The Rise of Family-Led Conglomerates

[Music] hello good morning everybody it's a great pleasure and honor to be here today especially to open the first panel this morning and I'm also really delighted to be back in Abu Dhabi I just flew in from Snowy Switzerland so I'm happy to get some vitamin D and sunshine well we have a huge topic to tackle in the next 25 minutes first first of all I would like to feel the temperature of the room and get your opinion as well so a show of hands who thinks in this room that the rise of family L conglomerates is a good thing all right okay who thinks it's a bad thing only one or two people all right so we have a consensus almost let me now first of all start with you ad by with your wonderful orange tie I love you your color as well I think your color match um paint us a little bit of a broader picture of uh this topic how important our family offices for Global growth right now we all know of course that there are a major source of Investments around the world one understand the landscape of Abu Dhabi and uh the landscape and importance of family offices one needs to understand why this decades plays a very important aspect as we all know uh Abu Dhabi has always been the house of one of the largest Sovereign wealth funds in the world andly the DNA of investment lies with the people and the business houses of Abu Dhabi as we all also aware to the fact that around 60 to 70 percentage of businesses in this side of the world is also family run now in this decade we have seen the rise of adx which is the investment house the the listing house here on the stock market uh we've seen a lot of family uh institutions going into the listing processes and what this does is that it frees up Capital now once it is getting freed up you need a new source of investment that needs to be uh C around and what better format for family houses or family offices to be created than to reinvest these freed up Capital so I think it's very important that you know an ecosystem needs to be created today uh for all these freed up Capital that needs to be invested and that investment can happen through a family offices consociate as such and I think so today we're also having ad adgm which is play playing an umbrella place where both wealth funds and family offices rest side to side where a lot of knowledge sharing on patterns of Investments are created you mentioned a very important uh word which is ecosystems Basel you have been working and operating here from the region for a long time especially also now with at the Abu dhab IPO fund tell us a little bit about how family businesses and offices are playing such a vital role in this region for some of our friends who are traveling from Shanghai and from Geneva and so on sure um the family uh businesses let me just explain that family businesses are one layer below the family office so they are the operating assets that generate the profitability um that feeds up into the family office now as Rachel mentioned they play a vital role in the economy they're one of the largest employers within the economy and when you think about it on a very simplistic manner you interact with a family business on a day-to-day without even paying attention to it so you buy your car for example from a family business that is the exclusive agent for that car dealership you put the kids in school that probably started off as a family business you go to the groceries or to the supermarket to buy your groceries that also started off as a family businesses as a family business and so there are fors to be reckoned with from my perspective and um I wouldn't be surprised if over the next decade these family businesses that originated whether from Abu Dhabi or from within the region would become Global players from our perspective siram you have mentioned in our chat before the panel today that cor Investments are really something that you have been focusing on in the past uh can you share your experience on that front is this still the case that a lot of family offices are you know focusing on co-investments nowadays yeah sure definitely generally like we as a family of we've been investing globally for the last 43 years we made most of our wealth partnering with best-in-class managers so when you partner with the manager you pay 2 and 20 and in some case we we even happy to be 30% performance because the manager performance is so good and with co-investments you don't pay fees a lot of people make direct Investments to avoid fees with Co investment you get the same benefit but the key challenge is do you get to see the right deal because most often then not co-investment generally the good deals first go to Best in Class like Endor in US Etc then whatever is left over actually comes to a family office so the key for us is to ensure that we have a side letter which clearly states that we get a preferential rights for coist and to do that we have to be the one of the largest investor in the fund probably the largest investor in the fund who actively Co this so we are more focused on doing like uh $40 $50 million tickets and half a billion dollar funds very very hard to access very high quality funds where if you think the manager can consistently make uh more than 30% gross by co-investing you're locking in 30% returns for GPS also the better part with co-investment is we co co-investing mostly when it's a buy and build so manager is initially buying the platform for the add-on he needs coist and normally the smaller managers they're happy to offer this at cost so you're able to invest like three to four quarters after the initial platform investment is made at initial cost so why the GP makes like 30 35% return as a co-investor you end up making high much higher returns because uh you end up holding the Investments for like three to four quarters short of reading you really pav the way nicely into more technical details now so let's talk about asset allocation and portfolio construction with Adel Adel you're based in hobah in a neighboring Saudi so tell us a little bit from your