Why Are Family Offices Becoming More Popular in Asia?
Family offices are an increasingly popular option among wealthy families in Asia. That’s partly simply because the region continues to get richer, creating an ever rising number of wealthy families, but the growth of the family office model also indicates that those families are taking an increasingly active role in managing their own investments—and often in a lot more besides.
“In the last two decades, Asia has been accumulating wealth at a pace faster than any other region,” says Harry Pang, a committee member of the Family Office Association Hong Kong. “With great wealth come great responsibilities. Wealthy families must consider a host of topics, such as how to invest responsibly, intergenerational planning, tax efficiency, confidentiality, philanthropy, legacy setting and many other complex issues. They are looking to customised solutions to their unique needs to manage their affairs and investments.”
Don’t miss: These Are Asia's Richest Billionaires in 2021
An increased interest in actively managing family affairs often coincides with a passing of the reins of the power to the millennial generation, with an accompanying greater emphasis on purpose; for many, sustainability is replacing wealth generation and preservation as their primary imperative.
“Relatively speaking, the younger generation is, as a group, highly educated, well travelled and exposed to all the most advanced ideas and themes from around the world,” says James Wey, head of Singapore and Southeast Asia, Wealth Management for JP Morgan Private Bank. “Sustainability and ‘doing well by doing good’ are things that we hear more and more from our partners.”
Adds Pang: “Millennials are increasingly assertive in presenting their views to make a positive social impact. They are more progressive, more environmentally conscious and more purpose-driven. They are more likely to factor in the sustainability aspect in their decision-making, as they recognise the importance of a clean and safe future.
“Millennials are also a lot more progressive in defining value creation—they tend to adopt a more holistic view on evaluating financial achievements as well as positive social impacts, as they believe the value they generate from their wealth should do good to the broader community as well.”
The appetite for innovation among this group also extends to methods of investing, he says.
“There has been a growing diversification in asset classes, including a rising interest in investments in startups, SPACs [special purpose acquisition companies] and digital assets. The first generation of families in Hong Kong who built their wealth upon real estate or ‘old economy’ businesses have traditionally focused on listed securities, fixed income and real estate. However, in view of the low-interest rate environment and market volatility, they also search for more promising investment return through private deals, and younger-generation investors are paying more attention to impact investment or ESG-related themes.”
Another aspect of family offices’ appeal is their relatively straightforward structure, streamlining the ways in which family wealth is managed. Often, for example, they replace complex networks of offshore holding companies that provide confidentiality but can be difficult to manage, particularly in areas such as tax compliance. (Plus, these days, owning a network of offshore companies is increasingly just kind of a bad look.)
“With new regulations from tax havens, families need to think about a new approach,” says Eva Law, founder and chairman of the Association of Family Offices in Asia. “You still need an appropriate structure for any offshore investment, but with the CRS [the Common Reporting Standard, a global harmonisation of tax reporting introduced in 2017 to encourage greater transparency], is it still necessary to have that kind of offshore presence?”
For Kathlyn Tan, the evolution of Rumah Group, the Singapore family office of which she is a director, has been both organisational and purpose driven.
“There has been a natural growth of family offices as the complexity of generational transfers creates a greater need for reorganisation, as well as often the introduction of professional support,” she says. “Also, as we embrace the need for more responsible and sustainable investments, organising it under a family office allows a more strategic approach and also caters to the wider needs of multiple family members.
“Before streamlining and renaming Rumah Group in 2019 to how it is today, our activities began with my father more than 20 years ago as a cluster of SPVs [special purpose vehicles] to hold family investments. Having two generations working together, we restructured this to suit our preferences.”
Those preferences now put sustainability front and centre. “The definition of sustainable investments has evolved globally over the years. My father set the foundation by being cognisant of economic sustainability and social impacts; and the next generation introduced a focus on environmental sustainability about four years ago. We’re passionate about the environment—particularly the ocean—and believe it’s our responsibility to deploy capital wisely and contribute positively where we can.”
Many family offices have evolved to take on roles beyond investment, from tax to lifestyle management to education to staffing. Tan says Rumah takes on some of these functions itself and outsources others.
“We handle a variety of functions in-house, including philanthropy, accounting and building management; however we use appropriate professional consultants for matters such as tax and legal, as well as fund managers for specialised areas.”
While most family offices are independent, the growing market for external advisors has also prompted a growth in so-called multi-family offices. They fall into two categories: ones involving multiple family offices, who decide to work together for reasons of efficiency and economy of scale, a model that’s rare in Asia; and ones driven by external, third-party advisors, who then attempt to sell their services to multiple families.
“The rise of multi-family offices is a product of the need for more professional investment management,” says Pang. “Increasingly, families are realising that relying on their own expertise or trusted accountant to manage their assets is simply not enough to navigate the complex and ever-changing markets nowadays. For most families, hiring and retaining a professional investment team is not always a viable option, for reasons of cost and the ability to hire, manage and retain top talents. Therefore, a shared multi-family office model becomes an attractive solution.”