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Wednesday, September 27, 2023

Asia’s influence in the global family office industry is growing and may well accelerate, EIU study finds

Family offices—the structured personal investment firms that manage the fortunes of billionaires or high-net-worth families—are a burgeoning force in the global financial market. Industry expansion has been accelerating as new tech ventures and Asia’s growing businesses add to the pool of modern wealth creation. Today, four out of ten family offices globally were opened within just the past decade, and their total count exceeds 10,000.

A new report from the Economist Intelligence Unit, sponsored by DBS Private Bank, examines how this boom in the family office space has developed and to what degree differences in approaches in the East and the West define how these specialized financial foundations function.

European fortunes are generally older and inherited, whereas wealth in Asia often falls into new and entrepreneurial categories, but regardless of where on the map a family office sits, succession planning remains its number-one issue. Still, there are contrasts. In the West, by far the largest amount of wealth will be moving between generations over the next decade—some US$8.8trn in North America alone. Estimates for the East fall just short of US$2trn for the same timeframe. But given the lower average age of the region’s HNWIs, the amount of wealth transfer in the East could grow rapidly and soon become an industry trend driver.

The research indicates that, historically, a family office stays close to its founder’s business in early years but diverges later as its wealth passes down through generations. In the West, where fortunes tend to be older, this has held largely true and public equities are a major holding among the region’s most affluent families. In the East, with family patriarchs and matriarchs still at the helm, investments tend to seek synergies with the founders’ own business, making private equity and debt a major holding. Family offices in the West also seek to invest in private equity and debt but more often the goal is portfolio diversification; in the East, the focus is business synergy.

The age of wealth, in terms of generations, proves to be among the most significant of influences on family office structures and goals. Yet differences in East-West philosophies still emerge. One of the starkest is the degree to which families in the East and West rely on outside professionals to achieve investment goals. More in the West choose this approach, but that distinction could diminish as new wealth in the East transfers generation to generation.

The full report details further nuances through in-depth interviews with family office members and industry participants. Topics covered include philanthropy, environmental, social and governance (ESG) investing and impact investing, as well as structural characteristics.

“This is a first of its kind study that goes into detail on the goals, concerns and constraints of family offices based on an East-West perspective,” explains Jason Wincuinas, senior editor at the Economist Intelligence Unit who worked on the report. “As financial markets become ever more globalised, it will become harder to point to distinctions between family offices or any other form of financial entity. They all seek returns; they all look to diversify and to promote the sustainability of their fortunes. Family offices though are unique in that their main function and focus of wealth succession and ingraining values, as well as value, into the next generation. That’s where family and culture have the most influence.”


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