Why UAE family businesses need to diversify their investment portfolios

These enterprises are traditionally centred around trade, real estate and construction

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In the UAE, family businesses embody the nexus of tradition and innovation. They are often characterised by their robust vision, deep-rooted local connections and substantial contributions to the national economy.

The financial influence of these entities is profound, with projections indicating that the wealth generated by ultra-high-net-worth individuals and family offices in the UAE is set to increase by 46 per cent by 2026.

The UAE’s overall financial wealth is expected to continue growing at a compounded annual rate of 6.7 per cent, potentially reaching $1 trillion by 2026, according to the 2023 Global Family Office Compensation Benchmark Report by KPMG and Agreus.

This burgeoning wealth underscores the UAE's appeal as a prime destination for new family offices.

The country's combination of tax advantages, strategic location, robust financial services and high-quality lifestyle amenities attracts wealthy families from across the globe.

With such a significant economic impact, it becomes imperative for these family businesses to adopt strategic measures that secure their future, primarily through professional asset management.

Adapting to a changing economic environment

The UAE’s economy, known for its rapid growth and diversification efforts away from oil dependence, presents opportunities and challenges to family businesses.

These enterprises, traditionally centred around trade, real estate and construction, need to innovate and diversify their investment portfolios.

Asset management firms specialise in navigating these complex landscapes, offering strategic guidance crucial for adapting to economic shifts and capitalising on new opportunities.

Professional management and diversification

Historically, family businesses in the UAE have relied on internal management and traditional investment paths.

However, the need for specialised knowledge in international finance, emerging markets and alternative investments becomes critical as the global economic environment becomes more interconnected and competitive.

Asset management firms bring expertise and resources that can help family businesses diversify their investment portfolios effectively.

This diversification is about spreading risk and exploring new growth areas that complement the core business activities.

Risk management

One of the most significant advantages of teaming up with an asset management firm is the enhanced risk management capability.

Family businesses often face unique challenges, such as the concentration of assets in specific industries or markets, which can expose them to higher volatility and risks.

Asset managers employ sophisticated risk assessment tools and strategies to mitigate these risks, aiming for stability and consistent growth.

This approach is crucial for ensuring the business’s longevity, making it resilient during economic downturns and market fluctuations.

Succession planning

Succession planning remains a critical concern for family businesses in the UAE.

The transition of management and ownership across generations can be fraught with challenges, potentially destabilising an otherwise successful enterprise.

Asset management firms can be crucial in institutionalising the business and setting up structures that ensure smooth transitions and professional governance.

These structures help maintain continuity, safeguard family legacy and align the company with best practices and global standards.

Access to global markets

The UAE's strategic position as a global hub provides a unique advantage to its local businesses.

Asset management firms can leverage this position to tap into international markets and investment opportunities, which might be beyond the reach of individual family enterprises.

This access is invaluable for family businesses looking to globalise their operations and investment strategies, providing a competitive edge in international markets.

Cultural alignment

Understanding the local culture and the family's long-term vision is paramount in managing family assets effectively.

Asset management firms operating in the UAE increasingly know the need to align their services with family businesses’ cultural nuances and specific business philosophies.

They offer customised investment strategies that respect traditional values while pushing towards innovation and modernisation.

As family businesses in the UAE envision their future, the importance of teaming up with adept asset management firms becomes increasingly apparent and vital.

These firms, equipped with deep industry knowledge and a nuanced understanding of global market dynamics, offer more than just financial guidance; they deliver strategic insights crucial for navigating the complexities of today's fast-evolving economic landscape.

Asset management professionals use their extensive experience to help businesses mitigate risks associated with volatile markets and regulatory changes, ensuring stability and continuity.

By partnering with asset management firms, family businesses in the UAE can secure their financial future and embark on a path of sustainable growth and diversification.

This partnership enables them to preserve their identity and core values while expanding their horizons, ensuring they remain competitive and relevant in a globalised world.

Renoy Kundukulam is chief executive of Finmark Capital

Updated: May 28, 2024, 4:00 AM