Although single-family offices are flourishing in North America and Europe, in many emerging markets the sector has struggled to gain a foothold. That’s not because there aren’t enough very rich investors in these countries, but rather personal wealth still remains vulnerable in many of them.
This vulnerability of personal wealth in some emerging markets was vividly illustrated last year when the Saudi Arabian authorities arrested a number of the country’s leading business people. Those arrests included Prince Al-Waleed bin Talal, whose private investment office, Kingdom Holdings, is perhaps the Middle East’s best-known family office. Al-Waleed has been detained since November on anti-corruption charges.
Reports suggest he has been asked to pay $6 billion to guarantee his release - a sum of money that could undermine the prospects for Kingdom Holdings if Al-Waleed agrees to pay.
Al-Waleed has fallen foul of a big anti-corruption push by the newly empowered Crown Prince Mohammad bin Salman. Other prominent billionaire businessmen detained under the crackdown include Waleed Al Ibrahim and Saleh Abdullah Kamel. The latter billionaire owns Dallah Al-Baraka, a huge Middle East conglomerate that doubles up as an investment group for Kamel and his family.
A government-led anti-corruption drive in China is also making many of the country’s business tycoons uncomfortable about their wealth and, more importantly, their ability to hold onto it. Xi Jinping, the general secretary of the communist party, and arguably China’s most powerful leader since Mao Zedong, is behind the anti-corruption efforts.
Perhaps the most pertinent case in relation to the development of family offices in the country was the brief “disappearance” of Guo Guangchang, who is head of an investment group called Fosun and has been described as China’s Warren Buffett. In December 2015, Guo was detained by police in China for a week to “assist the authorities with an investigation”.
The case went no further, but, as Xi continues to pursue his anti-corruption efforts, none of the very rich in the country will feel entirely safe from a crackdown affecting them and their wealth. And that creates an uneasy atmosphere for the development of a dynamic family office sector in the world’s second-biggest economy, despite the fact that China is meant to have more billionaires than the US.
Brazil has also experienced an anti-corruption drive in recent years, which has seen some prominent business people arrested and imprisoned. Most high profile of these arrests was Marcelo Odebrecht, the former CEO of his family’s huge conglomerate, Odebrecht. He is currently serving a 19 years prison sentence for bribery.
Of course, the big exception to the difficulties associated with the development of a vibrant family office sector in emerging markets is India. As Family Capital has mentioned before, one thing that has become obvious in the family office world in the last year is the sizable activity of Indian single-family offices.
That activity has given rise to a healthy family office ecosystem in the country - and led to the greater professionalisation of the sector. Family offices like PremjiInvest and RNT Associates have provided excellent benchmarks for others to follow. And Indian family offices are developing a level of professionalism that comes close to matching what exists in the US and Europe.
But that healthy private investment environment isn’t duplicated in places like China and much of the Middle East and Latin America. Personal wealth in these countries still looks ephemeral, despite the often huge sums of money some individuals and families have in these economies. And that isn’t going to encourage a vibrant family office market in these economies over the next few years.