Beyond the obvious, what is driving the growth of the Middle East as a family office hub

There is a palpable buzz around the Middle East, particularly the UAE, which is fast gaining popularity as a family office hub. Dubai International Financial Center (DIFC) has also gained a lot of prominence, over the last few years, as an important financial centre.‍

Lighthouse Canton, an early entrant in this market, has established a solid presence in the UAE for around five years, going beyond just representative offices or a marketing center.‍

Prashant Tandon Chief Executive Officer & Managing Director, UAE, at Lighthouse Canton thinks two key reasons are driving the growth of the family office ecosystem in the region.

“Firstly, many families, family offices, and individuals are relocating to this region for various reasons such as political stability, favourable tax regimes, or restrictions in their home countries. This influx is reshaping the demographic landscape and bringing substantial wealth and expertise into the UAE.

Secondly, the ecosystem here is rapidly evolving to capture a previously untapped domestic market. Historically, the talent pool in the UAE wasn't as extensive as in global financial hubs like Hong Kong, Singapore, New York, or London. However, this is changing swiftly. Families who once looked westward for comprehensive financial services are now finding them within the UAE itself,” shared Tandon.

This shift is driven by the UAE's rapid development in financial services, offering a wider diversification of investment products and an expanded breadth of service offerings that cater to the unique needs of wealthy families. Additionally, the region's commitment to better regulation has instilled greater confidence among investors. The UAE now provides a comprehensive suite of financial solutions, rivaling those traditionally sought in Western markets. This includes advanced wealth management services, innovative financial products, and a robust regulatory framework that ensures transparency and security, making the UAE a compelling destination for family offices and high-net-worth individuals seeking reliable and sophisticated financial services.‍

In recent years, the UAE has also strategically utilised its central geographical location to its advantage. Situated at a global crossroads, it has invested in top-tier infrastructure and implemented substantial measures to enhance its global standing. These efforts include the introduction of corporate tax legislation, stringent trust regulations, and the establishment of a foundation regime aimed at bolstering its appeal as a hub for international business activities.

These changes have significantly benefited large families, particularly in estate and succession planning through foundations and trusts.‍

“The changes have been transformative in Islamic countries, where robust estate planning was previously constrained by religious and regulatory considerations, such as Sharia law,” shared Tandon.‍

The introduction of foundations and trusts has largely addressed these issues, enhancing the effectiveness of family office operations.‍

Dubai's advantageous tax environment, including benefits for single-family offices and on the personal income tax, along with its broad network of tax treaties that offer appealing withholding tax rates, continues to draw family offices to the region¹.

Lighthouse Canton is witnessing a transformation in the landscape of wealth management services in the region. Moving beyond traditional financial advice and portfolio management, there's a growing demand for comprehensive solutions that cater to all types of family offices, whether single-family or multi-family. This shift emphasises the importance of providing tailored services to any family looking to establish an office, ensuring their diverse and evolving needs are met..

“Clients now come to us primarily for investments, but they also expect us to guide them through their entire financial journey. This includes designing family governance frameworks, establishing cross-border footprints, creating investment strategies, offering bookkeeping and accounting services, cross-border advisory, estate planning, consolidated reporting, and risk management”, shared Tandon.

THE POTENTIAL OF PRIVATE MARKETS

Dubai has topped a ranking of the world’s fastest growing venture capital (VC) ecosystems, in a sign the emirate has progressively become more popular among start-ups and funds.

The emirate had a VC ecosystem growth score of 72.8, according to Pitch Book analysis of its proprietary data between the third quarter of 2017 and the second quarter of 2023.

In recent decades, there has been a significant push towards diversifying economies in the Middle East, developing financial markets, and encouraging private investments. Initiatives like the UAE Vision 2021 and Saudi Vision 2030 aim to foster a more diversified and sustainable economic landscape, which includes the development of robust private markets.‍

Lighthouse Canton is seeing a growing emphasis on private credit, private capital, venture equity, and venture debt sectors.‍

"This strategic shift enables us to engage effectively with influential families and entities in the region, not only to raise capital but also to stimulate growth in the private investment landscape," said Tandon.

CAPITAL DEPLOYMENT IN THE REGION

The UAE's strategy of encouraging global businesses to invest locally is also fostering economic growth while diversifying its domestic market. This aligns with broader economic strategies like Dubai's Economic Agenda 2033, which aims to double the emirate's economy over the next decade by promoting innovation, technology, and a diversified trade network. The focus on local investment is part of the UAE's efforts to enhance its global standing and attract significant foreign direct investment (FDI) across sectors such as fintech, e-commerce, healthcare, and renewable energy.‍

Capital providers in the UAE are increasingly prioritising how global businesses plan to deploy investments locally.‍

Lighthouse Canton is also focused not only on raising capital but also on identifying opportunities for deploying it in the region.‍

“This approach has enabled us to deeply engage in the ecosystem, demonstrating our commitment and credibility in deploying capital locally. This evolution in the private market space over the past five years underscores a significant shift in how the region is viewed as a hub for capital deployment,” noted Tandon.‍

¹ More details of the taxation policies can be seen here.