Traditionally many families have looked to align and protect their assets through a Trust or a Foundation. However, with the rise of the dynamic second and third generation, these families now want to obtain privileged access to the best private equity opportunities. Heads of families want to be able to successfully shift wealth to new decision makers, but is preserving the families overall focus and professional structure a challenge?
Often, within the traditional legacy plans, families would hold many Special Purpose Vehicles (SPV’s), owning assets such as real estate, private company shares, investments, private equity and so on.
Where the world’s richest global families are looking to maintain their wealth, the preservation of assets through Trusts and Foundations take centre stage. As wealth begins to increase and the sectors of investment choices start changing, an alternative fund type structure is becoming the choice of many an energetic next generation.
An example of alternative investment choice is the inspirational investors behind the BioNTech/Pfizer COVID-19 vaccine, the Strüngmann brothers who actively invest in the pharmaceuticals industry through their Family Office. The Strüngmann brothers are one of the few Single-Family Offices globally who have a single holding in their portfolio valued at over US $12 billion.
INTERGENERATIONAL TRANSFER OF ASSETS
The transfer of wealth over the last decade from the patriarch, or owner of a large family run business to the next generation has reached an exceptional level.
An example of where the head of the family may not be in a position to diversify their wealth effectively, the wealth can be released, the reigns can be passed down to the other members of the family, whilst somewhat holding on to certain benefits and rights.
As the desire is to have ultimate control over underlying assets is crucial, families want to be in the driving seat on entry, exit and negotiation on the investment choice. By establishing a collective platform, families can build their own portfolio by investing directly based on risk profile, timeline and sector need.
THE WHY & HOW TO FORM A FAMILY OFFICE
Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) have been the jurisdictional choice for many in the region, with families looking to become further institutionalized. The focus has veered into creating a structure not only to manage the wealth of a single family but align the interests of multiple families under one roof.
The motivation for a Family Office and its shareholders considering the use of a regulated entity or fund structure is ultimate control. Unlike a traditional trust, the Ultimate Beneficial Owner(s) could have an active right in the entity and if structured correctly can be identified as an asset or investment manager, hence being able to drive the objectives of the office. With alternative structures available, the application of a range of vehicles for a Family Office to use are typically open ended investment companies such as Incorporated Cell Company (ICC), Segregated Portfolio Company (SPC) to the newly formed Variable Capital Company (VCC) which came into force earlier this year in Singapore. A VCC can be used as a substitute to other commonly used structures.
The use of a General Partner (GP) / Limited Partners (LP) structure allows the Family Office to own the GP shares which subsequently manages the LP and the contracts for investors.
The Exempt fund provides a complete alternative to Family offices looking to invest capital into certain sectors by way of private placement. The process of distributing securities by way of a private placement tends to be more cost effective and time efficient, compared to conducting a public offering by way of a prospectus filing. By issuing securities through a private placement offering, this structure is exempt from the extensive disclosure requirements that are otherwise requested from a public fund.
Regulators take a somewhat lighter approach to this alternative structure, however the actual level of regulation on these types of structures depend on the type, number of investors and the type of the assets acquired.
A regulated collective investment scheme would be the prudent approach of multi-family offices managing a variety of assets of unrelated family investors.
Where all the investors are one single family, the legal framework of a fund type structure would offer transparency on what the rights and responsibilities would be for the pool of family investors, this would consequently provide protection should there be a family dispute.
The regulators – Dubai Financial Services Authority (DFSA) at DIFC and Financial Services Regulatory Authority (FSRA) at ADGM, have both traditionally been the go to point for Family Offices looking to institutionalize, providing a substantial level of comfort to new investors on a given structure, and its perception of the assets under management.
The appeal of this type of structure opens several opportunities for direct investments, which could be managed internally by a Family Office team, who would come with the right level of professionalism.
The investment opportunities within the GCC and wider MEASA region, along with the numerous double taxation avoidance treaties that the UAE has in place; make the two well established UAE financial free zones, the ADGM and the DIFC an attractive destination for the establishment of such entities.
For more information on alternative structures and Family Office incorporation contact our expert structuring team for your free 30 minute consultation on firstname.lastname@example.org or call +971 4 878 6240.