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Why UAE is set to become a hub for family offices

Many hedge funds, crypto companies, venture capital firms have established their presence in the country, thanks to a number of new reforms and legislations

The UAE is increasingly becoming a hub for family offices, with some of the world’s big names setting up offices in the country to tap the market, which is set to reach Dh3.67 trillion in the next few years.

American billionaire investor and hedge fund manager Ray Dalio is among the latest high-profile investors to announce a plan to set up a branch of his office in the UAE capital.

Located in Abu Dhabi Global Market, the new office will have a team of experienced investment professionals to run the family office.

Globally, family offices have become multi-trillion-dollar businesses, with major ones influencing the sector’s power plays. In many cases, these offices have become the de-facto parking mechanism for UHNI’s wealth. An estimated 17,000 family offices worldwide have combined assets of $10 trillion (Dh36.7 trillion). Interestingly, around 25 per cent of these assets are in the real estate sector.

Many hedge funds, crypto companies and venture capital firms have established their presence in the UAE, of late, thanks to a number of new reforms and legislations which attracted new family offices and wealth management firms.

In 2021, financial wealth in the UAE grew by 20 per cent, which is double the global growth rate of 11 per cent, further cementing its status as a haven for family wealth. A substantial portion of this wealth, around 41 per cent, was generated by ultra-high-net-worth individuals (UHNWIs) and family offices. This share is expected to increase to 46 per cent by 2026. It is projected that the country's financial wealth will continue to expand at a compounded annual growth rate of 6.7 per cent and reach $1 trillion by 2026, up from $700 billion in 2021 (Dh2.57 trillion).

Family businesses in the UAE play a key role in the economy as nearly 60 per cent of the country’s GDP growth is attributable to them and 80 per cent of the workforce. As such, a Family Business Centre was established to provide the necessary support and resources required to prosper locally as well as on an international scale.

DIFC a hotspot

Recently, Edmond de Rothschild, EnTrust Global, Nomura Singapore Limited and The Family Office Company set up a presence in the Dubai International Financial Centre (DIFC).

The Centre (DIFC) has attracted several notable names recently, taking the total number of wealth and asset management companies to over 300.

These firms represent an industry size of $450 billion (Dh1.65 trillion). More than 150 funds were domiciled in the centre by the end of 2022.

With $517 billion of wealth in Dubai, the highest in any Middle Eastern city, the DIFC is attracting global and regional asset management firms to set up an office.

“With the enactment of the new regulations, Dubai will likely witness a significant transfer of wealth from other popular hubs like the US, Luxembourg, Singapore, and Hong Kong. Owing to Dubai’s geo-strategic location and investor-friendly laws, Asian family offices could especially look to establish and expand their base from here,” said Vijay Valecha, chief investment officer, Century Financial.

Around 30 per cent of the Asian family offices have more than $1 billion in assets under management.

Why UAE attracting family businesses

Valecha said the UAE has chartered a growth strategy to see itself as a global investment destination and evidently its business-friendly policies tend to attract talent, paving way for global family offices to set up their operations in the UAE.

“In the past decade, the UAE has undertaken a series of legislative reforms to promote the smooth transfer of wealth and ownership of family-owned assets and businesses. This includes the issuance of trust and foundation legislation, and was followed by the enacting of a wills system for non-Muslims, in both DIFC and Abu Dhabi Global Markets,” he said.

Overall, according to Century Financial CIO, the UAE offers a combination of favourable tax policies, a stable and diversified economy, a strategic location, a business-friendly environment, and a high quality of life, making it an increasingly popular destination for family offices looking to expand their operations in the region.

Nimish Goel, Partner, WTS Dhruva Consultants, said there are multiple reasons UAE is becoming a preferred jurisdiction to set up family offices, foundations and trusts such as tax efficiency, a currency pegged to the dollar with strong infrastructure and economic fundamentals, highly growth-focused government, ease of setting up and doing business and legislative developments such as setting up of a Global Family Business and Private Wealth Center in DIFC.

Denys Peleshok, Head of Asia at CPT Markets, said the UAE is increasingly becoming an attractive destination for family offices for its strong growth, political stability, and security as well as its ability to develop into a prominent global financial and economic hub.

“UAE can provide the same set of services and an appropriate environment that were exclusive to global cities like New York or London.

During the last few years, the country has emerged as a bright spot when other nations were struggling economically. As a result, the UAE has been able to attract wealthy individuals and companies looking for an appropriate and safe environment to thrive,” he said.

According to Peleshok, the UAE government’s proactive approach has also played a big part in improving attractiveness as founders often follow their companies when they set up shop in a different jurisdiction.

“The country is also already home to a large number of high-net-worth individuals, creating a deep market for wealth management firms and family offices. Its status as a financial hub provides access to investment vehicles and financial services. In addition, the UAE has an attractive tax system compared to other jurisdictions, providing a more efficient environment to manage investments and optimize costs,” he said, adding that access to a vibrant lifestyle is also an important factor for wealthy individuals and family offices and Dubai and Abu Dhabi are offering significant opportunities in this regard.

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