Since 2017, there has been a 38% increase in family offices worldwide, with the Middle East becoming a popular jurisdiction.
Leading family businesses in the Middle East have been evolving over the past two decades. As patriarchs age, they have prioritised reorganising their management structures and adopting corporate governance and family protocols. This ensures orderly successions and smooth transmissions of businesses to the next generation, particularly given that only 13% of family businesses survive into the third generation.
A third of family offices globally are currently in the process of handing over responsibilities to a new generation of leaders, and more than a quarter expect to do so soon. In the Middle East, an estimated Dh3.67 trillion ($1 trillion) in assets will be transferred to the next generation during the next decade.
These families have also made a strategic move to separate management from ownership, delegating responsibilities to professionals and staying remote from day-to-day operations. This approach infuses businesses with new ideas while preserving the family’s strategic oversight and long-term vision.
“Family enterprises are evolving as families evolve—especially when wealth passes between generations, for example, when members become adults and, in turn, owners and/or employees of the family business,” noted Niels Zilkens, Head of Wealth Management, Middle East, UBS Global Wealth Management. “The rapid pace of change and constant need for innovation in today’s market can make these evolutions more challenging, however in our experience, those with well-defined values are best placed to succeed.”
Opinions differ on the best approach. “Many professionals believe that separating management from ownership is the optimal strategy, as it allows for professional management while maintaining family control,” noted Mazen Boustany, Partner at Baker McKenzie LLP. “Conversely, some argue that having ‘skin in the game’ is better, asserting that the direct involvement of family members in management ensures a stronger commitment to the business’s success.”
Next generation
Succession planning has several advantages for families and their organisations. It prepares both for leadership transitions and helps ensure a seamless handover, knowledge transfer and risk mitigation. Industry experts see this occurring more frequently as family offices collaborate, sharing knowledge more openly with peers.
This matches talent development with business goals, ensuring a skilled workforce aligned with family values and ready to drive long-term performance. “A family’s planning efforts should begin with mentoring, coaching, and deciding which family member is best placed to take the leadership reins for the next generation,” explained Adam Ladjadj, Founder of The Emirates Family Office Association. “This process typically begins by involving the younger generation from an early age, cultivating a leadership mindset that naturally integrates family values with innovation.”
“Equally important is giving future family business leaders space and freedom to be creative, experiment, and innovate,” he added. “This balance is vital for an optimum succession strategy, allowing the business to evolve while staying true to its core values.”
Currently, 68% of next-generation family members hold advanced degrees in finance or business, up from just 30% a decade ago. This educational trend ensures that future leaders are equipped to drive innovation. Moreover, next-gen family members are now involved in 65% of family businesses, contributing to key operations and values. This hands-on approach provides valuable practical experience through mentorship and execution, facilitating the transfer of family values and business acumen while encouraging fresh perspectives on innovation and growth strategies.
The rise in family offices
Since 2017, there has been a 38% increase in family offices worldwide, with the Middle East becoming a popular jurisdiction. The increased focus on succession planning and long-term stewardship aims to secure lasting legacies and family heritage for the next generation.
“Traditionally very discreet, family offices are coming out of the shadows and becoming an attractive structure for managing private/family capital,” stated Ladjadj. “Family offices’ increased visibility has accompanied their strategic transition from local wealth custodians to dynamic entities actively seeking investments and partnerships.”
Communication and decision-making become more complex when families grow and develop as new members and technologies are introduced. These steps must be guided by a clear governance framework with processes and principles that ensure efficient operations. A “family constitution” or “family charter” should describe the family’s values, principles of engagement in the business, decision-making and communication processes, and family activities.
“This clarifies to family members where they fit in the enterprise and what that means for them,” explained Zilkens. “It defines, for example, how they can interact and influence the rest of the family or what role they can play in respect to ownership or management. Finally, it helps families balance everyone’s interests and ambitions and avoid discontent.”
On the investment side, the family should define a professional investment policy that aligns with its values. Such a policy sets out clear goals, rules, and processes for investing. It serves as the basis for decision-making on asset allocation or key investment decisions by the family’s investment committee.
The rise of AI
Since 2018, 35% of family offices have adopted AI and machine learning for risk assessment and asset allocation, preserving the family’s control over wealth management decisions while leveraging technology for improved performance. Cybersecurity investments have also risen, reflecting a growing commitment to safeguarding family wealth and data in the digital age.
“They have not escaped the disruptive aspects of the digital revolution, and those thriving most have embraced tech advances such as automation, data analytics, artificial intelligence (AI), and fintech innovation,” Ladjadj added. “Modern tools that enhance connectivity and communication between family members are crucial. Heritage can also be protected by preserving historical records, documents, and values in digital formats, ensuring easy access for future generations.”
Nearly 57% of family businesses in the region prioritise improving their digital capabilities, compared to 44% globally. Over the past decade, there has been a shift in portfolio composition, with traditional sectors like real estate and commodities decreasing and a rise in alternative investments, particularly private equity and venture capital.
“This reallocation reflects a growing appetite for innovation while preserving a strong foundation in traditional assets,” stated Anuj Goel, SEO, Century Private Wealth. “There is a rising integration of modern sustainable practices, with 93% of family businesses incorporating Environmental, Social, and Governance (ESG) criteria into their investment strategies.”
Advisory firms
Family wealth transfers require strategic planning, and experts see families increasingly seeking external support. This ensures that planning is done in a professional manner while alleviating some of the emotional biases that naturally occur.
Many UAE family businesses work with dedicated family business advisory firms. Some family members may resist outside involvement in family matters, so companies often involve them in the selection of advisors to build trust.
“The role of external advisory and mentorship can be critical in professionalising the succession planning process for UAE family businesses,” stated Asad Ata, Associate Professor of Operations and Supply Chain Management at the Asia School of Business. “They can help address different facets of succession planning for family businesses.”
Succession planning and the role of family offices have become crucial amid recent global instability. In the Middle East, there is a growing trend of establishing family offices to separate business operations from private family wealth.
The looming wealth transfer between generations will see up to $70 trillion of private wealth bequeathed, presenting challenges such as inheritance laws, investment strategies, and conflict. It is vital that families do not face these challenges alone.
As wealth transfer accelerates, families increasingly demand sophisticated services and support. “We see a growing awareness for education of the next generation among wealthy families in the Middle East, as well as increasing interest in professional family office services based on international best practices to retain control over the family’s wealth,” noted Zilkens. “Often, family offices are organizationally separated from the family’s operating business.”
Advice and guidance for Middle Eastern families is vitally important. Up to 80% of the region’s private sector involves family businesses. Succession planning has evolved significantly as more families recognise it as a crucial tool within their family offices.
Succession planning guarantees the retention of identity, culture, and mission, even when key figures depart. Experts are necessary to navigate challenges in professional disciplines such as tax, legal, investments, real estate, and finance. External advisors and mentors are also essential in facilitating tough conversations about succession within families, offering impartial advice and ensuring fairness and openness during difficult moments. “The business world has many examples of both well-handled successions and poorly managed ones,” stressed Ladjadj. “The latter often stem from poor or non-expert advice – and these are the case studies that make the headlines.”
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Originally published by Finance Middle East
