Understand The Patriachs In Asian Family Offices
24th August 2015 Jeremy Hazlehurst, Business Family
Is there a boom in Asian family offices on the horizon?
When Joseph Tsai, executive vice-chairman of Alibaba, the Chinese ecommerce group, announced recently he was setting up a family office to invest his $6bn fortune, it was hard to avoid the sense of momentum building. A boom in the number of Asian family offices has long been predicted; now it could be starting in earnest.
Traditionally, family offices have been largely a European and American phenomenon. Most super-wealthy Asians have preferred to keep their money in their business, creating conglomerates in the process.
That led to some vast but unwieldy family-owned businesses, such as Samsung, the South Korean group, which is involved in everything from internet-enabled fridges to theme parks and whose organisational chart resembles the blueprint for a nuclear reactor. Another, Tata of India, encompasses an empire of more than 100 businesses, ranging from the Tetley tea brand to Jamshedpur Utilities and Services Company.
But wealthy Asians are finally embracing family offices. As recently as 2008 there were no more than 50 family offices in Asia, yet by 2012 that had jumped to about 200. This is still a tiny figure compared with 3,000 in the US and 1,000 in Europe. Asia is now home to a third of ultra-wealthy people — defined as those with net assets of more than $30m — but less than 5 per cent of family offices.
There is evidently vast potential, not least because the way in which money is being made is changing.
In the past, Asian wealth tended to come from resources, manufacturing or property. But many newly wealthy Asians are western-educated and have made their money in services — many in technology — and feel more comfortable with finance. Essentially, the nature of their demands is evolving, and with it a need for more responsive family offices.
But while more family offices will open, the model is being adapted to suit Asian clients. Interestingly, many of the differences stem from psychology. What many of these families across the region have in common is that they have made their wealth recently. And the newer the money, the more risk-averse the client, research suggests.
Fifth-generation family business members are happy to hand over their inheritances to bankers, but tycoons and the children of tycoons are keener to trace the path of every single investment decision that affects their newly acquired cash.
Asian family offices appear to be following this model, according to The Institutionalization of Asian Family Offices, a report by Insead, the French business school, and Swiss wealth manager Pictet. Most Asian family businesses, it says, are in the 'nascent' stage and display 'a high degree of family control'. A patriarch, rather than a chief investment officer, tends to steer financial decisions. Where there are processes in place, they are often overridden by the head of the family.
The nature of the investments is also determined by the age of the family’s wealth: new money tends to invest in familiar assets. Lei Jun, for example, the founder of Chinese smartphone maker Xiaomi, recently created a venture capital fund called Shunwei to invest in technology start-ups.
The Insead-Pictet report says most of the nascent-stage Asian family offices allocate 90–100 per cent of their money to Asia. There is also a bias towards local property, with some young family offices investing 70 per cent of their money in the asset class, compared with an industry average of 10 per cent.
Is this a good idea? It certainly seems to carry some country and sector risk. But anyone wanting to understand Asian family offices should first understand the penchants and specialisms of the family’s head. Until the next generation takes over, anyway.
This article originally was written by Jeremy Hazlehurst and first appeared in FT Wealth magazine. It has been reproduced with his permission. For more information please visit the Business Family website here