Family Office

GUEST ARTICLE: Future Prospects For Family Offices In Asia

Patricia Woo Squire Patton Boggs Of Counsel Hong Kong 22 December 2015

GUEST ARTICLE: Future Prospects For Family Offices In Asia

This article examines the broad forces at work that drive the growth of Asia's family offices.

As Asia continues to set much of the pace in the rise of new billionaires (as seen by this UBS/PricewaterhouseCoopers study), it is understandable that the region is seen as having strong growth potential for family offices. There is an obvious logic: many Asia-based business groups are owned by families, so adoption of family office models makes sense. So far, the region is relatively new to this model when compared with the US or Western Europe. But as economic history demonstrates, the Asian “tigers” are fast learners. Family offices have a particular approach to issues such as investment, and are creating their own specific effects, as this recent article from law firm Withers shows.

In this article, Patricia Woo, of counsel, Squire Patton Boggs, the international law firm, examines the prospects for Asian family offices. 

The editors here are pleased to share these insights with readers and invite responses. The views expressed are not necessarily shared by this publication.

Perhaps the most frequently asked question about the family office market in Asia is how many establishments there are in existence. Although many think Asia lags behind developed countries with a high concentration of “old wealth” in the development and number of family offices, the practice of having trusted personnel attending to the various affairs of a wealthy family is, in fact, nothing novel in the region.  

The oldest family offices in Asia are usually units in the family business. Their functions vary from handling investments for the business founder and the family members to writing letters to and picking the right gifts for friends and business contacts. These units are not operated under a separate roof, but their value should never be underestimated. 

The last few years have seen the emergence of many single family offices. Some are established from scratch and some have sprung out of units within the family business and turned into a separate operation when the families are ready.

Why the family office market has developed in Asia 

The development of the family office market is driven by the surge in the number of ultra-high net worth families in Asia and of family businesses on the brink of intergenerational changeover. 

The statistics speak for themselves. According to the World Wealth Report from CapGemini and RBC Wealth Management, the number of ultra-high net worth individuals in Asia grew by 14.3 per cent year-on-year in 2014, compared with 6.9 per cent for the rest of the world. 

Around 85 per cent of $1 billion+ businesses in South East Asia are family-run, according to the Economist. Many Asian families who are business owners are about to go through the first handover to the younger generation. 

Increasingly, the patriarchs or matriarchs are becoming aware of the complexity of the issues they face when it comes to succession, and the negative consequences of a lack of proper planning. The younger ones see the merit of a family office as a neutral platform to help systematise the succession processes and enhance meaningful communication within the family. 

Traditionally, Asian businessmen have a tendency to invest the money they make from the business back to the business itself and often the line between corporate wealth and private wealth is a blurred one. The family office is thus also seen as a useful tool to ensure and oversee the segregation of the two pools of wealth and as being instrumental to the management of risks at the family level. 

Are there special features in the Asia family office?

Asian families have different characteristics, values and needs from their Western counterparts. It is very common for wealthy families to send the children overseas for education or professional training. The returning younger generation, having grown up and been educated in the West, might have a very different vision or business outlook from their parents and grandparents. It makes planning and setting up a family office more challenging. But once the idea of a “family office” is understood and accepted by the different generations, the outcome is extremely positive for those involved.

For many Asian ultra-rich families, the mobility of assets and people is a fact of life and thus an added dimension to family office functions. Many Chinese and South East Asian super wealthy have acquired or may be in the course of acquiring a foreign passport and are moving their assets overseas. Their family offices are often established outside of their own countries and the most popular family office locations in Asia are Hong Kong and Singapore, which is a practice vastly different from Western European and American families whose family offices tend to be where the families live.

Prospects for future growth

Investment-centric family offices have been and will continue to be prevalent in the foreseeable future. They are usually structured as a service or advisory company whose primary function is to provide management or advisory services to the family with respect to its internal funds and/or external investments through private banks, asset managers and fund of funds. 

This type of family office often displays a wider range of permissible investments than institutional funds and actively co-invests with banks and asset managers. It has become a key, valuable source of funding for new ventures and alternative investments such as derivatives, real properties, venture capital and private equity projects. It also presents new career opportunities for senior bankers or fund management professionals looking for an alternative, more private work environment. 

In addition to the anticipated growth in the number of single family offices and their sophistication, multi-family offices that service more than one ultra-high net worth or high net worth families are an important trend of growth in Asia. It is observed that most family offices in China are multi-family offices offering financial advisory, whereas single and multi-family offices are equally active in Hong Kong and Singapore. 

Single and multi-family offices represent a client pool with great potential for trust companies and financial institutions.  Private banks and professional trustees act as administrators and custodians of internal funds, trustees of family trusts, and administrators of private trust companies. Their services range from prime brokerage, custodial services, investment performance monitoring, compilation of trust accounts and various kinds of reports, document and record management and such other administration services as registered office and corporate services. 

(Editor's note: Here is a recent report on the number of wealth management-related institutions in Singapore. The figure, so the author of the report says, may not capture all the single family offices in the jurisdiction, so the real figure could be higher.)

Register for WealthBriefingAsia today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes