The rise of Asian family offices reflects not just the greater economic prosperity of the region, but also a need for expertise in running these organizations.
The Asian continent is hitting its stride.
Accounting for over 70.1% of global GDP growth over the last decade, with China alone accounting for almost one-third of that growth.
In line with a long-term growth trajectory, Asia-Pacific will be one of the fastest growing regions for wealth.
And in 2025, well over 40% of all family offices in Asia-Pacific have been established since 2010.
Despite headwinds, Asia-Pacific family offices remain optimistic, with 84% expecting an increase in their family’s wealth this year and 77% expecting to see their AUM rise.
Accordingly, the super wealthy in Asia increasingly look for more complex, global investments at a time when a record number of patriarchs cede control to the next generation, according to Bloomberg.
As these family offices seek to not only grow but preserve wealth, they look at investment vehicles to achieve those goals, looking beyond traditional sectors like real estate.
Over the next 5 years, 41% of Asian family offices are planning to increase their asset allocation to developed market fixed income and stocks, as they seek to mitigate some risk by tapping into developed North American and European markets. (UBS Global Family Office Report).
Related, 40% are looking at increase allocation in developed market equities over the same 5-year period, while 35% are looking at emerging market equities.
46% of APAC family offices are invested in hedge funds, compared to 33% for the global average.
And roughly 44% of assets held by Asian family offices were in private and public equity, compared to 30% to 33% in cash and fixed income, according to Hannes Hoffman, Global Head of Family Offices at Citi Private Bank.
Of those private equity investments, 77% are invested in technology. Additionally, 76% are likely to invest in medical devices and health tech.
51% of family offices’ assets are in Asia-Pacific (30% Greater China + 34% excluding Greater China).
While localized investments are preferred, North America remains a sizable share of regional investment allocation for Asia’s family offices at 34%.
When it comes to risk, Asian family offices are primarily concerned about geopolitics, followed by high interest rates and inflation. In contrast, the biggest concern of US family offices is risk of recession.
There is increased attrition in talent, especially in less professionalized family offices. Greater efforts are needed to improve retention because when professionals are removed from structured environments like banks, they lose access to critical information, knowledge bases, and networks, which may prompt them to seek new employment opportunities.
-Aik-Ping Ng, head of family office advisory, Asia Pacific, HSBC, and Edith Ang, head of family advisory, Asia Pacific, HSBC Global Private Banking
The growth in wealth is far outpacing the qualified talent needed to manage that wealth and related services, potentially leading to bidding wars.
In Hong Kong, for example, the “talent war” in the banking and finance sector has led to 30% pay increases new hires.
Finding qualified and experienced talent a challenge, including in areas like managing family finances, asset management +ESG/impact investing, succession planning, and legal matters.
Along these lines, Manish Tibrewal, co-founder of Singapore multi-family office Farro Capital, said the industry also lacks people who understand how to align the overall mission and vision of a family office to the family values, as well as design and implement family governance, philanthropy and similar non-finance aspects.
"For a huge market like this, (the number of licensed relationship managers) is certainly not enough. That's why we are seeing a talent war.
It won't be easy to retain people when they get a 20 to 30 percent premium and an upgrade in title."
- Amy Lo, Head of the Private Wealth Management Association, Hong Kong
If the demand for wealth management talent is any indication of what's to come, then demand for middle- and back-office experts should follow.
After all, setting up a family office cannot be reduced to just being good with investments.
Family offices need qualified systems integration and portfolio accounting specialists, among other operational and technology services required. Empaxis can help.
When high- and ultra-high net worth individuals set up a family office, they have a vision to generate and/or preserve wealth.
But they're less likely to have a vision for their middle- and back-office.
"The biggest challenge for anyone starting a family office is the sheer volume and complexity of all that you have to do," said Christian Armbruester, whose family started Blue Family Office in 2010.
"It’s not just about the resulting (investment) performance, but also all the admin, operation, people and resources you require to execute the chosen strategy."
In addition, our previous blogs have highlighted the need for the financial services industry to attract young talent, including solutions for hiring beyond physical proximity to the office.
