Page 91 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

CHAPTER 2 Entrusted Stewards 75

with professional asset management firms have led to a natural migra-
tion of best practices, expertise, and staff from multinational firms into
regional family offices.
Perhaps the most important driver of institutionalization, how-
ever, has been the transition of influence and control to a new genera-
tion of Gulf leaders. Unlike their fathers and grandfathers, who built
fortunes in the post-boom period through entrepreneurship and
operating businesses, the generation that has come of age in the 1980s
has studied extensively overseas, worked with multinational firms,
and interacted heavily with global financial institutions. Formal
processes of investment review, portfolio management, and the struc-
turing of asset ownership come naturally to this new generation.
Institutional models are also well suited for passing on wealth from
one generation to the next, whereas personal inheritance models can
be more contentious and complex. This is an important concern as the
founders of Gulf business empires advance in age.
The rise of “family offices”—institutions that manage family
wealth—is thus a trend that has been embraced and supported by fam-
ilies themselves, the advisors who serve them, and regulators in the
region. The Dubai International Financial Centre (DIFC), for example,
has developed a distinct set of regulations for “single family offices,” or
SFOs. SFO regulations facilitate the establishment of family holding
companies and utilize family structures for holding and passing on
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wealth. SFOs, which tap into nonfamily professionals to act as execu-
tive asset managers, adopt formal policies for investment review, asset
allocation, and portfolio management in ways that informal personal
structures historically have not done.
Perhaps the most famous private institutional investor from the
region is Prince Alwaleed Bin Talal Alsaud, founder of the firm
Kingdom Holding Company and widely considered to be the wealth-
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iest private Gulf citizen. Kingdom Holding Company, established in
1980, has evolved into a significant global investor with assets across
a wide range of sectors and countries. Figure 2.4, featured on the
Kingdom Holding Company Web site, nicely illustrates the com-
pany’s global reach and diversified asset base.
As is evident in Figure 2.4, financial services and hotels represent
a major share of Kingdom’s portfolio. At the same time, the company
holds assets in real estate, telecom, automotive, retail, and other sec-
tors as well. Table 2.8 lists some of Kingdom’s most prominent port-
folio companies and the company’s estimated equity stake in those
firms.