perspective at alasan holding how are you constructing your portfolio and how is this currently changing with everything that's going on in the world sure thanks Martina and and pleasure to be here thanks for having me uh I mean for us we obviously as a as a family office in the region um and that you know the base has always been the operating entities the family uh started its operations in 1950 um but I would say about 10 years ago the diversification element kicked in in the sense that you know there was a recognition that you need to be able to diversify away from your core operating businesses and and my fellow panelist alluded to the idea I think ad just mentioned that you have to basically free up some of the capital to diversify way and that's what we've done so I'd say probably much of the last seven eight years uh our Focus has been to uh invest across the spectrum of asset classes so that's on the private Market side be it private Equity private credit real ass asss uh as well as the liquid component which is basically you know public equities fixed income and and the semis which is hedge funds so what we've done really is try to complement our operating businesses and and basically create create a separate bucket so we have two buckets one which is the uh operating entities uh and where our participation tends to be from an execution standpoint uh you know on the board so you tend to have uh you know full management team for each and every business line uh but then complement that with the with a bucket that's purely dedicated on financial investments and like I said that's that's across the board we have heard in the opening remarks by IDM and also his Excellency and also our MC Rachel who has been living here for 16 years about the attractiveness of Abu Dhabi Adib with Lulu Financial Holdings you're also based here what makes Abu Dhabi so special I guess you're trying to lure more uh foreign Capital more foreigners to move here as well to this wonderful Emirate what makes it for you what takes all the boxes well I think so the the the ecosystem takes all the boxes for me you know so um for us who've been here for a long period of time um with the Visionary U leadership in the country and a very uh business friendly approach uh different platforms and the likeminded people have been attracted to this Market um and it's an ecosystem that is very unique to itself you know so if you look at abudhabi to the character characteristics of Dubai to the characteristics of Oman abudhabi has a very unique characteristic to itself you know it's a very um family oriented U setup it has a great investment that lies in its DNA it has a Trader uh mindset and predominantly today with adgm being established I mean since the last decade we have fund managers from around the world who are coming to set up their ecosystem down here helps us to partner and broaden our vision so as rightly said Abu Dhabi is the capital of the capital because based out of here you're able to Envision what is happening from rest of the capital markets and through co-investment and co co uh partnering out with with different organization you're able to um be right at the at the at the right place at the right time when it comes to investment patterns I love it the capital of capital wow okay I think that is a new government slogan now here but what you mentioned is absolutely right ecosystem Visionary uh leadership as well what makes Abu Dhabi so different Basel um we mentioned before uh today that there have been a lot of family offices going public as well to expect this trend to continue and uh what can governments but also Regulators do to really support those offices look um some some of my fellow panelists here obviously have uh companies that are currently publicly listed or are on the way um in terms of Regulation I don't think family businesses require their own set of regulations however they require sort of an incentive if I may say and um we at the Abu Dhabi IPO fund act as an enabler in that perspective so we're a five billion Durham fund and to put it in a nutshell our main task or our main job is to assist those companies to go from a private institution to ultimately tap into the public markets and so we work with a variety of Consultants we partner up with the company we institutionalize those businesses whether from a governance standpoint whether from a legal standpoint if it requires restructuring to be able to set up in the adgm and we go through the IPO Readiness and all the other technical matters that are required with the regulator so it goes back to the ecosystem basically of how we speak to The Regulators to the stock exchange itself and and to the markets to assist them in their Journey what we also provide as well is we uh we subsidize those fees as you you know an IPO process is a very expensive process it's a complex process as well so as an incentive from the government or from the leadership of the Emir of Abu Dhabi um we've decided to partner up with a variety of companies uh to be able to offer them that service basically and is this across Industries and are you also helping them to go uh public and do listings overseas like in New York or Hong Kong or LFC no no look from from a from a sector or a segment perspective it's quite diverse obviously we're working with a variety of family businesses born and bred here in Abu Dhabi uh the listing Target obviously is going to be the adx in that instance this is where where where abudabi focused can I just to that one you know so this this particular element of of of support and moving is is just not a factor of getting listed it's a matter of succession planning as well for the organization you know it is to bring continuity to the business uh most probably many businesses don't need or feel the need to get list it but why is it so important is because then it it brings in a better corporate governance into the into the whole organization and it gives a future succession planning to the whole uh organization so that when the leadership at the top changes that is the