THE trend in a growing number of family offices being formed is likely to continue, as the next generation in high net worth families increasingly seek professional management of their wealth, said Hannes Hofmann, global head of Citi’s Family Office Group.
“You will see a formation of more family offices in the future, because that’s what’s demanded by the second generation,” he said.
More wealth is being generated, and faster than ever before, Hofmann added.
He also noted that a new generation of high net worth individuals (HNWIs) – especially in Asia – are starting to take control of their businesses and family offices.
“Typically, (the new generation) want more transparency, they want quicker response times, they want more technology, and they are a lot more international,” Hofmann said.
They also have a very professional approach and expectations to managing family money – which is a structure that family offices can provide, he added.
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Hofmann also expects that families will continue to take risks while they can make good returns off their assets.
The expected increase in numbers comes even as Singapore tightened some of its restrictions on family offices in recent years.
In a report in March, Loh Kia Meng, a senior partner at Dentons Rodyk and its co-head of private wealth and family office practices, noted decreasing demand for new family offices in Singapore as the criteria for setting up such structures here have been raised over the years.
But Hofmann said Singapore still boasts the appeal of being a global wealth hub, which should cater to Asian families trying to go international, and also attracts international families who want to understand Asia better.
At the same time, a higher proportion of Asian families are becoming more international when it comes to their investments.
Citi’s Global Family Office Report 2023 found that about 89 per cent of Asia-Pacific families were international, compared with the global average of 71 per cent.
“Being active in more than one location is not just a hobby, but a crucial skill. For a lot of these families, you compete internationally, you invest internationally, and you need to have an international presence,” Hofmann added.
Allocations of Asian families
Amid market uncertainty, Hofmann noted that families are having more conversations about managing risks while they stay invested.
This is more so for Asian families as they have a higher tendency to allocate their assets to their region, even though other markets have developed much better than those in Asia, he added.
This is because Asian families likely know Asia better, and depend and invest more in China and the overall Asian ecosystem, he said.
Citi’s family office survey showed that some 56 per cent of Asia-Pacific families invest in the Asia-Pacific region including China, compared to the global average of 19 per cent.
UBS’ global family office report for 2024 also found that family offices in Asia-Pacific plan to allocate more to their region over the next five years. Compared to 2023, they plan to increase more allocations to the greater China region.
Meanwhile, Hofmann also expects more money to flow through family offices into companies in the next five to 10 years.
He noted that many companies that need capital are seeing families as a smart, long-term constructive pool of money for investments.
Citi’s survey found that private equity funds accounted for 14 per cent of allocations by Asia-Pacific families, compared to the global average of 12 per cent.
Meanwhile, private equities directly accounted for 8 per cent of their portfolios, compared to the global average of 10 per cent.
Hofmann said most of the private equity exposure is in North America and in Europe, while the direct investments tend to be in Asia.
This is as funds tend to be focused in developed markets where they can be deployed more meaningfully, noted Jonathan Gan, head for South Asia for Citi’s Family Office Group.
Families are more active in direct investments in Asia due to smaller deal sizes and earlier entry, Gan added.
For now, private wealth investors are a smaller contributor to capital for alternatives. But they are seen as a high-growth investor pool, said Angela Lai, head of Asia-Pacific and valuations at Preqin’s research insights team.
They typically have more flexible allocations than their institutional counterparts. This includes having more room to allocate as they are faster in decision making and committing to new opportunities, Lai said in a recent webinar.
They have also generally become more familiar with alternative investments over the years, she added.
Preqin found that at least two-thirds of global family offices have existing exposure to alternatives, with Asia family offices the most active – more than 70 per cent said they have existing exposure to alternative investments.
UBS’ report also noted that family offices in Asia-Pacific plan to add fixed income and equities from developed markets, private equity and hedge funds in the next five years.