Growing fortunes in the family

As the number of billionaires on the Chinese mainland outpaces Asia's growth rate, family offices are deploying strategic initiatives to develop their businesses. Oswald Chan reports from Hong Kong.

Towering family fortunes, particularly those on the technology and e-commerce fronts, have been synonymous with the exponential growth of the Chinese mainland economy in the past decades.

By the end of July, the mainland billionaires club had swelled to a record 415 members, commanding a total net worth of $1.7 trillion - making up half of the personal wealth of billionaires in the Asia Pacific region and 17 percent of that of their peers worldwide.

According to Swiss-based assets manager UBS and global business advisory firm PwC, the wealth of Chinese mainland billionaires grew by 41 percent from April to July, with 98 percent of them being "self-made" - the highest in the region.

Traditional industries, such as real estate and natural resources, used to be the major sources of wealth for Chinese tycoons, but they have given way to innovation and biotechnology, which have emerged as the main drivers of their prosperity.

"As these billionaires pioneer innovation in business and other aspects, they are increasingly seeking professional advice for bespoke integrated banking solutions. At the same time, they're looking to create a positive and sustainable impact across all activities, not only through philanthropy but also through their businesses and investments," said Amy Lo, UBS Hong Kong's head and chief executive, and UBS co-head for wealth management, Asia-Pacific.

To manage their fortunes, wealthy families with more than $100 million in investable assets have set up their own investment teams and family offices for asset growth and succession planning. Their companies' financial capital represents family wealth.

Besides establishing family offices, these families hire independent family offices and private banks to obtain succession planning and asset management services that cannot be provided by their own family office brand. Legacy planning services involve setting up codes of family, investment and operational governance.

In addition to legacy planning, another major concern of the family office is to diversify asset holdings in different booking centers as various financial centers offer different benefits to lure billionaires holding their assets there.

Personal wealth boosts

Raffles Family Office - an independent family office founded in 2016 - is trying to expand its family office business on the Chinese mainland, Hong Kong and Taiwan, with the Guangdong-Hong Kong-Macao Greater Bay Area as one of the regions targeted.

The Bay Area blueprint, unveiled in 2017, aims to transform the 11-city cluster into a leading metropolis area in advanced manufacturing, innovation, shipping, trade and finance. The region boasts a combined population of over 70 million with a gross domestic product of $1.6 trillion.

Guangdong saw its disposable income per capita grow 8.1 percent year-on-year to 8.8 percent from 2014 to 2019, while total deposits in the province expanded 16.9 percent to 18.57 trillion yuan ($2.86 trillion) from a year ago as of the end of June, OCBC Wing Hang Bank data showed.

According to Oliver Wyman, a leading international management consulting firm, the investable wealth of retail clients in Guangdong is expected to surge to $41 trillion by 2023 - from $24 trillion in 2018.

"There're 7,300 single family offices around the globe, of which 70 percent are domiciled in Europe and United States and 15 percent are based in Asia Pacific region, indicating there's tremendous market growth opportunity for family office business in the region when demand is high but supply of family office services is tight," said Raffles Family Office Chief Executive Officer and Founder Kwan Chi-man.

Raffles Family Office is teaming up with 26 private banks to provide legacy planning and asset diversification services through five booking centers in Hong Kong, Singapore, Taiwan, Switzerland and Lichtenstein. The company plans to another booking center in Dubai, the United Arab Emirates, by 2021.

Based in Hong Kong, the independent family office currently employs 70 staff members with three other offices in Singapore, Shanghai and Taipei. The family office has more than $2 billion in assets under management.

Raffles opened its new office in Shanghai this year, taking advantage of the mainland metropolis's mature financial infrastructure. Its employees in Shanghai provide face-to-face services to potential clients in neighboring Zhejiang province where many prominent mainland companies are located.

"Family offices in the Asia Pacific are still in the early stage of development whereas they mainly focus on solutions such as legacy planning and asset allocation. Peer companies in Europe and the United States handle hedge funds, private equity funds or venture capital funds, accepting investments from people who are not members of the owning family," Kwan said.

Hong Kong can continue to thrive as a family office business and asset booking center, as the city's geographical position, a transparent legal system and level of financial regulation are the edges in competing for family wealth management business.

Bright prospect

"The family office business has flourished in recent years, becoming an important growth segment in the wealth and asset management industry. To further develop the family office business in Hong Kong, InvestHK will set up a dedicated team to step up promotion of our advantages in local and other major markets and offer one-stop support services to family offices which are interested in establishing a presence here," Chief Executive Carrie Lam Cheng Yuet-ngor said in her fourth Policy Address on Nov 25.

"Wealth creation in the Bay Area is accelerating. There're less than 50 family offices operating in Hong Kong but the AUM (assets under management) level in the city is similar to that of Switzerland, which has 4,000 family offices in the country," said Kwan.

A survey conducted by French-based investment bank BNP Paribas Wealth Management and global membership organization Campden Wealth interviewed 92 next generation wealth holders in the Asia Pacific in May with an average family net worth of $640 million.

According to the poll, about 37 percent of next generation leaders believe they can improve family wealth management by implementing governance frameworks, while 36 percent believe in diversifying holdings and 33 percent rely on professional managers.

"Next generation ultra-wealth holders are adopting new approaches to grow their family fortunes. This includes further professionalizing their wealth management structures/family offices, and angling for further investment diversification, particularly within private markets and sustainable investment," noted Campden Wealth's Director of Research Rebecca Gooch.