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The rising generation of the Gulf’s wealthy merchant class is less interested in traditional businesses like retail or car sales and more enthusiastic about investing — a trend with big implications for the region’s family-run conglomerates, according to a top wealth advisor.
Mergers and private sales are likely to be preferred over initial public offerings for some of the largest privately held companies, as family heads look to create liquidity for their heirs and formalize family offices, Niels Zilkens, head of the Middle East for UBS Global Wealth Management, told Semafor.
The sons and daughters of the Gulf’s wealthiest families are often returning home from university abroad with finance degrees and CFA certificates in hand, better prepared to manage investment portfolios rather than sprawling, operationally intensive businesses. “The new generation has a bit of a different concept. They go in more independently. They’re not necessarily [wanting] to move into the [family] business,” Zilkens said.
This separation of operational and investment roles is making room for the next generation to focus more on wealth management with an alternative investment slant, particularly in private equity and real estate, he added.
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Family-owned businesses make up about 90% of private companies in the UAE and nearly 60% of private enterprises in Saudi Arabia, spanning interests from shopping malls and hypermarkets to poultry farms and car dealerships. These holdings are set to be part of the global phenomenon known as “the great wealth transfer” as trillions of dollars worth of assets are set to change hands worldwide over the next 20 years with the passing on of the Boomer generation.
In line with this global demographic shift, the UAE has encouraged its wealthiest families to step up succession planning as many of the region’s conglomerates are facing their first generational transfer of assets. At stake is an estimated $1 trillion. In recent months, officials from the UAE economy ministry have met with heads of family-run businesses to discuss forming official family offices, Bloomberg reported.
The 2021 death of Majid Al Futtaim served as a wakeup call: the Dubai business titan left no will directing who should control his eponymous $16.5 billion retail and entertainment empire, and a special judicial committee had to be set up to oversee the transition. Since then, the UAE has rolled out initiatives to formalize governance of family-run companies.