Despite tracing its roots to the early 20th century when the Rockefeller family and others began centralising family assets, the family office concept only revealed signs of increasing popularity in the 1980s. It was at this time that the demand for customised wealth management solutions progressively became essential in a globalised economy. Since 2000 the rise in the number of ultra-wealthy individuals has increased to record levels, while the family office has also shown spirited proportional growth. The trend is no different in Africa. Recent estimates by New World Wealth suggest that private wealth held in Africa is US$2.2 trillion. Typified as one of the most under-developed regions, the rest of the world views Sub-Saharan Africa as one of the last few remaining growth frontiers.
Recent global patterns in the wealth management landscape have triggered a paradigm shift as ultra-wealthy individuals and their families gradually migrate from traditional wealth management firms and private client divisions within commercial banks. These groups are instead increasingly opting for the more personalised and comprehensive service offerings of the family office.
Embodying two distinct structures, family offices are categorised either as a single-family office (SFO), multi-family office (MFO) or incorporated as an independent private company.. SFOs manage at least US$100 million in assets under management (AUM) and cater for a single family, managed by a team of dedicated professionals appointed by the family. MFOs, on the other hand, manage anything between US$30 million and US$100 million and place a greater emphasis on growing the family office by serving a range of families.
Man Capital owned by the Mansour family and Heirs Holding owned by Tony Elumelu are notable examples of SFOs owned by some of Africa’s wealthiest business magnates. Both organisations have a diversified investment-led philosophy on wealth preservation and growth. They invest in a broad range of sectors including: financial services; energy; construction; manufacturing; and education. The majority of African family offices, however, fall into the MFO structure. Many lack the necessary wealth capacity to achieve economies of scale by setting up standalone family offices and hence include multiple families, sharing administrative costs under the holding structure.
Stonehage Fleming is a prominent example. As a leading international family office they advise on over US$40 billion in AUM on behalf of more than 250 families worldwide. Though the firm has a global footprint with headquarters in London, it also has strong South African roots via Stonehage, a firm that merged with Fleming Family & Partners in 2014.
According to one of the most comprehensive sources on the African wealth market, the AfrAsia Wealth Report 2017 the country with the highest per capita wealth ranking in Africa is Mauritius with an estimated wealth per capita of US$25 700. Not far off, in fact, from the US$27 000 per capita global average. South Africa ranks rather a distant second on the list, with wealth per capita estimated to be US$11 300. Despite this, South Africa is home to the highest number of high net worth individuals (HNWIs) on the continent, at 40 400 (where individuals with more than US$1 million in net assets are considered HNWIs). Second on the list is Egypt with 18 100 HNWIs. The concentration of the continent’s wealth lies within a small, elite group as shown in the data contained in the Report. Nonetheless, the prediction is that a thriving African middle-class will create a more sizeable affluent pool in the next two decades.
Despite existing for more than a century, the concept of family offices today presents immense expansion potential in emerging markets. Africa is home to the youngest youth population in the world, with the World Economic Forum estimating that 70% of the continent’s population is below 30 years of age.
Privacy is exceptionally important to HNWIs and so it follows that few of the family offices in Africa are publicly known.
Certain factors such as widespread political uncertainty, rising populism and nationalist sentiment across the globe are influencing family office dynamics. This is permeating risk mitigation strategies by HNWIs entering the ultra-affluent ranks to form their own or join existing family offices in a bid to preserve family wealth. The sobering reality is that Africa also poses significant risk, where changes in elected government officials usually results in spurred social tensions and prevalent violence, creating a threat to the protection of property rights. Africa’s HNWIs will continue seeking contemporary asset preservation measures by structuring their wealth into family offices. One thing is certain: demand for family office arrangements among Africa’s budding nouveau riche will increase over the medium to long term. The precise increase will depend on Africa’s development trajectory.