Jersey Finance’s Eastern markets expert shares wealth structuring perspectives from the GCC region with Rasika Sittamparam
‘Much of our focus now is with the end user,’ says Richard Nunn, Jersey Finance’s head of business development (Eastern Markets), who has been based in the Middle East since 2015. He speaks from an office within Dubai’s International Finance Centre which hosts hundreds of institutions, wealth funds, private investors, multinationals and only one international financial centre so far: IFC Jersey.
In fact, Jersey Finance has used its experience operating in the UAE since 2011 to publish a detailed report of the perspective of families and family offices in the Gulf region titled Wealth Structuring and the International Financial Centres – Perspectives from the GCC. Among some of its most important insights into the transition of $1 trillion in the Middle East is the increasing sophistication and complexity of its proprietors.
The report, which surveyed over 70 wealth management experts working in the GCC, finds that despite the vastness of Middle Eastern wealth, an overwhelming 92 per cent of respondents felt that transition of assets between the founders and the next generation will be a turbulent affair due to the lack of sufficient structuring in place. Nunn says the family size is what makes the region particularly unique and challenging. ‘It’s very common to have several children who in turn have several children – the number of beneficiaries can be pretty significant.’ As a result, only 6 per cent of wealth is set to survive two generations, according to the report.
Nunn finds that more families are favouring direct investments and private equity ventures, a trend that reflects a more hands-on approach in investing. Gulf HNWs are also seen to be more interested in the way a company is run and the quality of employees it hires too. ‘The investment landscape is changing,’ he says, ‘if anything, it is becoming more diverse and that creates added complexity as well’.
GCC families are so discerning these days, with the pressures of an imminent wealth transfer, geopolitical uncertainty and increased transparency post-Paradise Papers, that they are undergoing a ‘rationalisation’ process to screen international financial centres worldwide. ‘It changed the game for international financial centres,’ Nunn says, ‘there is a real motivation now for HNWs to have a full assessment of “What do we hold? Where do we hold it, and is that comfortable for where we want to be in the future?”’ The report also finds that a 42 per cent majority among respondents felt that reputation is the most important aspect of wealth structuring for Gulf families.
Nunn says this finding highlights an opportunity for more interaction between traditional offshore jurisdictions and rapidly evolving financial centres in the region. How structures in Jersey and Dubai International Finance Centre (DIFC)/Abu Dhabi Global Market (ADGM) can interact with each other in the future is interesting and likely to be mutually opportune. There is also a trend of growing investment into centres such as the DIFC: ‘If you look at the amount of investment into the GCC from Jersey firms, there’s a whole cluster in 2018 alone that have invested in physical premises in the DIFC.’ Private wealth has always required personal relationships based on deep trust. It is evident that Jersey’s industry is investment in far greater ‘face time’ with clients, with physical operations being a key element of that.
This trend means that Nunn is required to frequent between GCC jurisdictions, an activity he personally delights in. ‘There’s no substitute for being on the ground,’ he enthuses, ‘I’m supported by an industry in Jersey that absolutely believes in face-to-face client engagement – that’s where business is being won at the moment in the region’.
Nunn says that a trusted relationship is even more important for families in the GCC, due to the ‘sacrosanct’ way they value privacy. ‘It is not secrecy, it is compliant confidentiality,’ he adds. This is after all the region where clients often demand to see ‘a cybersecurity policy’ before structuring wealth offshore. Nunn welcomes the challenge this brings to the IFC industry. ‘It is all about having both structures and relationship based on substance.’