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Dubai’s family offices investing defensively amid economic uncertainty

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Despite a high oil price environment which has bolstered the finances of the Gulf’s wealthiest families, Dubai’s super-rich are investing assets defensively amid global economic uncertainty, according to someone familiar with the matter.

The individual, who looks after the capital markets portfolio for a prominent family office in Dubai, says that they are looking to diversify the family’s exposure in light of global macroeconomic conditions.

They add that they have led a “defensive tilt in our portfolio” and have sought to reduce the fund’s exposure to highly leveraged businesses. Instead, they are looking to invest in businesses with “robust balance sheets,” with dividend-paying firms also “coming back into fashion.” The family office is increasing its exposure to US consumer stocks and is buying up stocks in the “recession-proof” healthcare sector.

The family office’s moves reflect a wider market rebalancing away from more speculative start-ups and tech firms. These stocks commanded sky-high valuations in 2021, but have not been able to sustain these levels in inflationary and recessionary conditions.

The individual adds that the Gulf’s super-rich have benefited from the “valuation reset” in markets because of their strong presence in secondary markets. While exposure to public markets came down quickly because of the sharp drop in valuations, private allocations remained “quite high” as they are not marked to market. In order to sell-off this exposure, too, allocators have turned to the Gulf’s sovereign wealth funds and family offices – aware that they have deep pockets, further strengthened by last year’s rise in oil prices. The International Monetary Fund (IMF) predicts that members of the Gulf Cooperation Council (GCC) are set for a $1.3 trillion windfall this year as a result of this rise.

“Allocators have needed to get rid of exposure, and they’ve been prepared to do so at a deep discount,” the individual says. “That’s an area that looks particularly interesting to us – because we’re getting good quality exposure at a reasonable price.”

“That’s what most players in the Gulf have really learned from what happened in 2021 and 2022. You can’t really go for quality at any price – you need quality at a reasonable price,” they add.

Higher oil prices have bolstered the cash reserves of the Gulf’s richest families – but they are deploying this cash cautiously in an environment where volatility, inflation, and conflict are all still dominant factors. Family offices are aiming to emerge from this recessionary period with a solid portfolio of high-quality assets purchased at a significantly discounted rate.

Author: Harry Clynch

#Dubai #UAE #Gulf #MiddleEast #FamilyOffice

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