Asia-Pacific’s family offices develop taste for direct investments

23 October 2013   Category: News, Asia   By Asia Asset Management

Asia-Pacific’s wealthiest investors are moving much more of their money into direct investment opportunities and away from capital markets as they see greater opportunities in other businesses and real estate rather than equity and bond markets. In this respect, family offices in the region are following trends in Europe, where concern over some financial products has led many of them to embrace direct investing in a more concerted manner in the last few years.
This was among the main findings of the second annual UBS/Campden Wealth Asia-Pacific Family Offices Survey. The report, entitled Coming of Age: Asia-Pacific’s Family Offices Find Their Footing, details the size, features and concerns of family offices throughout Asia-Pacific.
Real estate accounts for 16% of allocations this year, compared with just under 9% in 2012, and allocations to venture capital and direct private equity grew to 15%, compared with 4% in 2012. Asian investors are taking money away from equity and bond markets to fuel this move into direct investing, with equity market allocations in developed countries falling to 14% of total assets, compared with 21% in 2012. Allocation towards fixed income has also fallen in the last year.  Hedge fund investing by Asia’s wealthiest families has also been cut by nearly a half in the last year.
Other key findings include:
  • Wealth creation in the region is still very much tied up with the family business and family offices have yet to capture the imagination of the region’s wealthiest families as they have done in Europe and North America. But the overriding importance of the family business in wealth creation is expected to moderate with generational shifts taking place in the region. As these businesses move from first-generation control to second, this will see more family offices being created and the greater professionalization of current ones.
  • Asia’s wealthy families are becoming much more bullish towards investment prospects, with twice as many respondents more optimistic about investment prospects than a year ago.
  • Hong Kong and Singapore remain the prominent wealth centres in Asia-Pacific, and are where the majority of family offices are being set up – more than 75% of those established in the last 10 years in the region have been launched in the two cities. The dominance of financial expertise in these centres will ensure they remain the preeminent centres for family offices in the region.
  • Family offices are long-term investors, with 74% of them reporting an investment horizon of at least five years.
  • Asia-Pacific’s family offices view investment opportunities in their region much more favourably than other regions. Europe was seen as the least favourable region to invest in.
  • The family office model is growing in confidence in the region, with 95% of respondents saying their family office is as, if not more, viable than a year ago. Indeed, 55% of respondents say their family office is more viable than it was 12 months ago.
  • Family offices value transparency of understanding an investment strategy as the most important issue influencing decisions on capital allocation to asset managers.
  • Philanthropy is becoming a big issue for Asia-Pacific’s family offices with 67% of respondents saying they engage in philanthropic activities, and a further 25% of those that do not are planning to do so in the next three years.
“Asia’s wealthiest families are becoming more optimistic about investment returns, but that doesn’t mean they are piling into equities and hedge funds. On the contrary they are cutting their investment allocations to these asset classes and like their counterparts in Europe investing more in direct investment opportunities like other businesses and property,” said David Bain, head of research at Campden Wealth.
Kathryn Shih, CEO of UBS Wealth Management Asia Pacific said: “Entrepreneurial families have continued to play a key role in contributing to Asia-Pacific's growing share of global wealth. Although the family office model is still in its infancy in the region, we continue to see increasing client interest in topics such as family business continuity, family decision-making, wealth structuring, philanthropy and the setting up of family office structures. We believe that as the second and third generations assume roles of leadership within the family businesses, we are going to see the concept of family offices changing to focus more on planning for the future and putting strategies in place to ensure the continued success of long-lasting family legacies.
"We hope that this latest report by UBS and Campden Wealth will provide further insights to the family offices in the region on how some of their peers in Asia-Pacific manage their wealth. As a market-leading wealth manager, we are committed to working with families to preserve sustainable wealth through the generations, complementing the advisory and execution work of our global family office and dedicated family services teams," she concluded.
Market insights
Hong Kong & Singapore
Both cities are the leading centres for family office activity in the region. With the exception of Australia and Japan, pretty much all the family offices set up in the region by Asia’s wealthiest families are based in either one of these two centres. More than 75% of all family offices set up in the region in the last 10 years have been based in these two cities.
Australia & Japan
Although family offices have been established in Japan and Australia, the markets there tend to be more provincial and very much driven by local demands, compared with their counterparts in Singapore and Hong Kong, which are more international in their outlook.
Family offices set up by mainland Chinese families don’t necessarily base their office in Hong Kong, some also go to Singapore. Some are also looking to base more of their activity in Shanghai.
A breakdown of asset allocation decisions among the main markets shows the following trends:
  • Real estate investing receives the biggest asset allocation among all the markets in the region, but is particularly strong in Hong Kong;
  • Although Singapore-based family offices also like real estate investing, they were more exposed to venture capital and direct private equity stakes than any other centre in Asia;
  • Australian family offices liked equities much more than their counterparts in the rest of Asia-Pacific; and
  • Cash holdings among family offices were still strong in all countries, but particularly so in Hong Kong.