Asian Family Office - Recent Trends and its Non-financial Role

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Family office, if used properly, not only could achieve wealth preservation and growth, but could also preserve harmony and legacy of the family Family office, if used properly, not only could achieve wealth preservation and growth, but could also preserve harmony and legacy of the family [Sponsored Article] By Professor Winnie PENG, \nDirector of the Tanoto Center for Asian Family Business and Entrepreneurship Studies, \nHKUST Business School As the number of billionaires grows in Asia, the need for an efficient way to pass on family wealth and values, and to maintain harmony within the family, has been increasing. This has resulted in a dramatic increase in the number of Asian family offices. A report by the EY Family Office estimates that the number of family offices increased tenfold in 2017 compared to a decade ago. With the increasing number of family offices, they are creating greater impact and shaping the future of Asia. Understanding the following trends helps families and professionals better prepared for the future. Trend 1: A growing number of family offices built on “New Wealth” New wealth can be defined as wealth that has been accumulated recently, within one generation of time. It may refer to a large sum of money from a sell-off when the first generation of family business encounters a bottleneck, or when the second generations refuse to take over; it may have been obtained by monopolizing access to natural resources; or it could have been gained from emerging industries and high-tech sectors. Owners of such wealth are keen to have it properly managed, but private banks and asset management firms fail to provide adequate services to satisfy their need. This has resulted in the creation of family offices. According to the Forbes billionaires list in 2019, Hong Kong and Mainland China produced 71 and 324 billionaires respectively. Wealth in Mainland China has been accumulating at an astonishing speed. Forbes states that the private wealth of Chinese billionaires grew by 166% between 2013 and 2019. According to the Hurun Wealth Report 2019, there are more than one hundred thousand super rich families in China whose wealth grows by 11.2% every year and half of them with disposable assets of over US$100 million. Information technology, with a growth of 1.4% compared to 2018, outperformed finance and investment to become the third largest source of income for Chinese entrepreneurs on the billionaires list in 2019. \n The number of old wealth family offices is also on the rise, but its increasing rate is not comparable with that of new wealth family offices. Owners of new wealth and old wealth demonstrate differences in behavior, mentality, risk appetite, attitude towards money, and the approach to succession. The growth of new wealth family offices is expected to have a significant impact on the overall development of family offices in Asia. Trend 2: More diversified and direct investment portfolios Traditional old-wealth families are more conservative when it comes to their investments. Fixed-income products and stocks are popular investments among the older generations. As younger generations get involved in the family business, family offices are starting to make more diversified and direct investments, such as private equity and venture investments. Recent statistics show that private equity accounts for one third, or at least one fourth, of investment portfolios owned by family offices. Blue Pool Capital, the family office of Joseph TSAI – Co-Founder of the Alibaba Group – is an example. In August 2019, Tsai completed a US$2.35 billion deal to buy the Brooklyn Nets, making himself the second Chinese owner of an NBA franchise. Not only does this represent an expansion in his own field of investment, it is a model for investment diversification for other Asian family offices. Trend 3: More collaborative: co-investment among family offices In addition to undertaking new investments, family offices have embraced a new model of collaboration – co-investment. This enables families with backgrounds in different sectors to share resources, make use of each other’s strengths, and mitigate risk. This positive synergy leads to more stable investment returns. Co-investment among family offices takes at least two forms. The first is when a single family office seeks to collaborate with other family offices or asset management companies. However, in my observation, single family offices tend to co-invest more with other single family offices than asset management companies as the visions and the motives of family offices can be more aligned. The second is when several families engage in investment projects under a multi-family office platform which, in addition to allowing shared access to resources, also leading to reduced operational costs. Trend 4: Greater focus on investing in tech and emerging industries As risk tolerance is usually higher in the younger generation than in the older generation, when ...