Asian family offices lag on returns: report

This is despite them spending a bigger share of their assets on investment activities than their peers elsewhere, according to research by Campden Wealth and UBS.
Asian family offices lag on returns: report

Family offices in Asia Pacific spend more on investment activities than – but were outperformed last year by – their counterparts in Europe and North America. These were among findings presented yesterday by consulting firm Campden Wealth and Swiss bank UBS.

The average return among Asian FOs was 7.6% last year versus 9.7% and 9.8% for those in Europe and North America, respectively.

Asian FO performance was attributed mostly to significant allocations of cash (a tenth of the typical portfolio), coupled with an emphasis on longer-term, direct private equity investments. It was, however, undermined by relatively high exposure to emerging-market equities (10%) and fixed income (7%) in the region (see figure 1).

Figure 1

“There’s a significant home bias in Asia, which results in an over-allocation to regional equities,” said Enrico Mattoli, Asia-Pacific head of investment products and services for ultra-high-net-worth clients at UBS Wealth Management

An allocation to global equities last year would have resulted in a 24.5% gain, he told AsianInvestor, while Asian stocks returned 13.5%.

In addition, Asia-Pacific families have among the shortest investment horizons globally, with two-thirds of FOs working to five years or less, and only 10% have a view of more than 10 years.

Meanwhile, offices in the region show a noticeably greater preference of in-house management of investment services as well as the most employee time spent on investment-related tasks.

The perception has been that Asian families spend more on professional services other than investment activities, but actually it’s more the investment-related services, said Eric Landolt, Asia-Pacific head of family advisory at UBS WM. “This is the first time I’ve seen this message in a survey.”

This relatively high spend on investment functions contributes to Asian FOs’ operating costs, which are the highest in the world, at 92 basis points of AUM per annum, compared to 86bp globally (see figure 2).

Figure 2
While a portion of these costs is attributable to the popularity of growth strategies in the region, even offices running conservative portfolios spend relatively more on investing. But cost-efficiencies should improve as the Asian FO segment matures, argued the report.

Presumably a consequence of this relatively immaturity, FOs in Asia are the smallest in any region. Average AUM is $480 million in the region – only a little over half the $890 million for the global average. They also account for a smaller proportion of their family’s total wealth, at 58% on average, as against 70% globally and a whopping 90% in North America.

Meanwhile, Mattoli confirmed a trend that AsianInvestor has started to see: that European families coming to the region now tend to establish offices in Singapore rather than Hong Kong. (See the cover story in AsianInvestor’s September magazine issue for more on this.)

Asked whether UBS saw the growing proliferation of commercial MFOs and external/independent asset managers as a threat to its business, Mattoli replied: “I’m not going to comment on their value, but on our strengths.”

Clients like the integrated bank model, he said, from a firm that can provide advice and financing across equity and debt capital markets, investment management and corporate advisory services.

Landolt also pointed to the scale and stability of a bank like UBS, as well as its asset-servicing capabilities in areas such as custody and prime broking.

*The research was done for The Global Family Office Report 2014, which surveyed 205 FOs globally, including 40 in Asia Pacific. They are all either single-family offices or “non-commercial” MFOs – that is, those that manage wealth only for a few close families and friends, but are not open to external client families.

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