What do wealthy Asian families want from their private banks? How they do staff their family offices? What asset classes do they favour? How do they approach co-investments? How many fund managers and custodians do they use?
These are some of the many questions covered in the latest survey of Asia-Pacific family offices by Swiss bank UBS and consultancy Campden Wealth. This year the report, published yesterday, surveyed 29 single-family offices (having also included multi-family offices last year) ranging from under $100 million to over $1 billion in assets.
Some of the notable findings concerned FOs’ use of service providers, from asset managers to custodians to private banks.
For one thing, it emerged that FOs view private banks as little more than a necessary part of their business. “Private banks are something we have to use,” said one FO executive based in Thailand. “They are not partners we are going to get madly excited about. They are the boring-but-important bit of running the family office.”
The reasons that drive an FO’s decision to select a particular bank reinforces this sentiment. Costs, financial strength and communications with customers are seen as very important by 100% of survey respondents, but significantly less important are ‘referral from peers’ and ‘full-service capabilities’.
So how about fund managers? Only 29% of SFOs in Asia Pacific use six or more external asset managers, but 72% say they are likely to increase the number they work with in the next year. Of course, manager selection requires a certain amount of in-house capabilities of its own, which many SFOs may not have.
With regard to asset types, Asian FOs are particularly heavily allocated to direct real estate and private equity, finds the survey. These investments account for 16% and 15%, respectively, of the average portfolio. Direct real estate is set to see the biggest increase in allocation in the next three years, to 22%, while the PE allocation is set to stay the same and ‘cash or equivalent’ exposure is expected to fall by 6%.
Property assets are certainly becoming more popular among Asian families, reflecting the global trend, says Amy Lo, Asia-Pacific head of ultra-high-net-worth at UBS Wealth Management. The bank is seeing more and more requests from FO clients seeking to invest in “trophy assets” in London and New York, she tells AsianInvestor. This reflects what family offices in the region have told AsianInvestor.
Another trend is that Asian families are growing more interested in co-investments and also to allocating into sectors outside their areas of expertise. While the retail and property sectors have been traditional focuses, energy and healthcare are attracting attention, says Lo.
Meanwhile, FOs seem increasingly open to co-investing with family offices from outside Asia, she notes, citing an event run by UBS in May that gathered FOs from Europe, the US as well as Asia. In fact, 67% of FOs surveyed say they collaborate with other family offices on investments. This is despite the challenges that some say families face in co-investing.
In terms of location, more than 75% of Asian FOs set up in the last decade have been established in Hong Kong and Singapore.
Hong Kong is chosen largely due to geographical convenience to China and its having a larger number of millionaires and billionaires than Singapore, notes Dominic Samuelson, London-based managing director at Campden Wealth.
Singapore actively promotes the wealth management and FO sectors, which helps its case, he adds, and Australia, Indonesia and Taiwan do the same.
Finally, in China, the concept of family offices is still in its infancy, notes Samuelson. Most of the country’s wealthy are still in their first or second generations, likely in their 40s or 50s. The need for business and wealth transition are not imminent at the moment but this will definitely change in the next decade. Certainly others point to the rising emergence of Chinese family offices.
“Asia already has some very sophisticated FOs, but we suspect the China model will probably be a hybrid between existing Western structures and one that suits Chinese wealth holder needs and characteristics,” he notes. “[They are] more a vehicle for oversight of the next generation and mitigating political risk than specifically an investment or governance vehicle.”