17 minute read
digitalisation
Modern families
The rapid advance of digital technologies is delivering considerable benefits to family offices worldwide – so how can traditionally run Middle Eastern families adapt to seize the opportunities?
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Words:
Alexander Garrett
DURING THE FIRST phase of the
pandemic, the impromptu edict for people to work from home posed a significant challenge for some family offices across the Middle East. With many still employing a hierarchical working style, heavily paperbased and dependent on a trail of personal approvals, it was difficult for transactions to take place at all, and important decisions had to be put on hold.
“With everyone working from home, if you wanted to make a payment, you couldn’t get the right people to see it or sign off on it,” explains Pete Unwin, Jersey-based Director and family office specialist at wealth management services provider IQ-EQ. “And that affected those making international investments as well. Many of these businesses simply ground to a halt.”
It comes as no surprise, then, that ‘going digital’ has risen rapidly up the agenda of family offices across the region. The embracing of digital technology within family-based enterprises, which was already under way before the pandemic, has been sharply accelerated.
“While many family businesses have historically underinvested in digital, the pandemic has added a new urgency. Three quarters [of family businesses] say that digital, technology and innovation initiatives are a key priority,” reports Adnan Zaidi, Middle East Entrepreneurial and Private Business Leader at PwC, in the foreword to the firm’s Middle East Family Business Survey 2021.
In the same survey, 59% of business leaders said they plan double-digit investment in digital transformation over the next three years.
Unwin says that while business continuity was the concern at the start of the pandemic, the bigger issue now is to create a digital infrastructure that supports the growing complexity and diversification ▼
of family offices in the region. If the first step is developing workflow systems that support the operation of the day-to-day business, the next step is being able to support the international investment strategies that family offices are increasingly pursuing.
ACCESSIBLE INSIGHTS
An important part is providing a central depository of data, so that the right people can see the appropriate documents wherever they are.
“You may just want somebody in the finance accounting team to see if an invoice needs to be paid, but you might also not want that individual to see how much is in the account,” Unwin explains. “So you need the security overlay to segregate information.”
At a deeper level, digital systems need to provide asset and risk management, and to cover the complex web of taxation, compliance and reporting issues that come with an international investment strategy.
“If they choose us as a global service provider, they need to know that if they’ve got companies in different jurisdictions, that’s going to be incorporated in our systems. So they can view this through one portal and they can then make decisions around their asset allocations and what their risks are,” says Unwin.
Brian Carey, Director at Intertrust, who was based in the Middle East for some 16 years, says the more progressive family offices there have been making strides with digital technology since the arrival of the internet in the early 2000s, and the level of adoption runs in parallel with the professionalisation of individual family firms.
“You had people, often from investment banks, who joined family offices and brought digitalisation with them,” says Carey. “They were already used to the digital [aspect] of the banking and investment worlds.”
What started initially with creating a wealth of reports made up of elaborate Excel spreadsheets has evolved today towards near-real-time data in the most advanced family offices, Carey adds.
NEW GENERATION
Digital progress is also being driven by the succession of the next generation within the region’s wealthy families.
“Many are educated in the Middle East, and many more are educated in the US or Europe. In either case, they have had much more exposure to the digital age than their parents,” says Carey. “They have embraced digital change technology and the concept of instant messaging, and live data feeds are now the norm in the Middle Eastern family office digital world.”
As a result, there has been a proliferation of software products designed specifically for use by family offices. In a study last year, specialist research and benchmarking group Simple identified more than 30
packages designed with family offices in mind, each with a different slant on functions such as reporting, monitoring, aggregation and visualisation of data.
The ideal solution for any family office is likely to depend on the range of their activities, and especially what types of investment are made.
For example, the Dubai-based Majid Al Futtaim Trust – the family office of an Emirati holding company that owns shopping malls, retail and leisure establishments in the Middle East and North Africa – chose a performance and risk management platform from New York-based Imagine Software.
