New Zealand, Singapore and mainland China are three locations where the ultra high net worth (UHNWI) population is expected to grow by 270%, 268% and 256% respectively over the decade to 2026. Just a while ago.
Source: Knight Frank
Especially in Singapore, a growing number of family offices are being set up here. In 2018, there were approximately 50 family offices. By the end of 2021, that number had surged to 700, with most of the new growth coming from mainland China. Industry insiders estimate that number reached about 1,500 by the end of last year.
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This does not mean that wealthy families were immune to the recent market downturn. Kwan Chi Man, his CEO and co-founder of the Raffles Family Office (RFO) Group, said family offices in the region were already wary of inflation, which poses risks to financial markets in 2021. Family offices have strategies to adapt to a high inflation environment, he added.
These strategies include increasing exposure to real estate, equities and commodities and shortening the duration of fixed income portfolios to reduce sensitivity to adverse interest rate movements. On the other hand, strategies such as increasing exposure to inflation-protected securities or diversifying into cryptocurrencies are not viable solutions.
The Asia-Pacific Family Office Report 2022, published by RFO and Campden Wealth, says authorities are aware of dealing with inflation through monetary tightening, with rising interest rates ranking second on investors’ list of concerns. and geopolitical risk ranked third. November 30th last year.
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The appeal of private equity
Complex macroeconomic fundamentals increase the importance of adding diversification to your portfolio. Private equity has received a lot of attention in the Asia-Pacific region, with family offices venturing into the private he market for higher returns.
Thomas Ang, global head of family office services at Credit Suisse, explains that single family offices are an important source of capital for entrepreneurs. On average, each family office surveyed in the Single Family Office Survey Report 2022, released last September 26, was involved in seven private deals over the past two years.
Source: Credit Suisse
Globally, private equity remains the most popular asset class among family offices, but enthusiasm for private equity funds and venture capital is even higher among Asia-Pacific firms at 57% and 50% respectively. % want to increase their holdings, RFO and Camden found. .
Such strong interest may stem from the fact that family wealth is often derived from privately owned, family-run businesses, says Ang. The family is familiar with his private markets and has the opportunity to exercise longer timeframes and more control, as well as higher potential returns in the highly volatile public his markets. increase.
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In agreement, Kwan adds, the private equity investment will extend the reach of the family to areas within the family-run core ecosystem. He cites the example of a third-generation family descended from real estate development investing in a sustainable food court concept company, and hopes that once the concept takes off, it can be implemented in the family’s real estate portfolio.
“The important thing to note is that these investments do more than provide a monetary percentage return. We can effectively give them tools that they can use to improve their bottom line,” says Kwan.
According to Credit Suisse, two-thirds of family offices use personal connections as their primary source of information and then work with private equity or venture capital funds. They prefer to invest in early stage companies and mostly participate in Series A and Series B funding. The top three sectors are technology (especially financial technology and biotechnology), IT and real estate.
“An interesting point to note is that, according to the textbook definition, single-family offices are to be considered for capital conservation. In the US, endowment funds allocate about 36% to private equity, while family offices in Asia allocate 17% to alternative assets, including private equity.
“There is a lot of room for growth, but given that the private equity sector in the West is much more mature, this is a learning process for Asian families,” says Ang.
Crypto obsession continues
In 2021, RFO and Campden reported that 19% of family offices in Asia Pacific have invested in cryptocurrencies. The 2022 report finds that while he makes up no more than 1% of assets under management, that figure has risen to 28%. Kwan said the family could have been testing the waters to familiarize themselves with the asset class without risking large sums of capital.
However, last year was a sober year for financial markets in general and cryptocurrencies in particular. Prices look more supportive in recent weeks, but the “crypto winter” has been long and cold, with scandals and the collapse of industry heavyweights.
Kwan noted that confidence in cryptocurrencies is declining, with only 18% of family offices agreeing that cryptocurrencies are a viable investment, compared to 53% in 2021. Comments from family office management were more negative than positive, he added.
Source: Raffles Family Office, Camden Wells
However, 59% of family offices already investing in cryptocurrencies are happy to continue investing, and 25% are willing to increase their allocation, according to RFO and Campden. This may be due to the fact that cryptocurrencies have been priced more reasonably and the perception that all new asset classes have experienced similar setbacks. , volatility, and a limited understanding of the future potential of cryptocurrencies.
According to UBS’ Global Family Office Report 2022, many family offices are investing in distributed ledger technology (DLT, also known as blockchain) to learn instead of earning income. They plan to invest more in DLT applications than in cryptocurrencies like Bitcoin. They pay attention to blockchain’s disruptive potential and try to understand the technology and its business applications.
grab a slice of pie
The tempo of service providers is also picking up markedly as family offices and ultra-high net worth individuals continue to reside and increase their wealth in the region. For example, his Leo Wealth, a global wealth management firm, recently announced the acquisition of Jarchin Capital. Jarchin Capital provides investment management solutions to accredited investors in Singapore and Asia Pacific to capture the bigger pie.
According to the company, opening an office in Singapore is a response to the growing number of HNWIs in Southeast Asia and the wider Asia-Pacific region, which will help create a more personalized and inclusive border. There is a growing demand for extra wealth and tax prowess.
An estimated 10,000 HNWIs are expected to migrate in 2022 due to an influx of China’s UNHWI migrating to countries such as Singapore, totaling about US$48 billion ($66.3 billion), according to investment migration consultancy Henley & Partners. outflow is expected.
RFO and Campden observe Singapore’s strong appeal to wealthy Chinese. With a large diaspora of overseas Chinese who speak the same language at the same time of day, Singapore is the most accessible and friendly place they can go outside mainland China. On the other hand, professional advisors are also known to have urged clients to switch custody from Hong Kong to Singapore.
In addition, the Singapore authorities have increased the competitiveness of the asset management industry through the introduction of variable capital companies, a corporate structure applied to collective investment schemes. The structure will benefit wealth managers looking to serve family offices with segregated client accounts, he added.
Another company looking to tap into the UHNWI and family office market in the region is WRISE. WRISE is a private wealth enterprise founded by his banking veteran, Derrick Tan. He held his last position as Chief Executive Officer of Bank of Singapore’s Hong Kong Branch and Global Markets. Head of Greater China and North Asia. Through its proprietary asset management system, TREX, WRISE leverages technology to help grow his UNHWI assets.
Mr Tan said the recent increase in the number of UHNWI-backed family offices has exacerbated the increase in management and maintenance costs and the lack of independent and experienced wealth management talent to meet the demand. said that Additionally, UNHWI and its independent wealth managers rely heavily on the banking system for product ideas and suitability, often requiring more transparency.
“What they need is a way to consolidate their total assets to simplify wealth management. So WRISE was established to fill those gaps and meet these UHNWI needs.” says Tan.