Family offices face generational divide over investment strategy

Family businesses are the foundation of wealth in the Gulf. Problems crop up when children and grandchildren have different ideas from the founders on how to invest the fortunes they generate. 

That’s what motivated Obediah Ayton, Founder of his family’s Dhabi Holding Co., to establish the annual Family Office Summit, which took place for the first year in Dubai on Tuesday.

In an interview with The Circuit, Ayton, 33, talks about the mission he’s pursued to bridge generational gaps, mitigate succession battles and make lots of money. How, for instance, does a Dubai family business built on construction deal with the judgment of the millennial children to invest millions of dollars in the red-hot gaming industry?

“They want to put money into all these new things that Dad has never made money from,” Ayton said. “He just sees it as a waste of money.”

The interview has been edited for length and clarity.

The Circuit: Why is the UAE especially suited to serve as a venue for the Family Office Summit?

Obediah Ayton: The UAE has become a platform – the center of the world. I mean, look at Emirates Airlines. They’re kind of the peak of their brand. They are in the center of the world. I think as a financial hub, this place has become very much that. So, many families that are looking for tax incentives or just pure geopolitical neutralness, as well as a good life.

So a good destination, a good family business, seems the right place for them. Our goal in putting together this event is for local families to meet international families because they have a lot of common interests. Secondly, because private-sector businesses have a lot in common. Anywhere from establishing new joint ventures to investing in new markets, families who want to do business with families. So locals want to meet internationals, and then, obviously, internationals want to meet locals. That’s the purpose of the Family Office Summit.

How did this all begin?

It really started as a hobby of mine – a passion to bring together family businesses and people in the space. We used to do small events, 40 to 50 people over the years. Two years ago, or 18 months ago, we decided to turn it into a public brand. The purpose of that was to capture more interest from around the world. We wanted to kind of lead ourselves as the organic platform for family offices and family businesses. I like to think that we’re on track for that. 

How are family offices in the UAE shaping the investment landscape?

If you speak to people in New York, they have different terminology and descriptions for family offices than those in the UAE. It is mainly around regulation, tax, and just many years of operating in financial services. The UAE has been a big trading hub for many years. So, family businesses were typically family holding companies, where you have multiple different operating businesses. A lot of the cash and family members were very involved and hands-on with a lot of the process. When you look at families in New York, you may have a successful family that made all their money in insurance or banking. They allocate a dividend to the family office. The family office’s job is to make alpha for the family.

Over here, they’re only just starting to build that structure. So they have the family name and holding, and now they have a family office. Because places like Abu Dhabi Global Market only set up their family office license last September, it’s still a very new thing. I think we’re going to see a tremendous amount of growth. We’re seeing a lot of families from around the world move here, which is making it far more exciting, and it’s trending.

Do you think family offices here will look more into private markets over public equities?

When it comes to due diligence, they tend to be risk-averse in emerging markets, given the region’s proximity to Africa and India – some of the most populated and economically dynamic areas in the world. While currency risk is always a factor, the dirham’s peg to the dollar provides stability, and they are well-versed in managing exposure to neighboring currencies. Private markets, as I said, are their bread and butter. Public markets is actually quite exciting. I think many families now setting up a proper family structure are hiring good human capital that is building that public market exposure. So I think the public will increase. And private markets will always be of interest. Why? Because that’s all they’ve ever done.

How do family offices calculate risks and rewards within the current market?

In some of my LinkedIn posts, I’ve used the Arabic word Shura. It’s kind of like a group consensus where families get a level of diligence and security from [sovereign wealth funds such as] Mubadala or ADQ entering an industry or a market, and then the families follow. Whether it’s energy or health care, a lot of the time, the private sector diligence and risk appetite comes from the public sector leading, talking about their 2030 strategy. The families know what’s coming, and they know what to invest in in terms of infrastructure.

Are there macroeconomic trends that influence their decision-making?

Many of them have a Westernized outlook, having studied in developed markets. Data remains a key factor, especially in public markets. However, personal referrals between families play a much more significant role than people might expect.

That’s why the family office summit is quite good. It’s because we get so much demand from families saying, “Oh, we want to meet other families.” Because I think it just gives them a level of confidence. Because family businesses are teams. A family office team average here is four or five people. They’re not massive. So they need other families to look at co-investments. They need other families to give them the promise that they’re doing the right things.

What are the challenges for the different generations within family businesses when balancing their perspectives?

Legacy values. We’re focusing on local families; hence, the summit is being held in the UAE. So, local families have ginormous shareholder registries. That’s the honest truth. Big families, right? Which is always going to have complex issues, no matter what. Due to the diverse personalities involved, a lot of the infrastructure here was originally built by one member of the family.

Typically, Mom and Dad played key roles in the early development of industries like automotive, healthcare, and energy. Now, however, there are 12 different opinions to consider. The biggest challenge for the next generation is telling their parents that they want to do different things. You’ve got a family that made all of their money from one asset card. Now, the next generation wants to put money into film and entertainment. They want to put money into gaming. They want to put money into all these new things, which Dad has never made money from. So he just sees it as a waste of money.