Asian families on a steep learning curve
A significant majority of listed firms are in family control in Asia. Having amassed wealth during the strong period of growth in the region over the past three decades, leadership in many of these families is now transferring to a younger generation, whose concerns and aspirations may be different from those of their forebearers.
At the same time, with the prospect that Asia will account for 12% of the USD15 trillion of global wealth set to transfer from baby boomers to GenX in the coming years, according to consultancy firm Wealth-X, Asian families are seeking a more structured way of organising the management and transition of family wealth to the next generation, fuelling the growth of family offices in the region. They often receive official encouragement in this regard. For example, the Monetary Authority of Singapore (MAS) has set up a department dedicated to support the creation of family offices. Initiatives include the Family Office Circle, which enables family offices to exchange ideas; deal-making sessions leading up to the Singapore FinTech Festival, which connects tech start-ups with potential investors such as family offices; and a skills map for wealth advisors to navigate Singapore’s growing family-office ecosystem. The MAS has also launched a new fund vehicle called a Variable Capital Company to facilitate inter alia, the structuring of ultra-high net worth wealth.
The growth in family offices seems a logical consequence of rising family wealth in Asia, with Asia home to 758 billionaires in 2019 according to Wealth-X, including 342 in China. While family wealth in Asia, especially in China, may often be of more recent vintage than in Europe or the US, we see family offices being established at a much earlier stage and evolving much faster than elsewhere, assisted by digital and tech advances. Although many Asian families are still in the early stages of the wealth cycle, they are moving through that cycle fast—which means they are on a steep learning curve. This is fuelling a willingness to seek advice and employ outside professionals to manage operations—for example in the realm of IT and global custody as well as legal and financial advice. Within the growing sophistication and professionalisation of wealth management in Asia, family offices are making a significant contribution by centralising and vetting external providers.
As in other regions, ESG and responsible investing are becoming prime concerns among wealthy Asian families. According to studies, Asian families place a particular emphasis on social issues when considering impact investments. Whereas philanthropic money in Europe and the US is often directed towards environmental causes such as climate change, Asian families show a preference for helping the less privileged in their midst. (This is understandable: while Asia has the world’s fastest growing ultra-high net worth population, it is also home to nearly half of the world’s poorest people.)
While they are becoming more common, there is still room for family offices in Asia to take on more tasks and responsibilities, engaging with the next generation to facilitate the smooth transition of wealth across generations and to structure philanthropic efforts. As families’ wealth grows in Asia, they are diversifying into new areas such as direct investments and private equity, areas where Pictet Wealth Management has significant expertise, and in which family offices can play a central role. Family offices also have a role to play in developing family governance systems, where there is still much to do in Asia. More broadly, beyond the conventional pursuit of capital growth and concierge services, family office structures can be instrumental in preserving harmony and the legacy of the family across generations.