The International Family Office Association (IFOA) is seeking to set up a presence in Hong Kong within the next four months after the launch of its inaugural office in Sydney this May.
The not-for-profit association has set itself the goal of providing a central virtual location for research, education, collaboration and guidance to cater to families and professionals in the region servicing the rapidly growing family office sector.
It was established by three Australians: Stephen Harrison, who runs his own hybrid family office; Mark Ohlsson, whose family has been in private equity and venture capital for 30 years; and Scott MacDonald, who worked with an investment research company owned by a US-run family office.
MacDonald says that one of the reasons the trio launched the association, which is seeking the support of sponsors, was to do more vigorous research on the family office segment in the Asia region.
The need to plan for succession and find a suitable strategy to manage family wealth has seen a plethora of independent family offices and trust companies spring up in the region, alongside those run by private banks and the wealth management divisions of integrated banks.
This, notes MacDonald, presents Asia’s population of ultra-high-net-worth individuals with an increasingly fragmented market place. He reckons there are now over 2,000 family offices in the region, out of a total of 7,000 worldwide, of which he estimates 70% are single family offices.
Given projections for wealth formation in the region – Asia-Pacific saw high-net-worth wealth expand over 12% last year to $10.8 trillion, according to the World Wealth Report 2011 – MacDonald argues there is a need for such an association, and sees Hong Kong as a key location.
“There is a lot of new money coming out of the mainland into Hong Kong, and as a rule there is a greater need for the owners of that wealth to be made aware of their options,” says MacDonald. “That is why an association of this type adds value, because it is independent.
“The issues that this new money will have to confront are: how do we get better structured and how can we learn from other family offices in other parts of the world?”
The IFOA plans to have physical offices around the world, with a Hong Kong launch pencilled in for September or October this year. Presences in Singapore and Tokyo are also on the cards. But MacDonald notes that the IFOA concept is to encourage online communication, in keeping with the recent trend of social media.
“People want to talk to other people and learn from their experiences and what they have done,” he explains. “Our concept is an umbrella whereby we want to encourage a type of social media.
“That does not mean we exclude money managers, private equity experts or tax advisers and the like. In fact, we encourage those specialists to join in and be part of the association. We want them to be providing content and guidance.”
But MacDonald stresses that the association is impartial and adopts an open-architecture structure. “It is a place where you can go to start your research, as opposed to a fragmented approach where you go and speak to six different private banks which have expertise in certain services.”
He notes that family offices and the wealthy are becoming far smarter at running their own money, with more investment professionals from the banking industry now willing to go and work in or set up family offices. In fact, he sees the chief challenges that family offices face as recruitment and retention of quality staff.
“People with wealth are going to start to look to employ people and clearly those people are going to come from the private banking sector,” he says. “It is where people are going to wish to take more control over their financial destiny, not only accumulation, but maintenance.”
While this may create challenges to private banks, MacDonald notes that private banks have the advantage of balance sheet strength as well as the ability to source innovative solutions in-house.
Asked whether he thinks the region’s wealthy are better served in general by independent family offices rather than those run by private banks, he says it depends on the interests of the family.
“You may well be better off to have your own family office if you are operating businesses and are active in private equity and property development, for example, simply because you need those skills in-house to run the business.”
On the question of where he expects to see the biggest growth in family offices in Asia, he replies: “I think the position Singapore has taken in asset management, with their tax regime and their general independent status, is going to make it a very attractive port.”