In Asia, especially in China, owners of family businesses are usually first-generation wealth creators, who still prefer to put all the assets under their control. Even if they decide to set up family offices, they may just hope to use them to park their idle cash or employ their relatives rather than growing their wealthy.
Wealth creation in the region is still very much tied up with the family business and family offices have yet to capture the imagination of the region's wealthiest families as they have done in Europe and North America.
However, as the second and third generations take rein in the family business, things are going to change in the long haul. This will see more family offices being created and the greater professionalization of current ones. And the focus on Asia's family offices is also shifting to improving the quality of services.
According to the second annual UBS/Campden Wealth Asia acific Family Offices Survey released in October, core services, related to investment management and reporting to the founding family, are on a trend towards in-house provision, whereas supporting services such as legal counsel or tax advisory tend to be outsourced.
In addition, so-called "softer" services, such as yacht or aircraft management, don't appear to be very high on the priority list of Asian family offices. Despite viewing the current operating environment as relatively benign, family offices are increasingly putting in place formal risk-mitigation procedures.
Tax regulation has been widely cited as a concern, with diversification across several jurisdictions being used as the main strategy for mitigating this risk. Consolidation of offerings is the prevailing theme, and the scope of services is stable.
The survey also found that Asia acific's wealthiest investors, including those from China, are moving much more of their money into direct investment opportunities. However, they are away from capital markets as they see greater opportunities in other businesses and real estate rather than equity and bond markets.
In this respect, family offices in Asia are following trends in Europe, where concern over some financial products has led many of them to embrace direct investing in a more concerted manner in the last few years.
"Entrepreneurial families have continued to play a key role in contributing to Asia acific's growing share of global wealth. Although the family office model is still in its infancy in the region, we continue to see increasing client interest in topics such as family business continuity, family decision aking, wealth structuring, philanthropy and the setting up of family office structures," said Kathryn Shih, CEO of UBS Wealth Management Asia Pacific. "We believe that as the second and third generations assume roles of leadership within the family businesses; we are going to see the concept of family offices changing to focus more on planning for the future and putting strategies in place to ensure the continued success of long asting family legacies."
The Hong Kong, Singapore and Australia Nexus
The two Asian financial centers of Hong Kong and Singapore have established themselves as the pre-eminent locations for family offices in the region, and are increasingly attracting family office money from outside the region as well. They are where the majority of family offices are being set up more than 75% of those established in the last 10 years in Asia have been launched in the two cities. The dominance of financial expertise in these centers will ensure they will see much of the development of the family office model in the region in the years ahead.
Typically, when family offices are set up for families in Asia ex-Japan, they are based in either Hong Kong or Singapore. But any decision over where families set up their investment office isn't necessarily decided by geographical considerations.
The UBS/Campden Wealth survey found that family offices set up by mainland Chinese families don't necessarily base their office in Hong Kong. Actually, Singapore is just as likely to be where a mainland Chinese ultra-high net worth will set up a family office as Hong Kong would be.
Wealthy mainland Chinese families have often set up family offices in Singapore instead of the geographically more convenient, and arguably more culturally connected, Hong Kong.
As one head of a multi family office said: "Some mainland (Chinese) families choose Singapore because that's one sovereignty level removed from China." Singapore's government has done much more than rival Hong Kong to develop the family office market. The Monetary Authority of Singapore the city state's central bank has been particularly encouraging in promoting the wealth management and family office sectors in the country.
If Singapore has pursued an interventionist strategy to encourage family offices, Hong Kong has followed a more laissez-faire approach. That approach, coupled with the greater number of billionaires and multi-millionaires based in Hong Kong means it has a slight edge over Singapore in terms of the number of family offices it houses. Nevertheless, the family office environment is strong in both cities.
Australia will also play a role in the development of the family office model in Asia-Pacific, although it is likely to be largely domestic, as much of the wealthy families setting up family offices in the country will originate from Australia and not the rest of the region.
Some wealthy Chinese are also looking to base more of their activity in Shanghai as the city strives to boost its international image by opening a pilot Free Trade Zone and developing an advanced financial industry. However, the scale could be limited as long as the capital account and currency flows are controlled.
Characteristics of Family Offices in Asia-Pacific
The optimum level of assets under management for establishing a single family office in Asia is estimated at $235 million (
