The qualities needed to be an effective family office investment adviser could grow scarce in the coming years, warn industry practitioners.
Looking at the next generation, there is not a lot of experience coming down the pipe from private banking and other areas of finance that is being remoulded for purpose, several of them told AsianInvestor.
The skill sets required to manage a family's entire affairs are quite different, said Marc Geary, managing partner at Hong Kong-based multi-family office Major Domus.
“Being a true family adviser is very different from being a financial planner, which leans more towards a consultant charging an hourly rate or earning a commission," he said on the sidelines at AsianInvestor’s Family Office Forum in Hong Kong held on May 29-31. "I don’t see a lot of wealth managers who have the experience and who have made a bit of money themselves and are now using that to benefit families."
Singapore-based family office veteran Cheong Wing Kiat said 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.
“To most Asian families, their family businesses are their ‘face’. A family's business wealth could comprise 80% of their total wealth. However, private bankers and asset managers are chasing after the 20% non-business wealth. Most families would not be in favour of cashing out a family business and converting their business family into a financial family.”
It's a rare skill to manage a family's business interests and something most family advisers, whether family members or third parties, are not well-equipped for, Geary said.
"Are they going to be doing 10pm calls on a fund structure in Singapore or an acquisition of a [venture capital] business in the US, and then get up in the morning, talk to everybody and manage markets? It’s a very high-energy, high-maintenance business."
WALKING THE WALK
Tim Tsui, a former adviser to Hong Kong multi-family office Arbutus and now setting up a licensed private equity firm in the city, said most advisers and family members looking after investments lack the breadth of experience needed to cover the three areas of family advice identified by Cheong.
“In Hong Kong we have a lot of private bankers who have done well in that industry, but when it comes to being a family office adviser, acting for a family and looking out for their interests, I wonder if they can make that shift,” Tsui said.
Even family members with experience of the investment industry, and who might have a good understanding of their family dynamics, often come up short on the practical advice front, he said. “They think they know but a lot of the second generation of family members involved in investment are not that experienced at evaluating investments."
To illustrate his point, Tsui invoked one unnamed family where the son tried to set up an internal hedge fund that was subsequently shut down when it performed poorly. Inevitably, the parents drew the conclusion that “our son may not be the best fund manager.”
Tsui also cited a Beijing family with a son who studied at UCLA and spent six years in California. The son's English is now great, he said, but he only spent two largely unrewarding years working in business, “so how is he going to navigate the dangerous waters of investment for the family?”
“These [second-generation] people are ambitious, but they lack the domain experience in new and developing industries.”
Tuck Meng Yee, partner at Singapore-based single family office JRT Partners, observed that a broad spread of experience is always in demand by family offices - and is always lacking. “That’s because no one in the industry is formally paying for that," he told AsianInvestor.
"So typically, if you do come from an extended family that is involved in different countries and you’ve got the financial experience, you’ve had to deal with family dynamics and you’ve got the management experience working at other institutions, that’s great. But does everyone have that? Obviously not.”
Can they get that? - Yee thinks the answer is yes, but says “by staying in one entity and hoping to get all these skills, I think that’s very rare.”
“If you’ve walked in your own shoes and someone else’s, that’s extremely powerful. If you’re curious and not bedded down to one way of doing things, then yes. If you’re a quality generalist, that helps."
But he thinks the way industries are moving right now - with consolidation and siloing of specialists, "is not a helpful trend for any one person to gain a wide experience."
The next generation has the potential though and while Henry Chong, CEO of the Fusang Group told AsianInvestor he agreed it is rare to find an individual who has all the skills necessary to run a family's affairs, he added “I know plenty of second-generation family members who are extremely capable.”
“Certainly, hiring and retaining talented people, whether internally or externally is key in today’s environment,” said Chong. The biggest challenge for single families, he added, is developing a team mentality: “No one person can do everything”.
So faced with the challenge of training and incentivising the next generation of family advisers, how do you develop the talent?
“You avoid the millennials, step one," Geary said, presumably not forever but at least for now. "You get them at step two or step three. Go to the big banks and accounting firms. Hire those people who have been with an investment bank, working long hours and they've been battered, but they’ve learnt some stuff."