by Derek Au - Asia Asset Management
The market for Asian family offices has long been driven by ongoing wealth generation among its core of high-net-worth-individuals (HNWIs). This has happened in the context of largely consistent and vigorous economic growth enjoyed by the region in recent years.
Sharpening recent demand for family office services has been due to a higher standard of wealth management products now offered to an increasingly well-educated younger generation, whose focus is on diversification, philanthropy and tax compliance across different jurisdictions. Several renowned Western private banks and fund managers have set up family office businesses in Asia in the recent past, as a result.
One example is Credit Suisse, which created its family office practice in Singapore a few years ago as wealthy families in the city-state began going through the process of generational wealth transfer. Another Swiss financial giant, UBS, also offers family advisory services in Asia to help manage HNWI wealth.
More are expected to follow. According to a recent report by RBC Wealth Management and Capgemini, Asia-Pacific HNWI wealth grew 18%, compared to 12% in the rest of the world, reaching a staggering US$14.2 trillion in 2013. The HNWI population in the region over this period reached 4.3 million individuals, up 17%, compared to an increase of 13% in the rest of the world.
Hugh Stacey, managing director at Vulpes Investment Management, a Singapore-headquartered family office with AUM of $300 million, tells Asia Asset Management that Western family offices are keen to serve clients in Asia, which requires them to have a presence in the region. “If you really need to understand the region, you can’t do that from the state where your family office is based, such as Texas or New York in the US, or London and Switzerland in Europe.”
Andrew Porter, director of research at Campden Wealth, a research firm for family offices, notes that the recent spate of new family offices in Asia has included a number of European players, which have seen economic growth in their home countries lag behind their Asian counterparts. “European family offices have started to set up their offices or branches in Asia in earnest. I think the next step is to see what kinds of partnerships flow out of that. The Asian family offices are well networked. I think there could be a cross-over trend in terms of geography,” he said.
Nevertheless, one major obstacle in running family offices in Asia is the availability of top talent needed to build ties with prospective clients, Mr. Stacey continues. “I think the hardest thing is actually finding the right professionals who understand the nuances and specific idiosyncrasies of families who in the majority have made their money in a single industry, such as textiles or property. By definition, what you are looking to do with a family office is to diversify their wealth away from their core industry into other investment sectors.”
Mr. Porter adds that other stumbling blocks for foreign family offices running Asian businesses include their lack of networking capabilities, industry experience and ideas for expansion. He believes such challenges could be eased by collaborations with local family offices, such as co-investments. “Offices are able to leverage their respective comparative advantages as well as pool their resources and capabilities in order to seek market opportunities that they otherwise may not be able or allowed to invest in,” he explains.
Of the co-investment opportunities in Asia, Mr. Porter sees private equity houses as being of interest, as family offices generally tend to take a longer-term investment view. “Family offices are positioned to capitalise on these opportunities, due to strong professional and industry expertise and networks, as well liquidity availability, an appetite for long-term investments, and a renewed optimism in the global economy,” he notes. In terms of sectors, he adds that Asian family offices are increasingly interested in healthcare and European real estate as investments to achieve diversification.
When it comes to the selection of a preferred Asian hub, it often boils down to a decision between Singapore and Hong Kong. These two have long been rivals in luring foreign investment, given their commonality in liquid and transparent financial markets, investor-friendly government policies, low tax rates and easy access to other Asian markets.
Vulpes’ Mr. Stacey says Singapore – the city where he is currently based – has a strong regulatory framework in place and is seen as a safe city to work and live in. He believes the toss-up between Singapore and Hong Kong as the regional hub for family offices depends on the markets particular institutions are looking to exploit. Those that focus on opportunities in China or Northeast Asia may prioritise Hong Kong, whereas Singapore is the more likely platform if the main aim is to tap Southeast Asian markets, such as Indonesia.