Rise of family offices in Asia: friend or foe to money managers?

Family offices in Asia-Pacific are on the rise, and money managers are finding ways to tap this ballooning segment — either by working with them as they would institutional clients, or by setting up wealth management arms to service them.

The wealth management market in the Asia-Pacific region is expected to grow to $812 billion by 2030, up from $248 billion in 2020, reflecting a 12.7% compounded annual growth rate, according to Allied Market Research.

Singapore and Hong Kong, Asia's two major financial hubs, have rolled out incentives to draw family offices including tax breaks, ease of access to markets and pathways to residency.

There were 1,084 billionaires in Asia-Pacific in 2022 worth a total of $4.2 trillion, according to the UBS Billionaire Ambitions Report 2022. Half of them (540) are from mainland China, 166 from India, 56 in Hong Kong, 40 in Japan and 26 in Singapore.

At the end of 2021, Singapore had 700 family offices, up from 400 in 2020. In a Parliament sitting on March 20, Tharman Shanmugaratnam, the senior minister in charge of the Monetary Authority of Singapore, revealed that there are 200 single family office applicants and one multifamily office application pending approval.

Several prominent names such as James Dyson, Ray Dalio, Mukesh Ambani and Sergey Brin have set up family offices in Singapore.

In late March, Hong Kong held a wealth summit and announced eight measures including tax concessions, art storage facilities and a new Capital Investment Entrant Scheme to draw wealthy families. The capital investment scheme allows individuals to reside and run a business in Hong Kong if they invest a certain amount of money in local asset markets, excluding property.

Hong Kong Chief Executive John Lee Ka-chiu had said in his 2022 policy address that the city aims to attract 200 family offices by 2025.

Industry players observed that some of these family offices in Asia are highly sophisticated, such that asset management firms have started targeting them as potential institutional clients.

Multifamily offices, which manage funds for several families, tend to be run by ex-investment professionals from asset managers or private banks who have extensive networks and experience in servicing ultra-high-net-worth clients, explained Kamal Bhatia, head of investments at Principal Asset Management, which has $714 billion in assets under management.

Resources are limited at multifamily offices, and they generally manage portfolios with funds of funds rather than direct investing, which gives asset managers the opportunity to help them invest in other asset classes such as real estate they do not have direct access to, he said.

As for single-family offices, which are set up to serve just one family, every portfolio looks different because every family has its unique goals and preferences, he said. But there are some commonalities, and some are large enough to be fairly institutional.

"Resources at SFOs tend to be quite sizable, especially for higher-net-worth families, which may employ several dozen investment professionals with more specialized areas of expertise," Mr. Bhatia said.

"Some larger SFOs may use 10 different managers for a multiasset portfolio, while some would use a far more sophisticated construction of fixed income, equities, long/short and alternatives. Overall, there's a greater tilt toward private market assets and bias to businesses that they are more familiar with," he said.

Helen Zhu, chief investment officer of Nan Fung Trinity, the family office arm of Nan Fung Group, the Hong Kong-based conglomerate founded by prominent industrial tycoon Chen Din Hwa, said that people have compared the firm to an institutional asset management type of operation, but there are significant differences.

For instance, the way investment strategies are run at NFT is different from the likes of BlackRock Inc., where she was managing director and head of China equities from 2014 until 2019.

"First of all, our focus is not really asset gathering. Our focus is to make sure that we achieve the best investment return for our group and for our core investors; that makes a lot more difference to us than any kind of management fee," she said.

"And secondly, most asset managers are offering relative return products, but we're really just looking for absolute return ... We need to use different asset classes to hedge or we can use more cash to hedge, but at the end of the day, most people just want to make money. They don't actually care if the market is down 20% or down 18%. They won't be happy about it, even though the asset manager has done their job and outperforms," she said.

She did not disclose the size of the family office's assets.

Some asset management firms have set up or started to grow their wealth management arms to better serve family offices.

The Partners Group, which has $135 billion in AUM, recently formalized its global wealth management team based in Singapore, although Henry Chui, who was hired in September last year from Nuveen to lead the Singapore-based Asia wealth team, said the firm had always served private wealth clients.

The firm only recently decided to launch a separate, dedicated team in response to "the global trend where we've seen private wealth become a large addressable pool of assets," Mr. Chui said.

Private wealth as a whole has been underallocated to alternatives, with allocations in the low single digits, he added. "So for us, it was a strategic decision to be in Asia, and to also put a dedicated wealth team in order to capitalize on the market, globally, but also in Asia."

The six-person team is based in Singapore and Mr. Chui is hiring someone to cover private wealth in Japan, with a view to grow a Japanese team incrementally. The team's main target markets are Hong Kong, Singapore and Japan, he said.

Partners Group works primarily through distributors to reach the wealth segment but also has personal relationships with single and multifamily offices, he said.

Partners Group did not break out its Asia assets under management.

Generally, sources agreed that the growing pot of wealth in the region is big enough at the moment that multifamily offices don't yet pose a threat to asset managers.

However, they do present challenges — as well as opportunities — for traditional money managers.

On one hand, multifamily offices can act as a distribution channel for funds and products to their network of high-net-worth clients, but on the other, they can compete with traditional investment managers by providing a range of services beyond asset management, such as estate planning, tax planning and family governance, said Jason Lai, CEO of wealth management for Asia at Schroders PLC.

"Furthermore, MFOs may have certain advantages over traditional investment managers, such as greater flexibility and agility, as well as the ability to provide more personalized and tailored services for their clients. This can make it more challenging for traditional investment managers to compete effectively in the HNW market," said Mr. Lai, who is based in Singapore.

Schroders had £737.5 billion ($889.3 billion) in AUM at the end of 2022.

Farro Capital, which was set up in Singapore in late 2022 by a group of private bankers, a lawyer and a single family office executive, is one such multifamily office that offers a variety of services including asset allocation, succession planning, philanthropy advice and risk management. The firm reached $1 billion in AUM in early March, four months after launching the business.

The company has an in-house investment team that runs discretionary strategies for its clients, but also manages non- discretionary funds for clients through external fund managers and private banks.

As such, the team sees private banks and asset managers as partners rather than competition, said Hemant Tucker, co-founder and CEO at Farro Capital.

They have also found surprising partners in single family offices who have "limited scope of expansion," Mr. Tucker said. "They partner with us so we offer services which they don't have, maybe on the research side or philanthropy side," he said.

Some families who have started to consider preserving and growing their wealth for their children have begun taking an endowment approach to their investments. Part of Farro Capital's work is educating and guiding them through the process.

"Educating family offices to take up an endowment approach to investing for not just wealth preservation but also long-term compounding of wealth for future generations," Mr. Tucker said. That also meant shifting their mindset away from knee-jerk reactions to stock market volatility and taking a long-term view of their investments, he added.

The Farro team observed that a large portion of the wealth in Asia is held by first-generation entrepreneurs, and there is currently a "massive transition of wealth happening," Farro co-founder Manish Tibrewal said.

"When (the first generation) manage it, they are a lot more hands on, but when it goes to the next generation, they want it to be managed professionally," Mr Tibrewal said.