A family office is a strategic tool to create a successful family legacy

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An economic slowdown in Asia continues to affect wealth creation, but it has not stopped the growth of family offices, as unsatisfied demands and unresolved family succession issues remain. The term “family office” is generally used in industry circles to mean an arrangement in which the office handles basically anything for a wealthy family, from financial and administrative affairs to philanthropic efforts and governance. At their core, they are confidential private offices for families that have significant wealth. Around US$200 million is usually considered the minimum sum to open a family office because of the scale needed to maintain an effective strategic asset allocation.

“Utilising family offices, or entrusting one’s family wealth and affairs to professionals, is increasingly popular in Asia Pacific,” says Anton Wong, head of the Key Clients Group for Asia Pacific at BNP Paribas Wealth Management. “This is a natural trend, as more of the region’s first-generation entrepreneurs are ageing and passing on the baton to the young, thus requiring more professional help to maintain, preserve and govern.”

Enrico Mattoli, head of the Global Family Office for Greater China at UBS Wealth Management, echoes Wong’s sentiments. “A family office is a strategic tool to create a successful family legacy,” says Mattoli. “It facilitates the transfer of intergenerational wealth management.” He explains that Asia is starting to see these first- and second-generation transfers of wealth in Hong Kong and Singapore. “It’s very exciting—it’s the place to be.”

Family offices have a long history in Europe, where they first emerged after the Middle Ages before spreading to America following the Industrial Revolution. “Now, in Asia, as second- and third-generation individuals have returned from studying abroad and have worked at investment banks, they are saying: ‘There is a lot we can do here; let’s put a structure in place,’” explains Mattoli. “Where it used to be a trusted accountant, chief financial officer or personal assistant tasked with maintaining access to all the various bankers, this is now instead being done by a family office. You can have one single entry point of contact to manage all the banks and counterparties.”

Simplification and all-encompassing services drive the desire for family offices, but open dialogue is also key. “Because the responsibilities of a family office can be so encompassing, different service providers such as law firms, independent asset managers and private banks may indeed have a vastly different array of service propositions that suit different needs,” says Wong. “Regardless of whether there is a family office set up, from a financial and investment management point of view, having a dialogue and relationship with a handful of reputable intermediaries is generally a good idea.”

The specialised focus of a family office, which can include concierge services and perks such as personal bodyguards, comes with a price—currently around 99 basis points (equivalent to 0.99 per cent) globally and 121bp in Hong Kong.

So who exactly is managing the money? “Who has responsibility to manage the
money is ultimately the decision of the family,” says Wong. “The concept of a family office is broad enough to encompass either cases where the officers are portfolio managers with stated investment mandates,
or the family principals can employ themselves as the manager. A family office may even delegate the management of investments to a bank, utilising its discretionary portfolio mandate capabilities.”

Mattoli says that at UBS, for a large Hong Kong family office, there is often a chief investment officer and an investment committee. The global family office business is a joint venture with the investment bank, providing the family access to traders across capital markets, fixed income, equities and foreign exchange. The family office also provides access to prime brokerage for hedging and shorting, as well as illiquid direct investments such as real estate.

Philanthropy also comes into play. Fifty-five per cent of family offices in Asia-Pacific are engaged in philanthropy through the family office, according to Campden Wealth Research’s latest Global Family Office Report, published in October in partnership with UBS. The report, which surveyed principals and executives of 224 family offices based in 37 different countries and representing more than US$200 billion in wealth, seems to reiterate the fact that second and third generations want to be involved in the
family legacy.

Another issue highlighted by the survey is that smaller boutique family offices are having a hard time keeping up with regulatory issues. Family offices need to be set up correctly in terms of governance rights, management, structure, investment objectives and so on.

One only has to read the local Hong Kong press to see examples of family squabbles and animosity destroying family legacies and endangering wealth succession plans. Often, a major issue is that the family shareholding wasn’t completely structured before the beneficial shareholder died.

An effective family office can neutralise such issues. Mattoli says it best: “There are complexities to large wealth. If you don’t set it up correctly, it’s going to cost you a lot of money and be counterproductive.”