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EXCLUSIVE: Gulf Family Offices And Distressed Assets - An Analysis

Tom Burroughes, Group Editor , April 22, 2020

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What are family offices from the Middle East doing in terms of investing in assets, such as those affected by COVID-19 and the associated government lockdowns on economic activity? This news organization's data partner, Highworth, delivers the figures.

(An earlier version of this news item ran on WealthBriefing earlier today. The subject-matter relates to European assets, but there are obvious implications for North America too, so we hope readers of Family Wealth Report find these details useful. Alastair Graham is founder and managing director of Highworth Research, an organization tracking the behavior of single family offices. He regularly analyses trends in this space. To find out more about the Highworth database, click on this link here.)

A few days ago the Financial Times (UK) published an article about Gulf sovereign wealth funds which are “mobilizing to buy assets whose valuations have been hard hit by the coronavirus pandemic  …people close to the funds said they were looking to invest in areas that would bounce back in a global recovery.”

Sadly, distressed assets will no doubt soon be flooding the market looking for rescue investors. Sovereign wealth funds are an obvious port of call for investment bankers seeking buyers for their clients’ assets, or subscribers for rights issues, as well as for asset managers seeking investors for the many distressed assets funds which will doubtless soon be launched.

Sovereign wealth funds – the challenges
The Gulf funds certainly have the money: Abu Dhabi Investment Authority manages $696 billion, the Investment Corporation of Dubai $239 billion, Mubadala Investment Company $232 billion, the Kuwait Investment Authority $534 billion, the Qatar Investment Authority $328 billion, and Saudi Arabia’s Public Investment Fund $320 billion.

Yet there may be problems for bankers and asset managers taking potential deals to the sovereign wealth funds. The oil price is at a 20-year low as coronavirus depresses demand, and Gulf countries may need to draw on their SWFs to support their domestic economies. Secondly, sovereign wealth funds have high visibility and there is strong competition for their attention. The queues at the doors of ADIA, the PIF, the QIA, Mubadala and others will be long.

Sovereign family offices - much less well known
Much less is known about another type of sovereign wealth fund, much smaller than their institutional big brothers but with assets still measured in the billions. They are unlikely to have a queue at their door because many bankers and asset managers don’t know where the door is. 

These are the sovereign family offices, or the family offices and family investment companies belonging to members of Gulf royal families. Their fortunes may have been triggered by access to inherited sovereign wealth and subsequently increased during the oil boom periods of the seventies and eighties when landholding values accelerated rapidly and fortunes were made from burgeoning local economies. All the royal families of the Gulf countries without exception have senior members with actively investing family offices.

Sovereign family offices – foreign assets do have appeal
True, the traditional approach of many such sovereign family offices is to invest in national rather than foreign assets. But there are exceptions. Also true, the assets under management of many of them are in the range $1 billion to $3 billion, far less than the likes of Mubadala or the QIA. But they are actually quite numerous, not just one or two per country. And some of them, being owned by senior members of the ruling family, will have a degree of influence over their national sovereign wealth funds. Furthermore, the queue at their door may be manageable.
 

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