The rise of family offices in Asia

Recently, Forbes, in its 2021 World’s Billionaire List announced that Beijing has surpassed New York as the world’s billionaire capital. The Chinese capital added 33 new billionaires in 2020, bringing its total to 100 edging out New York City’s 99. Prior to this though, Asia has been acknowledged as the top region for billionaires in the world. At the end of 2018, Chinese nearly one-eight of the global billionaire wealth was from China. According to a 2019 Knight Frank report, Asia had 787 billionaires, far exceeding North America’s 631 and Europe’s 452. In 2020 alone, China and Hong Kong added 210 new USD billionaires. By the end of 2019, Asian wealth management revenue reached $90 billion and pre-pandemic, was anticipated to reach $160 billion by 2025.

85% of Asia’s billionaires are of the first- generation, which means that in the next several decades there will be significant intergenerational wealth transfers in the trillions of dollars. Thus, Asian families are increasingly utilizing family offices as a means to maintain and grow the wealth of the family for future generations. In this article, we consider the peculiarities of family offices in Asia.

The Influence of the Next Generation

Up till the 2000s, when majority of family offices in Asia were established, families managed their wealth through holding companies or special purpose vehicles (SPVS). However, as the wealth in Asia grew, they found the use of multiple SPVS across jurisdictions cumbersome and began to institutionalise the management of their family wealth through family offices.

Although 85% of Asia’s UHNWS are first generation, several surveys indicate that it is the next generation who are driving force for the move towards family offices. The push for family offices, is coming from the new crop of UHNWS and the second or later generations of the old wealth who have been exposed to market developments, technology and ESGS.

According to Campden/ UBS Global Family Office Report, of the 7,300 single-family offices worldwide in 2019, the

Asia Pacific accounted for an estimated 1300 such family offices which represents a 44% from 2017. Campden noted that the average wealth under management amongst the 360 Asian family offices surveyed is around USD916 million each.

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Single-family Office or Multi-family Office?

Asian families are increasingly looking to have manage their wealth through family offices for greater control and professionalism, management of family dynamics and communication, effective generational wealth transfer and perseveration of wealth within the family unit.

Control of the family assets is a big consideration for Asian UHNWS in choosing a family office. Typically, UHNIS whose financial assets are at least $100million, would opt for a Single-family Office for this reason and those with assets below this amount choose to allocate their assets to professional Multi Family Offices, usually for the economies of scale.

This indicates that as Asia’s private wealth expands, more of the region’s UHNW families are likely to opt for SFOS. Families who opt for an MFO, typically would choose an MFO that is external to a private bank. It is also common in Asia for these MFOS to take younger UHNW client family members on secondment and for training and work experience, partly as a means of sustaining and building the family-wide relationships.

Location:

Asian UHNW families prefer to park and control their wealth close to home, with experts commenting that it is often preferable to locate the family office in the same time zone as the family and always in a politically stable environment. Furthermore, as a result of global increased regulations and scrutiny on “tax havens”, UHNW Asian families highly consider the reliability, solidity and reputation of the jurisdiction before setting up a family office.

Thus, Singapore is fast becoming the go-to centre within Asia for both SFOS and MFOS, as it meets the criteria that many families are looking for: Strong regulatory framework, established financial services industry and well-developed infrastructure; stable and probusiness government policies; highly regarded for transparency; skilled labour and talent pool amongst others.

Beyond Asia, there is a greater likelihood of the families choosing a jurisdiction outside the region if many or perhaps most of their assets are located outside Asia.

Investment Behaviours

Although there are a number of full-service family offices in Asia providing services ranging from investment management to concierge services, the majority of Asian family offices focus on investment. Looking at the investment landscape, it is clear that sustainable investing is on the rise. The UBS Global Family Office Report 2020 released in July said family offices are expected to more than double their allocation from 9% to over 19% in Esg-integrated investments over the next five years. This ties in with the fact that, as a whole, millennials are much more concerned with social and environmental impact than their predecessors have been. Meanwhile, this conscientious young generation is becoming more engaged and having greater influence over family office investment decisions.

Another core trend that the family office is helping facilitate is the shift from publicly marketable capital market assets to private, less liquid, investments. There is indeed a well-documented trend towards family offices investing more in alternatives. The asset types might include direct private equity, co-investing, venture capital, hedge funds, and real assets. This all provides diversification as well as, possibly, enhanced returns, and away from potentially volatile public markets.

Private label family funds is another trending strategy for wealth governance. Consolidating family investments into a private label family fund can ensure a separation of family assets away from the business assets, managed with a professional investment manager and with family members as the investors. This creates an ideal platform for an independent valuation of the net asset value and hence unit value for each stakeholder and thus can function as a succession planning tool, potentially reducing family frictions.

Estate Planning and Wealth Transfer

Having achieved great wealth, these UHNW families are increasingly focused on estate and wealth management strategies designed to preserve their wealth for future generations. These families are increasingly attempting to put structures in place that ensure that wealth is not dissipated after the third generation and family offices are instrumental in helping them formalize estate and legacy planning for inter-generational wealth transfer.

Given the massive amount of wealth expected to be transferred in the coming decades, there is significant effort by family offices in the main Asian financial centres to nurture and build relationships with the next-generation members of UHNW families not just the founders. MFOS and others in the wealth management are beginning to tailor their strategies, styles and offerings to the younger generation of clients.

There is a general expectation that these inheritors, being the primary pushers for the family office, are more likely to be involved in the running of the family offices. They are also are well-educated, and more inclined to seek specialist transactional advice for individual needs and situations, rather than simply sticking to one lawyer, trustee, or banker as their trusted adviser.

Conclusion

The evolution of family offices in Asia continues at a rapid pace, as families seek to institutionalise the management of their wealth with the aim of sustaining this wealth over multiple generations. Given the expected intergenerational transfer of wealth and the role of the younger generation in the establishment of family offices, there is little doubt continued growth in the number and sophistication of family offices in Asia is assured.

“The challenge for the families concerned is to clearly define their strategy, adopt the optimal structure and identify the best-placed service providers to support the multi- faceted functions of their family office. The challenge for the industry is how best to continue to evolve to adapt the current disparate range of services into a truly holistic offering.”