It offered a wide range of asset classes and instruments in its portfolio, and the need to drill down quickly to measure different kinds of exposure, such as by currency, sector or issuer.
In a case study prepared by Imagine, Ian Galvin, Chief Operating Officer of the Majid Al Futtaim Trust, said: “Imagine is the primary driver for identifying our positions, valuations, profit and loss, and, importantly, portfolio returns at all levels. We don’t use a third-party administrator, so we need to have very accurate records – Imagine lets us see exactly where our performance comes from.”
Equally important to having the right technology solution is having access to the necessary expertise and professional services to underpin that, adds Pete Unwin at IQ-EQ. “The Channel Islands does have an important role to play in that,” he says. “From a top-level perspective that can include acting as professional trustees and directors, providing the structure and expert administration, ensuring there is economic substance and that management and control takes place in the correct jurisdiction.”
However, the prospect remains of greater competition from within the region – with the growing presence of mid-shore service providers that could harness technology to leapfrog those in longer established markets.
Carey says the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) have both gone digital, allowing businesses to incorporate online.
“In some European countries, you still have to physically submit corporate applications and financial statements, so because of digitalisation they are considered vanguards of technology to the world’s financial centres,” says Carey.
“The next step for the Middle East family office is to digitalise the family’s Know Your Customer/Customer Due Diligence documents. These can be released instantly, completely up to date and already digitally verified, acceptable for the ever-changing requirements of the world’s financial institutions.”
The alignment between Shariah and ESG investment principles is another complexity technology can help resolve
NOT A SOLUTION FOR ALL
There are family offices that still have much more traditional, paper-based approaches to doing things. In such cases, the family head – usually the patriarch – retains a tight control over decisionmaking, and would be more likely to discuss business over a cup of coffee than over a team-working app.
“When they invest internationally, they don’t necessarily want everyone to know what they own,” says Unwin, “not least because they don’t want to be taken advantage of.”
However, when it comes to complying with regulators and tax authorities, family offices have a need to be transparent like everyone else, and digital technology is the way to do that more efficiently.
Family offices will become increasingly sophisticated, according to Carey. “Some may become fund managers in their own right, while others partner to establish multi-family offices.
“The alignment between Shariah and ESG investment principles provides a further illustration of the complexity that technology can help resolve.
“It’s still relatively early days for countries whose wealth was founded as recently as the 1970s, but the technology will get smarter and the lessons of the pandemic will ensure there is no let-up on the path to digitisation.” n
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Transforming for a sustainable future
How Middle East family businesses are diversifying, investing and digitising
PwC’s Middle East Family Business Survey 2021 revealed that, while many Middle East family businesses have been hit hard by the pandemic, they remain optimistic that growth will return in the coming months and years, and are looking forward to the future. The research findings revealed:
Opportunities to grow
PwC’s report also offered guidance for family businesses on immediate actions they can take to help them “secure a lasting formula for success for the generations to come”:
89% 58% 42% 59%
of Middle East family businesses expect revenue growth in 2022 plan to expand into new markets in the next two years admit that conflict does occur from time to time see an opportunity to lead on sustainable business practices
Focus on transformation, especially digital
Recent events have shown that those who embarked on their digital journey were better placed during the crisis. The 27% of respondents who are not making this a priority and have not made progress will face significant challenges protecting their legacy.
Professionalise family governance
A professional governance structure and a clear process for conflict resolution (preferably involving an independent party) makes business sense, particularly when it comes to family businesses.
Involve the next generation
Next generation family members will play a vital role in pushing family business forward in policy areas that are essential to their legacy. Younger generations are the driving force behind sustainability and, in family businesses, are looking for greater responsibility.
Communicate sustainability goals and achievements
Family businesses are at risk of losing control of the narrative as listed companies claim the ESG agenda for themselves. Family businesses need to learn how to measure and communicate their ESG position and agenda to a wider stakeholder group.
