GCC wealth flowing from personal to corporate assets
Strong corporate returns are driving the flow of year-on-year capital within family offices in the Gulf Cooperation Council (GCC) from personal assets to corporate (family business) assets, according to the third annual Invesco Middle East Asset Management Study.
The GCC comprises the UAE, Saudi Arabia, Qatar, Bahrain, Kuwait and Oman. Two-fifths (40%) of family offices interviewed cited a strong shift from personal to corporate assets, while a further 34% think capital is flowing towards corporates than to personal assets.
High net-worth assets in the Middle East account for nearly 4% of the global high-net-worth asset pool and have grown at 12% to 13% a year, faster than the global average.
Core factors driving capital flow to corporates are the need for corporate funding (27%), the attraction of corporate returns (16%) and corporate opportunities (4%).
But the flow from corporate to personal assets is being driven by succession planning (18%), diversification (9%) and stock market returns (9%).
Nick Tolchard (pictured), head of Invesco Middle East, says the results imply that long-term demands to segregate personal and corporate assets (for succession planning or diversification) are outweighed by short-term priorities around business funding requirements and potential returns.
“In essence, the opportunity for ultra high-net-worth (UHNW) individuals to participate in double-digit corporate returns, rather than seek expensive bank financing or dilute shareholdings, is currently too attractive to turn down.”
He adds that asset managers hoping to compete with these opportunities really must understand the client’s investment objectives and communicate alternative options to them. Family businesses are typically run by well-connected locals with monopoly (or oligopoly) rights within certain industries. Expansion can result in attractive profit margins and returns on capital higher than those available on personal investments.
However, this commitment to family businesses presents a challenge for local asset managers and private equity firms, since investor funds are locked up for some time.
Local stock markets do not offer the liquidity, growth or returns these investors demand and expansion across the region invariably runs up against equivalent businesses in the target markets.
The study also indicated that the shift to corporate assets and the role of family businesses is most apparent among single-family offices (SFOs) as opposed to multi-family offices (MFOs).
Net flow from personal to corporate is significantly higher for SFOs compared to MFOs, with funding (25%), corporate returns (19%) and corporate opportunities (13%) the key drivers.
In contrast, succession planning (25%), funding (20%) and corporate returns (15%) are the main drivers within MFOs. These variations reflect the importance of personal versus corporate needs and highlight key differences in business model.
The concentration of each model varies by location, with SFOs more common in Saudi Arabia and MFOs more frequently found in Bahrain and the UAE.
See the report on the Invesco website: www.invesco.ae/imeams