Wealthy individuals in the Middle East prefer the privacy and trust of a single family office to the offerings of a multi-family office, new research from investment advisers Invesco has revealed.
As a result, the region’s SFOs dominate MFOs in popularity and the amount of assets under management.
The findings were revealed in Invesco’s fourth annual Middle East Asset Management Study, which also forecast that personal assets managed by family offices can expect greater autonomy from families’ businesses in the future – provided the regional economy continues to perform and finance remains available.
Invesco interviewed over 120 Gulf Cooperation Council investment professionals since the start of 2013 for this year’s study, across a number of market segments.
According to the report, ultra-high net worth individuals in the Middle East place high importance on control, confidentiality and trust. For this reason, MFOs, which pool multiple families' money together, were at a disadvantage to SFOs. MFOs compete more with international private banks on investment services as a result, the report said.
The report said: “MFOs are losing out in both parts of the chain: a light-touch SFO model run by a trusted employee is better placed than an MFO to offer control and confidentiality while international private banks servicing a global UHNW customer base are better placed to offer scalable execution services.”
Important services offered by SFOs included investments (54% of SFOs), procurement services (46%) and relationship management (31%), with nearly all personal advisory services outsourced. Fund selection (83%) and asset allocation (67%) were the main services offered by MFOs.
The most prominent asset management trend identified among family offices in the region was the rate of capital flow between personal and corporate assets. Figures revealed in the report show the net flow of personal assets into family businesses was nothing in 2013, compared with 33% the previous year.
The report attributes the flow reduction, from personal to corporate assets, to reduced funding requirements in the family business. Improved business performance and cash flow generation, as well as the improved willingness of banks to lend are driving this, according to the report.
With businesses less likely to require personal cash for funding in the future the time horizon for family office investments, in terms of return, has risen from around three years in 2011 to almost five in 2013.
Despite the increasing autonomy of family offices from the family business, the research found few structural changes had been made to formally separate personal assets from corporate ones.