Farida El Agamy, general manager of the Tharawat Family Business Forum Jeffrey E Biteng / The National
Farida El Agamy, general manager of the Tharawat Family Business Forum Jeffrey E Biteng / The National

Economy

Family businesses continue to shun public listings

Succession planning and governance of greater importance for region's conglomerates

Mahmoud Kassem

November 23, 2017

Going public remains a distant priority for most of the region's venerable family businesses, with succession issues and corporate governance structures among businesses' more pressing concerns, according to the Dubai-based Tharawat Family Business Forum.

“Whether you go public should be one of the considerations you usually take in the lifetime of a family business,” said Farida El Agamy, Tharawat’s general manager. “What comes before that is how do I sustain my company, how do I stay innovative in a very complex business environment today? How do I make sure that my internal structures are strong enough to give me that agility?”

Ms El Agamy was speaking at the ‘Family Business Histories – Capturing the Entrepreneurial Heritage’ event at New York University Abu Dhabi on Thursday.

The region’s largest business families continue to prioritise the development of corporate governance structures, especially the development of clear succession plans, above opening their companies to external investors, she said.

She noted that families also retain a deep emotional attachment to their businesses, and also argue that local capital markets are not as deep and liquid as those in developed countries. Companies also note the volatility of regional stock markets, which are dominated by retail rather than institutional investors, compared with elsewhere.

Nour Abou Adal, a senior executive at Lebanese family business Holdal Abou Adal Group, said the company was not interested in offering shares to the public and financial institutions, with management shying away from being judged by outside investors on quarterly basis.

NYUAD and Tharawat are collaborating on a project to study and record the history of family businesses across the Mena region, with a particular emphasis on six businesses, which include the Holdal Abou Adal Group.

The UAE’s Alserkal Group, established in Dubai in 1947 by Nasser bin Abdullatif Alserkal, has also been selected for the study. Alserkal introduced telephone services in the emirate in 1959, and has grown over the years to encompass several segments including transportation, construction and healthcare.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Engine 1,745cc Milwaukee-Eight v-twin engine
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Power 78hp @ 5,250rpm
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Fuel economy, combined 5.0L / 100km (estimate)

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