The Super Rich’s Family Offices

The once mysterious and high profile fortune heritage families has turned into the main financial tool of family trust fund， especially rich families from China， whose fortune and capital simulation is growing faster and faster. However， when it turns to family office （OF）， maybe few people have an idea. Actually， OF is a crucial part of fortune management industry. It provides systematic designing for family fortunes. Many super rich in European and American countries choose to use OF as their fortune managing tool. Family trust is only part of OF functions. It can also provide services including strategic fortune management， investment planning， trust and heritage service， charity donation， family inheritance and leadership， tax and financial planning and so on. In recent years， a bunch of rich people arise from Chinas traditional manufacturing and real estate industries. They are awakened in fortune management， and their family divorce rate has highly increased. The requirement of global tax planning under CRS has highly increased too. Thus， family office entrance standard has been lowered， which help this mode grows and enlarges in China.

Recently， Shanghai Senior Financial Institute （SAIF） and global family think tank jointly released the first Report of Local Family Office Service Competitiveness in China. The report shows that 67% of the local family offices were established from 2011 to 2016， more than half from 2015 to 2016. The family office with trust company has the highest rate， which is 39%. Commercial banks and lawyer background are 25% respectively. Most of the local family offices in China has a management capital amount under 10 billion RMB.

Rise of China Local Family Office

As a imported good， family office comes from the western world. Since the fortune has been accumulated by the first generation of successful entrepreneurs，the needs for wealth value storage are growing. Family offices are emerging gradually.

Wang Sicong， son of Chinese real estate tycoon Wang Jianlin， 29th on Forbes magazines world billionaires list in 2015， manages and administers the family assets via the Prometheus Capital single-family company.In 2013， Andrew Yen， a banker at UBS Wealth Management private bank， set up Fusion Family Office， a multi-family office， in the Shenzhen special economic zone on the border between Hong Kong and mainland China and began to manage the assets of a dozen or so companies.endprint

Hong Kongs First Eastern Investment Group is a family office set up by Victor Chu. In 2011， he invested some families assets in the establishment of low-cost carrier Peach Aviation with ANA. He has close connections with oil-rich Dubai. His familys wealth， passed down from the time of his grandfather who studied at Keio University， is managed in the form of a private eq1uity fund.

Also， Bill Gates， the worlds richest person， manages his assets via Bill and Melinda Gates Investments （a family office） and Cascade Investment Inc. （his own investment management company）， with veteran asset manager Michael Larson as his CIO. Glob-ally， Cambridge Associates， which manages$61.9 billion on behalf of a total of 200 families， has had several successful years and continues to deliver good returns.

HNWIs look to succession and inheritance

So， family offices offer financial services similar to those of private banks In China， penetration is still low but HNWIs with expertise have recently been moving their asset management to family offices. A survey of HNWIs by RBC Wealth Management， the private banking arm of the Royal Bank of Canada， revealed that， despite clients requesting stable returns， with an eye to their own bonuses， bankers often recommend investments with high return， which gives rise to losses. In particular， there was a high level of HNWI assets losses in the Lehman Shock.

For HMWIs who were burnt in the Lehman Shock there is a mismatch between their aim of holding assets with an even more stable return and the aggressive asset management style of private banks.

The primary aim of wealthy families is to pass on their businesses and their assets to the next generation. They certainly do not look to high risk investment. The use of family offices by Chinese HNWIs is likely to continue to expand.（Journalist based in Hong Kong）

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.endprint

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. 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 riskaverse 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 familys 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.endprint

Chinas growing highnet-worth population is taking an increasing interest in the non-investment services family offices provide， according to experts from Asia Pacific， such as estate and tax planning， as well as education.

According to the RBC World Wealth Report 2015， Chinas population of high net worth individuals（HNW individuals） grew 18% in the last year， and now sits at 758，000. The total wealth of this group grew 20.5% to $3.8 trillion.

Kenny Lam， president of wealth management firm Noah Holdings， which caters to Chinese families and enterprises， said the firm established a family office division earlier this year， having previously been much more focused on discretionary investment services.

Last month it announced a cooperation agreement with US multi family office McKinley Capital Management and professor Raphael Amit， family governance and wealth management professor at the Wharton School. The agreement aims to improve the firms global reach， with Lam pointing out that the family office division serves many multijurisdictional families.

Clients， Lam explained， are typically self-made business founders with big families “riding off the economic boom of China”， who are interested in learning best practice from established family office markets， such as the US.

“These entrepreneurs are reaching an age， around their early 50s， where they feel like they need to think about family wealth planning， which includes estate planning， tax planning， and education，” Lam said.

The Global Family Office Report 2014 found that the consolidation function of accounting， tax and estate planning was the second most important family priority for offices， after intergenerational wealth management. Family unity was considered the third most important objective.

Family offices in the US and Europe began introducing these type of value-added services in the 1990s， and many larger family offices have introduced family dynamics， education， and family history teams.

Noah Holdings caters to a significant chunk of Chinas HNW population， with 80，000 clients using its wealth management services. Around 100 have signed up to their family office services.

Nisha Singh， a senior associate in the Asia private client team at law firm Berwin Leighton Paisner， agreed that there are an increasing number of families from China interested in the family office concept. The Singapore-based lawyer said families typically look to multi family offices if theyre primarily interested in investment management services， due to their lower cost structures.endprint

Singh added： “The creation of multi-function single family offices by Chinese families is less common， although they can provide an invaluable framework for super-wealthy families with international connections and sophisticated needs as they will have a wider function， including coordinating strategic tax and wealth-planning advice and philanthropic activities.”

Lam said Chinas super rich have traditionally sought discretionary wealth management rather than fully-fledged family office services， and this demand is continuing with recent stock market fluctuations.

“If you talk about wealth management， China is probably representing already half of Asia， ex-Japan， but for family offices I think China still has a much smaller part of the pie， because their needs are still very much being met out of Hong Kong，” Lam said.

“The so-called family office industry is mostly discretionary management. But thats the case now， and we see China growing very quickly.”endprint