Next generation drives global family office expansion
Family offices are increasingly becoming international, with locations scattered across the globe, to take advantage of friendlier tax and regulatory compliance in other countries and pursue direct deals with promising startups around the world.
Spurred by next-gen family members, the pandemic-related rise in remote work and new technologies, the cross-border growth also presents challenges — legal, cultural and logistical — that need to be overcome.
"Certainly the idea of the multijurisdictional family office has taken off in the last couple of years," said Andrew Douglass, a managing director of AlTi Tiedemann Global, a global wealth and asset management firm. In recent years, the two hot spots attracting family offices are Dubai and Singapore, which appeal to high-net-worth families from Asia and Europe due to their low taxes and lack of significant capital controls. In addition, Geneva, London and the U.S. continue to draw families from around the world.
"We're always looking for more opportunities, collaborations and partnerships — that's what made us global," said Lakshmi Narayanan, chairman of the board of the Sovereign Wealth Fund Institute and a partner at the Patel Family Office, which has been international for over 50 years. Since relocating from India to the UK and then the U.S., it now has a presence in Dubai and Singapore as well.
"We acquire companies in a lot of those markets," Narayanan said.
The family, which made its fortune in hospitality and hotels, really expanded in recent years. "The pandemic taught us the need as a family office to diversify into other countries through co-investments with other family offices or direct investments into companies," said Dipika Patel, chairwoman of the family office.
The improved deal flow of international operations is a key priority for next-gen family members, said Michael Danov, president and chief investment officer of SBP Management, a single-family office that has expanded from Israel to the U.S. and Dubai, Austria and Monaco.
"The younger generation like myself are all about the direct deals and more entrepreneurship," Danov said. "We know how to manage our own capital. We don't need to invest in funds to make us returns."
But when you go global, there are a host of challenges, said Douglass, who has advised a family office that wants to expand into Asia and now has to deal with finding the right partner or hiring the right talent and building out a team. They include hiring local people who understand the regulatory and legal structures of that country and others who are linked to the network of investors and entrepreneurs there.
"They must ensure compliance with both home- and host-country regulations, which may require duplicate tax and legal teams to handle the specific requirements of each jurisdiction," said Raymond DiNunzio, a partner at TOS Advisors who has worked with family offices in Australia, Hong Kong, Singapore, the Cayman Islands, Panama, Peru, Canada, Switzerland and Puerto Rico.
One of his partners, Ricardo Nazario, recently guided a wealthy Mexican family in establishing a new office in the U.S. "That was a huge project, with 26 legal, tax and financial partners south of the border and an equal complement in the U.S.," DiNunzio said.
Per that example, he also increased operational costs, which can come with expanded operations. "Operating in multiple jurisdictions often entails higher expenses due to additional legal, compliance and administration requirements," DiNunzio said.
WHEN IN ROME (OR DUBAI)
The Patel Family Office recently announced a Middle Eastern partnership to help smooth their entry into that region. "There's no way to operate in the Mideast without having partnerships there," Narayanan said. "It's hard to learn the local culture, the way the business is done, even the language barrier.
"It's not easy to go global. You can have a global presence, but if you want to run a successful operation, you need to find local partners."
In addition, Douglass said, family governance issues can become more complicated. "How do you ensure a smooth transition when you move?" he said. "And are you making sure that you're training the next gen to manage that multijurisdictional office."
Other challenges involve data and privacy, said Francois Botha, a family office consultant, who explained that it's key to note the jurisdictions in which your data is being warehoused and how that is being shared with third parties, such as governments.
Overall, the advantages outweigh the cons, say international family office members.
"You're opening up to different opportunities, investment opportunities that may only be accessible through the region that you're in," said Douglass. "It's a challenge, but that's also where the opportunity lies."
Patel puts it more bluntly about her family office's desire to go global and diversify its investments: "Don't put all your eggs in one basket."