asset allocation, Percent Cash and Equivalent Fixed Income Equities Alternatives Others** GCC Onshore GCC Offshore* Western Europe About 70 percent of assets are still booked offshore. Most of the assets of Middle East HNW and UHNW clients continue to be booked offshore in the traditional booking centers of Switzerland and London Meanwhile, the battleground for onshore private banking is becoming more contested. Universal banks are increasing their focus on the HNW and UHNW client segments. In particular, universal banks are extending their established affluent banking service offering to new clients in higher wealth bands. * As estimated by investments in Switzerland, where most GCC offshore assets are booked ** Includes balanced funds and direct equity investments Source: McKinsey Global Private Banking Survey

13 Clients expectations from a Family Office % of respondents Extremely Important Important Not Important No use whatsover Financial planning Tax planning Legal services Insurance planning Trust monitoring/management Life management/concierge Family governance Philanthropy Residence management Note: Based on sample of 47 family businesses in GCC Source: QFC/Campden Wealth Middle East Wealth Report

14 Family Office services Examples Investment Strategy Investment policy development Asset allocation plan development In-house portfolio management Financial Strategies Balance sheet analysis Retirement planning Tax and income plan design Information Management Cash flow analysis Recordkeeping for personal property Wealth Transfer Planning Development of objectives Legal and tax strategies under consideration Trusteeship Services Trustee fiduciary services Agent for trustee compliance Investment and beneficiary education Liability Management Trustee liability audit Property and casualty insurance assessment Life insurance analysis Lifestyle Enhancements Tax compliance Property management Private travel management Concierge services Client Education & Healthcare Family education plan Career planning Family Healthcare Family Philanthropy Personal giving programs Multi-generational objectives Private foundation management 14