Between wealth management talent shortages and rapid industry growth, family offices in Asia may find themselves paying a premium for talent.
The global family office talent shortage is driven in part due to growing demand for expertise, but that's not the only reason.
The private and "secretive" nature of many family offices makes it hard for talent to recognize their existence and reputation, and FOs are losing out on opportunities to put their best foot forward, thus attracting and retaining their sought-after talent.
Family office consultant Francois Botha goes in to detail on what family offices can do amidst talent shortages and getting the best people.
Additionally, these organizations need to upgrade technology stacks:
Technology capabilities for family offices are critical for effective management of its various mandates—for the family.
Real-time data processing, investment execution and aggregation are costly. However, without scale, investing in and continuously upgrading technology tools are costly and time-consuming.
On the other hand, not investing in technology results in family offices getting bogged down with administrative tasks rather than advancing the strategic goals of the family they serve.
- Joseph Poon, Managing Director and Group Head, DBS Private Bank
According to McKinsey, a family office's technology could costs could range anywhere from 3% to 7%, which is not an insignificant amount.
... and this is where partnering third parties could help in these areas.
It's one thing for HNWIs and UHNWIs to know what they want from starting a family office.
It's another thing, however, to implement the correct steps to achieve those goals.
One might have a basic understanding about how things function, but many lack the skill sets required to tackle everything from investment management to middle- and back-office functions, as well as efficient data management, compliance, and system integration expertise.
Without experience, doing things on one's own can prove costly and inefficient. Consider these scenarios:
In the situations, outsourcing could help reduce that risk. Consider the benefits below.
When the in-house talent is hard to find, family offices in Asia can explore the OCIO (Outsourced Chief Investment Officer) path. Though a relatively new phenomenon in Asia, the OCIO is there for firms that want some or all of their assets managed or invested by third-party experts.
Learn more about the benefits of an OCIO.
As for operations and technology, outsourcing gives family offices access to these areas of talent.
Firms like Empaxis, that originally started out of a multi-family office, understand what it takes to serve a family office's operation and technology needs.
Firms need a fully modernized and efficient, digitally transformed operation, and with our expertise in the middle- and back-office, systems integration, and finance and accounting, single- and multi-family offices benefit.
And as more family offices invest in private equity, they need help processing the investment statements, and Empaxis has a an automated solution.
Outsourcing is not an all-or-nothing proposition, nor is it strictly an offshore phenomenon.
With Empaxis, you can access onshore, offshore, and nearshore resources, delegating work to these support teams as you see fit.
As mentioned earlier, Asian family offices would have to pay a premium for in-house talent, but outsourcing provides a way to access talent and cut costs.
Because third parties devote resources to perfecting their skill, they find ways to make processes more efficient. In turn, they pass the savings on to their family office clients.
With outsourcing, family offices are paying strictly for labor costs. They don't have to pay for all the additional expenses associated with in-house hires.
Thus, for a family office to try and set everything up on their own can be ineffective and a waste of resources. Outsourcing can help prevent those situations.
When you work with a third-party provider, family offices strictly pay for labor, and they pay for the labor as they need it.
Outsourcing providers would have larger talent pools to work with that can more seamlessly be plugged into a family office's operation than it would for the same family office to try and do everything in house.
Not only is it pure talent, they can also provide access and maximum use of the latest cutting-edge technology, including help wih the implementation and adoption of artificial intelligence, plus portfolio performance and analytics, data aggregation and automated financial reporting.
Using a mix of top talent and technology would greatly increase scale, allowing SFOs and MFOs to focus on higher-value activities while not stressing over the little things.
As Asian family offices continue to grow so will the demand for talent.
However, the growth in talent has not kept pace. As a result, family offices will have to pay top dollar for top talent.
Doing everything on one's own while lacking the necessary experience can be a costly endeavor. Partnering with third-party family office operations and technology experts can help reduce these risks.
Outsourcing companies that serve family offices have the resources to provide support in the most efficient and effective manner.
Empaxis helps family offices by providing world-class technology and digitally transformed solutions in operations. Want to chat? We're happy to have a conversation.
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