family members you know who who actually then want to pass it to the next Generation they'll have a better organization a better structured organization at hand you know so that is why I said this critical path that we are facing in this decade is extremely important uh because this is when a lot of businesses are changing hands from one generation to another and succession planning this keyword is very crucial right now just before our panel I spoke to a friend of mine and he mentioned that it's really this juncture this critical juncture right now where so many family offices in the golf they are transitioning to the Next Generation and it's an either make or break moment is that correct absolutely and how critical is it to not go so well I think so support of of uh the I think the the the the the leadership of the country has seen this ahead and hence the the support from such institutions helping the the companies to become more structured getting them into the listing Market that is the adx uh getting uh key alignment of of U leader U um talents into the market which is very important so it is a it is a mixture of many ecosystem that PS down here you know you need to attract the right talents into the Market to have the continuity of the business you need to have the right fund managers to sit and manage the wealth once it gets unlocked you know you need the right U support structure to get them into the listing process so it's it's it's a VAR of of matters you know and I think so so far we have seen things happening in the right Manner and I think so um you know it's it's always a miss and go towards till everything is done up uh but as as the moderator rightly said in the beginning um you know it's it's that ability to learn things from each other that is going to Define this decade for us you know and that's where abudhabi Financial weeks plays a very important and AD game plays a very important aspect and also cross generational mentorship like uh the old generation can learn so much from the Next Generation and vice versa of course as well as s Ram uh we have of course a competitive advantage of a lot of family Offices here uh in your region but that might not be so well known abroad um what is really the competitive advantage and and how can maybe foreign companies institutions family offices uh profit and capitalize on the family Offices here yeah I'll answer this from our perspective we we as a family we operate more like an endowment and in this globally what has changed the last two three years is globally like beat Pension funds beat endowments be charitable institutions everyone is today suffering both from a numerator effect and denominator effect numerator effect because in private Equity you're not getting Capital distributions back and denominator effect because of which uh both your public equity and your fixed income portfolio has not perform well for the last three years because of which lot of global allocators are not able to continue to commit capital on a go forward basis and historically best-in-class private Equity Funds hedge funds Etc they predominantly used to take capital from three four large endowments in US three four large charitable institutions probably couple of very Niche fund off funds and they would never come to Middle East they would come to Middle East one after they' exhausted all the options in us and Europe but today what has changed is the last two three years what the Middle East has shown is when other parts of the world they're all going slow the Middle Eastern economy has been performing fairly well and Middle Eastern family offices have continue to commit Capital so what GPS are realizing is uh no Middle East LPS are not a back stop option they part of my core mix so it's very very important to have high quality middle EAS investors as part of my LP mix so today is a middle easn family office if you can go travel globally showcase to best-in-class managers that uh you're a stable good partner it's a great opportunity for a middle EAS and family office to transition their portfolio from like probably a 40th perc portfolio top Des portfolio it's a very unique very unique opportunity which might be around for the next couple of years so why you establish relationships not just for this vintage but for the next three to four M ages because once you get on the tick of things once you have this right core long-term Partnerships right it just keeps continuing right because there'll be new spin-offs new offshoots and you have a relationship with a good GP right naturally when when there's some capacity another good GP you always get it yeah now in the past ad a lot of family offices have relied on uh cheap leverage right to fuel their growth how do you see this trend continue especially with a much higher interest rates will will they still use that kind of Leverage level so I get the technical question absolutely you're my man um no I mean obviously look I think this is it's a very Hot Topic in the sense that you know you we've lived in an era since probably the 2008 crisis where interest rates have been so low and that fi you know s keeps uh referring to how successful private Equity managers have been over let's say the last 15 years and that's predominantly because there's been heavy use of financial leverage um you know and you can borrow at near zero even if you make six s% return on your on your Capital that really adds up to your Equity return so that's why you you know I think everybody has been used to such high returns and I think the next 10 to 20 years uh the landscape is going to be quite different uh I think we we saw the markets react in the last couple years one thing definitely that I think is important is anyone that's been using a lot of Leverage is going to be find it a bit more challenging to achieve similar returns as they did but then again that creates a lot of opportunity for those who have capital on the sideline and and one point I just want to um add to what s has has mentioned you know because he was he was saying the Middle East or