Dubai: GCC-based family offices are becoming more sophisticated with generational changes and are increasingly seeking professional help in both wealth generation and wealth preservation according to Invesco’s sixth annual Middle East Asset Management Study.
The region-wide study notes that target returns for family offices are higher than target returns for private banks in the region. To deepen strategic relationships with family offices, private banks may be better off explaining the process and price while emphasising that these factors are enablers to generate attractive risk-adjusted returns.
The study finds that there is growing awareness that governance and ownership structures need to change. As a result, the profile of family office participants is changing.
“This year we interviewed more family office employees who have been hired from outside the family business. These respondents previously worked in large multi-national financial services organisations and explained that their corporate experience may help the family office improve the governance structure,” said Nick Tolchard, head of Invesco Middle East.
The study showed that there are major capability gaps that GCC family offices face in meeting their investment and asset management objectives.
“We define the difference between the importance and performance as the capability gap. The larger the capability gap for a particular service, the greater the opportunity for external parties such as private banks to support family offices,” Tolchard said.
The biggest capability gap is custodial services, with importance rated at 6.8 out of 10 and performance rated at 5.6, followed by succession planning which scored 6.7 for importance and 6.0 for performance. Private banks are ideally positioned to help family offices bridge these gaps. In asset allocation and asset management, GCC family offices are already outsourcing a significant portion to private banks and professional wealth managers.
Currently about 53 per cent (up from 45 per cent last year) of family offices are outsourcing these functions to private banks or advisory firms.
Typically GCC family offices are driven by performance rather than process or costs in contrast to the focus of private banks on process, risk management and cost rather than performance when pitching their services to family offices.
The family office focus on performance is a major source of dissatisfaction with existing returns from international portfolios, especially relative to business and stock market returns.
Clearly the changing business environment is offering growing opportunities for private banks to work closely with family/ private offices. These opportunities are clearly driving up competition in the private banking business.
A growing number of local banks (defined as banks with head offices in the GCC) are now investing in their private banking propositions.
They are developing specific GCC offerings for succession planning, expanding their range of offshore domiciles and pricing aggressively.
International private banks still have an advantage over local competitors in terms of greater confidentiality and access to diverse asset classes but these advantages are on decline which gives an opportunity for local banks leverage on their strengths such as access to local and regional asset classes.