Asian family offices facing transformational challenge

May 9, 2019

Family offices face a major millennial challenge in the years ahead. In the meantime, they are becoming more partial to direct real estate and private equity investments.

Asian family offices facing transformational challenge

Family offices in Asia are taking a keener interest in alternative investments as the search for yield and consistent returns intensifies, but they face a millennial challenge in the years ahead due to differing generational skills and attitudes.

That's according to a new study of family office trends by the Singapore-based multi family office Golden Equator.

Currently, wealthy families in the region are more bullish about the outlook for private equity and property than their US equivalents, Shirley Crystal Chua, the firm’s founder and chief executive, told AsianInvestor.

“They are now focused on direct investment opportunities, as they see better prospects in other businesses and real estate,” she said.

Some family patriarchs are especially interested in technology investments that can complement their existing businesses.

“For example, a real estate family that owns numerous hotels will be more inclined to invest in PropTech (technology applications typically in real estate) that can be used in their hotels,” Chua said.

But, increasingly, they are also looking at direct investments well beyond the main family business and are more willing to invest in private equity, providing they can retain some form of control, she added.

As a result, there is some preference for direct company investments or co-investments alongside professionals over private equity funds.

Shirley Crystal Chua

GENERATIONAL DIVIDE

According to the annual UBS/PwC Billionaires survey, Asia’s economic expansion is creating a new billionaire every other day, and that trend is still accelerating, particularly in mainland China.

But the generational divide is also becoming wider, Chua said.

"The next-gen, most already born into wealth, have a focus [that] is much less on creating more wealth but more on chasing their passions and impacting society [positively],” she said. "This is also a function of their education, which often has a strong Western influence.”

And while some patriarchs may be tech savvy, their children and grandchildren have a whole different mindset when it comes to utilising technology.

So a major transformational challenge looms for wealthy Asian families and family offices, with businesses and wealth set to change hands to a generation that is digital-first in nature.

"Millennials are more engaged when it comes to new investment themes such as blockchain/bitcoin, robotics, impact investing and sustainable investments in line with ESG criteria," Chua said.

But she doubts whether they have the necessary skills to handle this transformation successfully.

"Our observations are that next-gens are more educated and have had more social and work exposure compared to their previous generations, but this next generation of leaders would require new and additional skill sets and traits to manage both the family business and its wealth."

As previously reported, traditional wealth managers may not offer the holistic solutions needed by families. Looking at the next generation, private bankers report there are not many experienced relationship managers coming down the pipe who are being moulded for the purpose of advising family offices.

As such the qualities needed to be an effective family office investment adviser could grow scarcer in the coming years.

Singapore-based family office veteran Cheong Wing Kiat told AsianInvestor a family adviser should cover three categories: family, family business and family wealth and noted the general "lack of global wealth management experience” needed to cover all three key areas.

The solution to the problem may be in up-skilling millennial family members in areas such as automating the consolidation of segregated portfolio performance, Chua said.

"More of the next-gen family members are also looking at the addition of robo-advisory and quant trading strategies into their investment portfolios. Millennials [also understand] trending technologies more deeply, which can bring great value add to their family business."

Together with Japanese entrepreneur Taizo Son, brother of SoftBank founder Masayoshi Son, Golden Equator expects to launch a foundation later this year.

Now based in Singapore, Son is focused on backing technology entrepreneurs who share his goal of improving the lives of ordinary people through better healthcare, education and general improvements in living standards.

Chua said the foundation is squarely aimed at next-gen family members interested in pursuing a philanthropic purpose.

If you'd like to know more about managing family offices, sign up for AsianInvestor's Family Office Forum 2019 on May 20 in Hong Kong.

This event, part of AI Week, will convene regional senior investment executives from single and multi-family offices to discuss how best they should allocate their capital, how they can build robust investment teams, how they select their managers, and how they can adapt to intergenerational wealth transfer in uncertain times. Please find more details here: www.familyofficeforum.asia/