let's say the the family offices in the Middle East were not necessarily the target of of managers and GPS when they used to come here usually they'd come they'd Meet The Sovereign wealth funds but none necessarily family offices you're seeing a change in that because there's been significant growth in that segment uh and there's been a lot of sophistication uh and INS INS institutionalization of the process into by which they invest so I think it's going to be very interesting times and obviously you know you know you asked about interest rates but obviously that's going to be a big component that will impact those who have significant leverage but also create a lot of opportunity can I add something on of course you're on go for it so leverage per say in my opinion impacts more of the larger players there are a lot of smaller lower midle Market managers who do buy and build where they acquire platforms at six seven times EV by Beta initially and do a buy and bu roller here in that case what I have seen is they've been able to adopt to this higher interest rate environment the way they do it this they take 0 to 3x leverage from banks at relatively low rate and the seller is actually today offering vendor financing partly Milestone based partly it's just a preferred Equity so wherein the lower Middle Market managers like sub $500 million managers have been able to adopt better to this higher interest rate envirment compared to the larger ones because the larger ones the challenge they face is one yeah when they high high multiples they have take more leverage at higher cost and also the exit right the predominately depend on upon IPO IPO Market locally is very buyant but uh globally IPO Market except for some Niche companies or company in specific sector it's very very difficult so if you're a large private Equity Fund you you both have higher interest and you have lower and lower exit options in today's market so per se it's important where you play and there are ways in which you can mitigate this but I fundamentally agree with ar that next 10 15 years the the Baseline returns in priority be lower than what it was last 10 15 years but I believe there'll be lot lot more Alpha and if you can access the right Alpha probably can partly com yeah the right Alpha but also the right asset allocation let me ask you also what is the right asset allocation I know this is a multi-million multi-billion dollar question probably but um liquid versus El liquid Investments that's also always uh on the top of your minds Basel maybe um look family businesses uh specifically um they're on the operating asset so this is potentially more a question for the family officers uh which it's one one layer above from our perspective uh and so I may not be the best person to answer that question for you maybe ad if I knew the Right Mix I wouldn't be sitting here but yeah you know I think it's a combination of many factors you know so you need to look at you know um what what um really interest you know so uh putting that um uh guidelines in the family offices also you know lowering your spectrum that's what I believe you know so instead of going into large spectrum of investment if you if you can Corner your your investment to certain segment um it gives you more control and once the learning grows in the organization then try to increase the Horizon of investment you know otherwise um non understanding of a business also uh tends to uh you know a larger not so profitable Investments you know so and then the key thing is to uh partner with more mature funds you know in the initial times you know and that's what we do um aspect we go around you know finding out and then once we get the learning we try to increase our our percentage of Investments I'll just add to this point I think really the the answer to this is is a function of what the principles actually need in terms of their investment so if you expect dividend distribution or a certain percentage of dividend distribution every year then obviously the the structure your portfolio construction is going to vary because then you need a bit more liquid but then if you're someone who's saying you know what I'm okay waiting 10 years 15 years then you can go a bit more into the private side where you could get additional return uh but then you're sacrificing that liquidity so I think it really comes down to what the principles want and where you are in the um generational cycle for the family office uh and based on that you can really construct your portfolio we just have one Swiss minute uh left in this H panel so let me ask you one final question to all of you looking ahead to 2024 where do you see it the best opportunities for your businesses maybe uh we start with s RAM and go all the way back I would say probably uh build best-in-class long-term Partnerships with with managers and environment where I think availability of capital for GPS Cas so build the right partnership for the next 20 years CL um I think there'll be uh a continuation of the current status quo when it comes to the IPO markets it's been uh there's been a nice flurry of IPOs and I expect that to continue in 2024 on the adx we still very bullish on this market and this region as such you know I think so there's more for taking in this region and we would like to build on the bullishness that we see in the market today uh we think we're in a trend of De globalization and we and and as as bad as that may sound I think it's going to create opportunities so I think leveraging on that is going to be important for us and and this part of the world is going to be very interesting I think in the next 10 to 20 years let's stay here and uh Basel and S and Adib and Adel thank you so much for your time that wraps up our panel shilan these gentlemen are also available on LinkedIn and social media and uh via their website so if you need any more information I'm sure they will be more than happy to reach out to you and connect and also have a coffee maybe later during Abu Dhabi Finance week thank you all very much thank you for having us