Next generation of ultra-rich families willing to take bigger risks

Region's wealthy families start involving young in money matters between ages of 26 and 35, says Julius Baer

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The “rising generation” in the Middle East's ultra-wealthy families is ready to take on more financial responsibility and bigger risks than their parents, according to a report by Swiss private bank Julius Baer.

In the Middle East, most wealthy families start to involve younger generations in decisions about managing money between the ages of 26 and 35, according to the bank's Family Barometer 2023 report.

Globally, however, the ultra-wealthy wait longer before involving the young in important financial decisions or giving them voting rights in the family business, with 56 per cent of respondents saying families wait until their children are over 35, the report found.

The risk appetite of the rising generation, aged between 18 and 40 years, versus the wealth-holder generation is the highest in the Middle East, according to the research, which polled 1,500 advisers.

Family businesses are a key driving force behind the Middle East economies as they make a significant impact to the regional ecosystem as job creators, community builders and drivers of growth,” Regis Burger, head of Middle East and Africa at Julius Baer, said.

“Given the vital role they play in society and the fact that more than $1 trillion of assets will move hands in the next decade in the region, wealth and succession planning takes centre stage.

“Developing the next generation to take over while ensuring effective governance can be quite a challenging process to manage.”

Dubai’s family businesses generate more than 40 per cent of the emirate’s gross domestic product, while about 90 per cent of private companies in the country are family-owned, the Ministry of Economy said in 2022.

In the UAE, family businesses operate in a range of sectors including real estate, construction, retail and wholesale trade, hospitality and tourism, manufacturing, financial services, health care, education and technology.

Last August, the Dubai International Financial Centre (DIFC) announced the creation of the Family Wealth Centre, in a push to double the sector’s contribution to the economy by 2030.

The size of the first substantial investment given by wealthy Middle Eastern families to the next generation ranges between $1 million to $2 million, Julius Baer found.

This is similar to Asia, but higher than what wealthy families offer in the Americas and Europe, which averages between $250,000 and $1 million.

“Our survey shows that many families are taking a systematic approach to younger generations, helping to overcome potential pitfalls in the wealth transfer process,” Mr Burger said.

“Wealthy families typically increase the responsibility given to the rising generation gradually, one step at a time: starting with decisions about the management of family wealth and interacting with the family advisers, before moving on to having a say, or voting right, in important family decisions.”

Wealthy families in the Middle East are concerned about geopolitical risks and inflation, the report found.

Another major concern is adapting to the tax and regulatory landscape.

“Wealthy families understand this shift and are actively engaging with experts to organise their wealth and plan family governance,” Mr Burger said.

Family governance also seems to play a key role in the Middle East, as it helps to preserve legacy through generations, the report showed.

Wealthy families typically increase the responsibility given to the rising generation gradually
Regis Burger, head of Middle East and Africa, Julius Baer

The research also found that wealthy families in the region favour real estate and direct investments compared with other markets.

“Against a backdrop of tightening monetary policy and expanding property yields, real estate investors generally focus on property segments like the residential or logistics market, which offer the potential for rental growth to offset current inflation,” Mr Burger said.

Large wealthy families in the region are also seeking to invest directly into fast-growing young businesses, the research found.

Often, the most popular private direct investments are co-investment opportunities linked to brands or entrepreneurs, typically in the technology sector.

“Though a relatively recent development, we increasingly see families in the region, especially in the UAE, use local trusts and foundations to support the next generation in their succession planning journey,” Ahmad Chahidi, head of wealth planning at Julius Baer Middle East, said.

Updated: November 22, 2023, 7:00 AM