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Changing private wealth trends in the Middle East

Changing private wealth trends in the Middle East

Paul Oliver, Group Managing Director at Lancaster Guernsey, talks about wealth trends in the Middle East and the capabilities of Guernsey to service clients based in the region.

We’ve been going to the Middle East for nearly 10 years and now see a significant generational shift in wealth distribution. Patriarchs and matriarchs who have made their money in operating businesses are now looking at succession plans for the next generation to take over the business and grow the family’s wealth.

There have also been a number of recent developments in the Middle East that are specific to that region and in the way they are affecting wealthy entrepreneurial families.

Firstly, we are seeing a change in terms of how family businesses are structured. Previously, separating corporate affairs from family affairs would not have been as strong a consideration as it is in other regions, for example, Europe. This approach is now coming to the fore in the Middle East, and wealth creators are considering the strategy more as they look to secure a long-term legacy for their families.

Globalisation is another trend leading to increased complexities in family matters. As the region has opened up, it is common for Middle Easterners to travel more and look to different regions for commerce, leisure and education. Once different generations or branches of the family live and work in other parts of the world, residence and tax matters, for example, become more complicated.

Cultural and social factors, such as traditional values and gender roles, are changing. Also, as the next generation starts to take a more active role in the family’s business and financial affairs, they may have different ideas about investment and how their wealth is deployed.

Regarding sustainability and ESG matters, our larger clients, who have multi-jurisdictional operating businesses, have to comply with different directives on climate change and reporting emissions. It’s a growing area of concern for all clients, and it’s excellent that Guernsey has been leading the way in terms of structures and guidelines for different sectors within the green finance and sustainability arena.

Often, the younger generation is putting pressure on the older generation in the business to take this issue seriously. Also, those that have international investors will require the companies that they invest in to report on this. Again, it’s another important differentiator for Guernsey.

New tax regimes are also being introduced in the region. For example, UAE companies faced a new corporate tax on profits from June 2023, giving people the impetus to make decisions and consider other jurisdictions and structuring for efficiencies.

The current global volatility and economic concerns have focused people’s minds. They want to protect their assets, so there’s a move to look at offshore jurisdictions to help ensure they are managed and structured efficiently and appropriately for future generations.

Other trends driving change in how families view and manage their wealth and now think about legacy include the economic diversification of the Middle East beyond oil. This has seen sectors like technology, tourism, renewable energy, and manufacturing emerge as new investment opportunities for family businesses. There are some significant infrastructure projects in the region, such as large-scale construction and transportation initiatives and mega-projects like NEOM in the Kingdom of Saudi Arabia and the construction of smart cities. These projects create new wealth and encourage families to consider different corporate structures to take advantage of these emerging investment opportunities.

There has also been a new wave of entrepreneurship and start-up ecosystems in cities like Dubai, Tel Aviv and Riyadh, again providing new investment opportunities and a move away from the region’s traditional sources of wealth.

Juxtaposed against these opportunities are regional conflicts, sanctions and the wider geo-political instability, which all affect the Middle Eastern wealthy and their pursuit of long-term security for their families.

Guernsey’s long history in trusts, foundations and sophisticated corporate structures such as protected cell companies means the jurisdiction has much to offer to help families take advantage of investment opportunities, protect against wealth erosion due to family disputes or high taxation, and grow their assets for the long-term security of generations to come.