Family Offices in Asia – their development and their role
The preponderance of family owned and managed businesses in Asia together with the increase in wealth in the region makes succession planning to try to maintain long-term family cohesion and harmony, particularly important. An arrangement that can help bind a successful family together is the development of a family office. Family offices have a role in terms of ensuring the management of family assets so as to minimise disruptions and conflict, and in enabling families to maximise their opportunities.
For many families in Asia as the family’s wealth is so entwined with the family business the ‘family office’ is effectively a trusted family adviser operating out of the Chairman’s office of the family business. This is a reflection of a number of factors: more wealthy Asian families are still in the first or second generation where the family business is key compared to their European or US counterparts where the family business may have been sold a couple of generations ago; the distinction between the family and the family business is often blurred and traditionally there has been a reluctance to bring in third party professionals.
Although, there is now an increasing trend for families to seek to formalise these informal advisory arrangements the 2012 survey of family offices in the Asia Pacific region by UBS and Campden estimated there are as few as 100 single family offices in the Asia Pacific region with around 50% of these being in Australia or Japan, compared with an estimated 2,000 family offices globally, with the majority based in the US and Europe.
There is no one size fits all mentality for a family office and no two family offices are quite the same when it comes to describing the role they perform and the services they provide. A typical family office might perform a number of functions including the management of a family’s investments, providing accountancy services for family members and family entities, taking the lead in the family’s philanthropic activities, providing concierge services for a family and providing the lead for the family’s general strategic planning by co-ordinating the giving of advice to the family and its members by professional advisers.
The shape and role of each family’s family office is very much driven by the family’s vision and identity and this is of fundamental importance when deciding whether or not to have a family office and, if so, what structure to adopt and the role that the family office will perform. The family office is often driven by a family’s desire to provide a formal structure to embody its visions and values so as to ensure that these extend down through subsequent generations.
There are a number of different types of family offices and the right type for each family will depend on a number of factors, especially the family’s vision. The most traditional type of family office is the ‘single family office’, which is a tailor-made structure for each individual family offering them very personal services in all aspects and areas of family life, investments and business, while ensuring the family’s affairs are kept discreet and confidential. The advantages of such a family office are that each can be individually created to meet the individual family’s needs whilst ensuring confidentiality and privacy. As will be apparent, however, such an option is not cheap and the costs of such a family office can be significant. Costs include ensuring that the best and most capable people are employed to run the family office and the costs of establishing and maintaining a physical office. As such generally only a family with assets of $500m or more will consider setting up a single family office.
For many families, the costs and the difficulty in attracting the right calibre of staff of a single family office outweigh the many benefits that such an arrangement can bring and it is in this sphere that the multi family office (‘MFO’) has developed. There are three basic types of MFO:
The first is the family office which developed initially as one family’s single family office but has since developed so that it offers services to other families.
An alternative to this is a MFO which has developed along similar lines but has then sought to appoint an independent head so as to try and ensure that all families are treated equally rather than the main family being theoretically prioritised.
The final type of MFO is the truly third party multi family office, which is when a family office is run by an independent team of professionals with no allegiances to any of the particular families. A number of private banks offer such a service and, although the services offered by such MFO are predominantly investment based, it is often possible for them to provide a form of concierge service and other services as appropriate.
The main advantage of a MFO is that the costs of the organisation are shared with a number of other families and as such it is possible to have very professional organisations with wide capacities and capabilities, sometimes more so than is achievable with a single family office.
The disadvantage with the MFO is the risk that the more families there are involved with the MFO the less personalised the service each family receives. There is also the perceived risk regarding privacy and confidentiality, two topics of key importance to Asian families. It is imperative for MFOs to have sophisticated and well developed firewalls and other means of ensuring privacy for each family in place.
Successful families are facing an increasing number of challenges in the ever developing global economy and family offices are increasingly stepping into the breach to help co-ordinate and lead the solutions to such challenges.
Katie Graves is a partner at Withers Hong Kong