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.
With the pandemic in the rear view mirror, the whole continent is fully reopened, and Asian economies have rebounded and continue to expand.
Despite slower growth in China, the Asia-Pacific region is expected to outperform the global economy in growth for 2024, 4.2% vs. 2.9%.
Similarly, and continuing on its long-term growth trajectory, Asia-Pacific will be one of the fastest growing regions for wealth.
Considering this growth, “the number of family offices being set up in Asia far outpaces” the rest of the world," said Anurag Mahesh, former head of UBS family-office operations in Asia, “Wealth here is getting more and more sophisticated and being created at a rather unprecedented pace.”
In fact, 40% of all family offices in Asia-Pacific have been established since 2010.
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.
Betting on China’s post-COVID recovery amidst weaker equity markets in Asia last year, many Asian family offices allocated far more funds into risky (alternative) assets than low-risk assets last year. They’ve also shown increased interest in direct investing.
46% of APAC family offices are invested in hedge funds.
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 (28% excluding Greater China + 23% 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, in contrast to US family offices primarily concerned about recession.
In response to changing investment needs and taking advantage of their flexibility, 97% of family offices in Asia rebalance at their discretion.
“There is likely to be a whole wave of demand [for talent] with the growth in family offices.”
- Stanley Yeo, managing director at executive search consultancy Profile Asia
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 simply the hiring of investment advisers.
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 should seek expert third-party specialists via hybrid outsourced models.
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 technology and compliance.
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.
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 clients.
With outsourcing, family offices are paying strictly for labor costs. They don't have to pay for benefits, perks, sick-leave or vacation days 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.
Working with a third party makes it easier for FOs to ramp up or down their operations.
When things get busier or slower, the outsourcing provider adjusts staffing needs accordingly. They already have the trained backups to perform the work and can be used and set aside at any time.
In contrast, in-house hiring can be tricky because family offices must deal with "flood" and "drought" periods.
Floods occur when the workload exceeds staff capacity, and droughts occur when there's not enough to work go around.
Granted, it's hard to predict how much in-house labor you need, but employee idle time wastes resources. Outsourcing may help solve this issue.
In addition to labor, the services provider may have the technology that family offices need to scale.
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 outsourcing 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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