Wealthy families in the Middle East are increasingly demanding bespoke private wealth structures. Here, Michelle Tring, Senior Client Manager at Estera, and Tim Childe, Head of International at Quilter Cheviot, discuss the structures and investments that work best to meet their needs.
In recent years, Jersey has seen a growing demand from Middle Eastern families looking for specially-designed structures to help them protect and manage their wealth for the benefit of future generations. With increasing wealth being generated in the region, a growing sophistication and international outlook among the high net worth individuals based there, and turmoil and economic upheaval generated by the Arab Spring and events in Syria, Libya and Iraq, we have seen a drive towards asset protection and a demand for more personalised cross-border structures.
With London emerging as such an important centre for Middle Eastern families, either as a home or as a location for investments, the Channel Islands have seen a marked increase in work coming out of the region. Jersey, as a British Crown Dependency but not part of the United Kingdom, has been favoured by many looking for cross-border structures thanks to its well-established wealth management industry, stable economy, robust regulation and flexible legislation.
In particular, we see clients from the Middle East attracted to Jersey trusts, companies and foundations, because these structures can often be tailored to meet their individual requirements. The flexibility of both Jersey trusts and foundations also means that they can be set up to be Sharia-law compliant, particularly as the law relates to Islamic rules on inheritance, and earnings of interest on investments. Foundations and Private Trust Companies (PTC) also typically suit the needs of clients from the Middle East region because both allow the family, or its trusted advisers, to maintain a role, either on the board of the PTC or on the council of the foundation.
By permitting such hands-on family involvement, high net worth individuals (HNWIs) and ultra high net worth individuals (UHNWIs) are reassured, and take comfort from the fact, that the business or assets within the structure will continue to be managed in accordance with the overall objectives of the family. This can be particularly important for first-generation wealthy and ultra-wealthy individuals embarking on structuring for the first time, because it alleviates the need to transfer assets to a professional trustee company. Instead, families may prefer for their own PTC to be the trustee of the trusts that they create, giving family members with knowledge of the assets more of a role in key decisions.
We see this type of structuring not only for traditional family assets, but more often to hold the shares in the family business. In this way, a family can ensure continuity from one generation to the next, and allow those with hands-on knowledge of the operations of the family business more involvement in commercial decisions.
Because the board of the PTC, or the council of the foundation, is not entirely made up of third-party providers, but instead includes experienced family members alongside advisers and professional services experts, investments and assets can be held with a little more flexibility than might otherwise be allowed.
There is no requirement to register the detail around the PTC or the Foundation in Jersey other than the initial incorporation itself and the only information available to the public is the information on the private company that acts as the Trustee. This confidentiality aspect of structures is another big selling point for clients who want their personal wealth to remain private.
The regulatory backdrop is also a further reason why families from the Gulf region are now looking for more co-ordinated and strategic global wealth structuring arrangements, as they look to ensure both privacy and compliance across increasingly international families.
PTCs can be easier structures to work with than traditional trusts. Because they essentially share the same format as a company, PTCs are easily recognisable to third parties when it comes to undertaking transactions, and it is also much simpler to transfer administration of a PTC or foundation should the family choose to do so.
The Jersey foundation was introduced in 2009 and a significant number have been incorporated, either for the purposes of succession planning, or to act as orphan structures – with no members or shareholders – to own certain assets or perform certain roles. A foundation may be incorporated to hold shares in a PTC, which in turn acts as a trustee of one or more family trusts, for example. Many Middle Eastern clients are attracted to foundations rather than trusts because, coming from civil law jurisdictions, they find them more familiar.
Middle Eastern families are increasingly multi-jurisdictional, often with second- and third-generation family members living, studying or working in Europe or the United States. As such, their structures need to take account of the reporting obligations for the trustees, as well as sanctions issues and tax that may be due on the provision of any benefits. The need for robust corporate governance, reputation and ownership structures is also much more of a consideration for clients today.
Likewise, when we look at the types of investments that are suitable for clients from the Middle East, an increasingly bespoke approach is also required. Whether we are dealing with the expat community in Dubai, or first-generation UHNWIs that have grown up elsewhere in the region, investment decisions will be motivated by their individual needs and risk appetite.
Clients may be focused on income generation, capital growth, staggered cash flow throughout the year, or investment strategies in certain markets or asset classes, and, in each case, they will want a bespoke asset management plan. Often they will want to work closely with their investment advisers to find a cost-effective and transparent solution, with derivatives and structured products unlikely to feature in the investment strategies of families in the region.
Choosing Jersey, with its close proximity to the UK, as a centre for structuring and investment management can make a lot of sense for Middle Eastern clients who may have business interests in London, or family based there.
Middle Eastern clients seek to protect themselves from external risk, and diversify their portfolios, they are often looking to diversify their investment portfolios internationally, and UK real estate has proven to be an attractive.
With family governance a growing area, the demand for structures that can codify the goals and values of a family in relation to its business interests is on the increase, and foundations and PTCs can serve a valuable purpose here.
Wealth generation continues across the Middle East region, but as wealth transfers from the generators to their descendants, the need for bespoke structuring only looks set to be on the rise.
Keep up-to-date with the latest news, views and developments
from our teams across the Estera group.