The globalisation of world economies with its inherent complexity as well as phenomena like the ongoing global financial crisis make it more and more difficult for high net worth (HNW) and ultra- high net worth (UHNW) clients and families to ensure continuity of their operations and wealth.
The increasingly high degree of specialisation in the financial services industry forces them to control their operations and wealth and to face and deal with the often cumbersome process of negotiating with multiple parties and legal entities which use different professional languages, have varying motivations, are located in various places and jurisdictions, with different cultures and increasing accountability.
Market Situation in Asia
Asia is the world’s largest continent with the highest population and is expected to be and remain the region of growth in the coming years. Figures from the International Monetary Fund show that Asian economies are growing at a faster rate than their counterparts in the West. China (8.9 per cent) and India (6.1 per cent) showed the largest nominal GDP of all countries worldwide, in 2011.
But even leaving aside the growth engines of China and India, GDP in the US or Switzerland did grow at a substantially lower rate than Malaysia, Singapore and Thailand in 2010 and 2011. These three Asian economies grew faster even than Brazil. China’s economy has been projected to surpass the US’s GDP and become the biggest in the world by 2030, while India is rivalling China as the next up-and-coming economy.
As economies like China, India, Singapore, Malaysia and Thailand are growing rapidly, there is plenty of wealth being created in these countries and the whole region. Singapore is expected to have become the world’s top wealth management centre by 2013, overtaking Switzerland and London, according to a study published by PricewaterhouseCoopers LLPin June 2011.
Market Potential for Family Office Services in Asia
As outlined above, Asian economies are developing rapidly and wealth in Asia is expected to rise at about double the global rate of almost six per cent through the next five years. As a result, there is a steadily growing number of HNW and UHNW clients and families in Asia with the need and wish to preserve their wealth. Consequently, it is not surprising that Asia has become a highly attractive region for, and that its development is expected to create an even stronger need for, qualified providers of Family Office Services to advise these HNW and UHNW clients and families.
In this context, there is a wider issue of a generational transition in many Asian families, at the current time. A large number of patriarchs with immense wealth in Asia have reached their 70s or 80s, while their children are in their 40s and 50s. Over the next decade, there will be a lot of wealth changing hands in Asian families and providers of Family Office services can help with this process.
Bernard Fung, Head of Family Office Services at Credit Suisse Private Banking, Singapore, agrees: “Although family offices in Asia are still at an earlier stage of development compared to the more mature markets, the exceptional wealth creation that Asia has seen in the past few decades will start to undergo a major phase of generational transition in the coming years. Families globally have managed this generational transition by having in place the ‘right’ principles and processes governing interactions between family business, family and investment governance, succession and legacy planning and, in many cases, appropriate professionally managed family office operations,” he says. “We believe that the potential of the family office segment will be immense in Asia in the coming years.”
The Challenges of Providing Family Office Services in Asia
Family Offices in Asia are still relatively rare, given the amount of wealth currently being held there. “The term ‘Family Office’ is still a mystery to many Asians, especially the Chinese”, says Simon Mar, founder of a multi-family office in Taipei. On the other hand, Mar explains: "Everyone in Asia knows the content side of the term ‘Family Office’; it's just the name which is unfamiliar. However, the multi-family office model is still not that popular, particularly in China.”
There is still a certain amount of distrust of financial advisors and formalised structures that are very common in the West but are not yet as popular in Asia. One of the reasons for this is the fact that the concept of sharing knowledge and information is still alien to many Asian clients and families and they are more secretive compared to their counterparts in the West or elsewhere in the world.
Asian clients and families tend to be very hands-on and reluctant to give up and transfer control over their operations and wealth to providers of Family Office or other services. David Chong of Portcullis TrustNet Group said in an interview in 2010: “A lot of wealth in Asia will be handed over to the next generation in the next five to 10 years, yet Asian families often lack trust in their advisers – creating a hurdle to the development of family offices.”
However, it appears that this is changing slowly and more and more Asian clients and families are beginning to adjust to the idea of seeking advice from providers of Family Office services, for these providers to look after their operations and wealth and to guide them through and help with the transition of wealth to the next generation. Some people in Asia are saying that it will take another 10 years for a Family Office services market to develop, as children in the succeeding generations, having been educated in the West, begin to take over the reins from their parents. It is widely expected that this will bring a change in attitude to a more transparent environment and that the next generation will be less hands-on, relying more on professionals.
Thomas M. Schulz
Thomas M. Schulz is a German citizen and Swiss resident, he is a senior member of ATU and has been with the firm since 2000. He is Head of the Family Office Services Department.