Family office locations, does Africa have potential?

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In recent years, the global wealth sector has seen an upward trend in family offices. More and more wealthy families are setting up family offices. One of the primary reasons is that they want to avoid the prying eyes of global regulators and prefer the privacy of handling their wealth in-house instead of handing it over to large finance companies to help. Moreover, to do this, the family office human resources space has seen family offices bidding to employ the best of the best when it comes to wealth managers and other family office staff.

Another key trend is that family offices are increasingly seen as a top prize for international financial centers. Family offices bring with them the apparent wealth of assets, and they also come with a potentially rich vein of work for local financial institutions, professionals, and service providers. As we all know, the criteria for establishing a family office are always dependent on each family’s individual circumstances. With the growing globalization of many families, this may be influenced by: 

1. Where family members want to live and work; 
2. where the family wealth is sourced; and,
3. where their current business or investment strategy is focused. 

These influences may change from generation to generation as family businesses are sold, expanded, or migrated, or as family ties to their original base become loose, and families increasingly span several continents as they become global citizens. In some families, a single location for their family office may not be ideal, and the family may select jurisdictions based on a variety of other criteria, which may include:

1. jurisdiction’s tax regimes;
2. their political stability; 
3. international compliance; 
4. the quality of their legislation; 
5. the quality of their human resources; 
6. the efficacy of their legal systems; 
7. the location’s accessibility and connectivity. 

A family may prefer to place the general family office and administration in one location and strategically place the investment function in one of the world’s major financial centers like London, New York, Tokyo, Zurich, Frankfurt, or Sydney. In this space, there are well-established offshore centers like Switzerland, Luxembourg, the Channel Islands, Monaco or Hong Kong, and the UK, that have long hosted the offices of wealthy foreign families.

However, other jurisdictions offer specialties that may be compelling to certain family offices – hedge funds in the Cayman Islands or risk management in Bermuda. Purpose trusts, private trust companies, family partnerships, limited liability partnerships, and protected cell companies generally provide the building blocks for family holding structures, but competition among jurisdictions is intensifying. 

Many jurisdictions are expanding or upgrading their legislative arsenal to cater specifically to high-net-worth families, and this is currently one of the most innovative areas of offshore legislation. Hong Kong followed Singapore by modernizing its trusts laws, while Guernsey, Jersey, and the Isle of Man all introduced foundations to broaden the fiduciary options to civil law jurisdictions.

Virgin Islands Special Trusts Act (Vista) trusts in the British Virgin Islands and Special Trusts (Alternative Regime) (Star) Trusts in Cayman both serve to optimize the management capabilities in respect of trusts. At the same time, the Bahamas Executive Entity (Bee) was explicitly introduced to control and protect decision-making at the top level of a structure. Luxembourg and Qatar have followed Dubai by introducing a specific regulatory framework for family office activities.

These structures are being set up to cater to the Asian and Middle East markets where new wealth is being generated, and much greater levels of foreign investment are now targeted. By being located in Singapore, Hong Kong, and Dubai, family offices may feel close to the action.

With all this happening, there are several international developments in transparency and exchange of information that family offices and their offshore providers or partners need to be aware of. These include the U.S. Foreign Account Tax Compliance Act (FATCA), the European Union’s revised Savings Tax Directive, the amended Convention on Mutual Administrative Assistance in Tax Matters, and the Organization for Economic Co-operation and Development’s (OECD’s) the latest initiatives on a new single global standard for automatic exchange of information (AEOI), beneficial ownership and base erosion and profit shifting (BEPS). Jurisdictions that fail to fully comply with these programs may find themselves unable to attract or retain family offices due to the difficulties it will create for clients.

What does this mean for Africa and possible African family office hubs? With the continent’s development, there comes a lot of interest in Africa as an investment playground. As noted by Family Capital, Africa’s family office sector might be growing, but it is not staying home. Some African billionaires have their investment offices outside of Africa, or at least subsidiaries abroad, including:  

• Mary Oppenheimer Daughters (the family office of Mary Slack, née Oppenheimer, of South Africa), which has a UK subsidiary;
• Oppenheimer Generations (the family office of Nicky Oppenheimer of South Africa), which has a London office and recently opened a Singapore office;
• Kathaka (the family office of Caroline Rupert, the daughter of Johann Rupert) is based in London;
• TY Danjuma Family Office (the family office of the Danjuma family of Nigeria) is headquartered in the UK;
• In 2020 Dangote announced that his family would be opening a U.S. family office, complementing his UK family office, which is believed to be Dangote Global Services. 

There are exceptions, of course, like Heirs Holdings, the family investment group set up by Nigerian multimillionaire Tony Elumelu, which is based in Lagos, Nigeria, without subsidiaries abroad. 

How can Africa attract investments back home? There has been a focus on Mauritius as a family office destination. In line with a diversification strategy underpinning wealth management as a new alley for growth for the Mauritius International Financial Center, the Overseas Family Office license was announced in Mauritius’s 2016-2017 Budget Speech. Adding to the country’s foundation and trust structures, the license matched the emergence of a growing ultra-high-net-worth segment (net worth of at least $30 million), both locally and in the wider region. As noted by Octorian advisors.

Mauritius has started to attract several ultra-high net worth individuals (UHNWIs), mainly from France and South Africa, through investments in dedicated up-market real estate associated with residence permits. Why would it be ideal for the African HNWI, though? Africa may have a growing number of affluent individuals, but it remains prone to geopolitical and currency risks, and ease-of-doing-business and economic freedom often lag behind the rest of the world. Mauritius is currently showing some of the attributes this type of family office needs, which is:

• Low taxation;
• No exchange control and free flow of capital;
• Sound legal system;
• Political stability;
• Data protection and confidentiality;
• Qualified workforce;
• Location and proximity;
• Close to home.

Will the African UHNWI take it up? That is the question. Alternatively, will there be a need for more countries on the continent to reframe their offering and become on-continent Family Office locations that can be trusted. Ghana has been positioned as a growing democracy and the center of the Return to Africa movement which started in 2019 and was named, “Year of Return, Ghana 2019.”

The kick-start campaign was meant to bring foreigners, particularly from the black diaspora, to Ghana, as visitors, investors, or tourists. The idea was that this movement would bring in fresh skills and capital, and place Ghana more firmly on the global map as a key African destination spot. However, does proximity to volatile jurisdictions take away its ability to be a possible hub? Rwanda has been hailed as a forerunner and is becoming a futuristic African country.

South Africa has always been a firm favorite for many investors. However, despite all the pros, these countries still do not meet all the attributes that HNWI is looking for. Maybe the appeal of Mauritius is that it is on an island and further away from the push and pull of its immediate neighbors. The fact on the ground is that something may have to change, and African countries will need to start giving options to the UHNWI to encourage their outflow of money to remain on the continent. 

Tsitsi Mutendi is a co-founder of African Family Firms, an organization that aims to facilitate the continuity of African family businesses across generations. She is also the lead consultant at Nhaka Legacy Planning and the host of the Enterprising Families Podcast.