The family office concept is less well established in Asia than in Europe or the US, but that is changing as regional wealth grows, along with the need to preserve and transfer it to the next generation.
And as the scale of single- and multi-family offices (FOs) grows, so does the threat posed to their traditional relationships with private banks, argue FO executives.
An Asian FO will typically use a number of private banks to help manage its wealth, says Ong Iu-Jin, chief executive of Singapore-based multi-family office Deauville Private Office.
But private bankers are starting to recognise the potential of setting up their own multi-family offices (MFOs), whereby they can look after several entire portfolios, rather than just parts of them. “In future, we will use more direct, institutional type service from investment banks and asset managers,” he notes, suggesting other FOs will do the same.
“We’re not at the tipping point yet,” adds Ong. “But change will happen very rapidly – perhaps in one to three years, when the idea has percolated for long enough, and when more private bankers set up family offices for their own large [FO] clients.”
FO executives and other market participants suggest that $500 million-plus in investable assets is the sort of figure that justifies setting up an FO.
“Once the rise of FOs really gains traction,” says Ong, “and the notion takes hold that this is a more sophisticated way of doing things, we could see disturbance in the wealth-management industry.”
Ong set up Deauville four years ago, and the MFO now has seven staff in total, four of which are client-facing and three deal with operations and support. It is close to having $1 billion under management, which he sees as “the critical hurdle to becoming a sustainable business”.
Others make a similar point. FOs generally try to avoid dealing with private banks as much as possible, notes Peter Douglas, founding principal of Singapore-based GFIA, which runs FO money. Their aim, he says, is to buy expertise at an appropriate price, avoid basis-point fees, commingled product, standardised platforms, etcetera.
Moreover, the younger generation within Asian families are better educated than in the past and often have the skills to deal direct, notes Scott MacDonald, Sydney-based executive director and co-founder of the International Family Office Association.
A fairly common approach, particularly among larger FOs, is to make allocation decisions themselves and use private banks for trade execution. However, like private banks, FOs face big challenges, the most significant being finding and retaining talent, says Deauville’s Ong, reflecting a widely held view among FO executives.
There are two things he particularly looks for when hiring: people who have deep, trusting relationships with clients; and those who have strong investment competence in a certain area or areas – say, in equities or macroeconomics, or both. Yet these two factors don’t always overlap; people are often one without the other, he says.
That very shortage of human capital is a strong argument for working with an MFO rather than setting up a single FO, argues Ong. “The cost base and battle for talent is so intense that the cost of running a true SFO may require several people with specialist competencies,” he says, “and retaining that talent poses a tremendous challenge and cost.”
Despite such above-mentioned trends, private banks have been busy ramping up their dedicated FO coverage in Asia, with Citi, Coutts, Credit Suisse and UBS among those to have made hires to that end in the past 18 months.
* See the cover story of AsianInvestor magazine's May 2012 issue for an in-depth look at the family office sector in Asia.