These previously low-key clients in finance are reshaping the institutional wealth management landscape, redefining capital flows and driving demand for diversified and sophisticated financial products. But to reap all the benefits, family offices must address some structural issues.
The past decade has witnessed a remarkable rise in the number of billionaires and ultra-high-net-worth individuals, particularly in Asia. According to the Hurun Global Rich List 2024, published earlier this year, the number of billionaires globally has risen by 5%, with China hosting the greatest number of billionaires, followed by the US.[1]
India is also quickly catching up, adding almost 100 new billionaires, with Mumbai overtaking Beijing to become Asia’s billionaire capital.[2]
This explosion in wealth has fuelled the growth of family offices as the preferred vehicle to manage private fortunes – and provide sophisticated investment strategies tailored to the needs of the families.
In Asia, home to just under half of the world’s billionaires, Singapore and Hong Kong [3] have established frameworks to attract family offices, including via tax incentives and cost benefits. They are both seeing success. By the end of 2023, there were about 1,400 single family offices in Singapore,[4] while Hong Kong boasts more than 2,700 single family offices.[5]
India, too, has jumped in on the action, approving in January the first family office to be established in the Gujarat International Finance Tec-City[6].
Bridging the gap
The concept of family office isn’t new. Ultra-high-net-worth individuals in the US and Europe have long used family office structures to grow and transfer their wealth to next generation family members. In emerging markets, however, especially Asia and the Middle East, the structure is still nascent, but fast gaining traction among the first-generation founders of rapidly-growing businesses.
As family offices hire in-house investment professionals with experience managing institutional funds, it is natural to expect them to want to access the same broad suite of financial instruments that they are used to trading.
Typically, family offices start with about USD $300m in assets under management but can exceed $1bn. They can be based in one jurisdiction or operate out of multiple cities, and can hire multiple professionals to cater to their needs, across portfolio management, accounting or for legal advice.
These family offices are ushering in change, driven by a need to diversify their investment strategies amid a turbulent economic environment where returns have been hard to come by, and get access to sophisticated products from their banks.
The banks getting this coverage strategy right at the onset are those leveraging their private banking and investment banking divisions to cater to their clients’ needs, ranging from cross asset returns to new market access.
Abhinav Sinha, HSBC’s Co-Head of Equity Sales in Asia, highlights the increasing use of derivatives by this client segment – to either optimise investment portfolios or to pursue alpha strategies typically employed by alternative asset managers, such as hedge funds.
“As family offices hire in-house investment professionals with experience managing institutional funds, it is natural to expect them to want to access the same broad suite of financial instruments that they are used to trading,” says Sinha.
In many cases, family offices are looking to use quantitate investment strategies (QIS) and related instruments to diversify returns outside their home market. For example, Asian family offices are actively investing in global markets, including the Middle East and Europe, while Middle Eastern wealthy families are also seeking opportunities in Asia.
We have been connecting Asia and the Middle East for more than 130 years, and that experience comes in handy, especially when servicing family offices across the corridor, where their investment flows continue to evolve.
According to HSBC, cumulative foreign direct investment flows between Asia and the Middle East are expected to rise to more than $270bn over the next decade, up from less than $140bn the previous 10 years.[7]
This is naturally reshaping capital flows between Asia and the Middle East – and transforming how banks are servicing family offices.
”We have been connecting Asia and the Middle East for more than 130 years, and that experience comes in handy, especially when servicing family offices across the corridor, where their investment flows continue to evolve,” says Selene Chong, Deputy Global Head of Equities and Head of Equities, Asia, HSBC.[8][A1] “Asian investors are seeking exposures to higher yielding assets outside their home market, while family offices in the Gulf are deploying more capital into alternative assets in Asia – with HSBC being a critical pillar linking them.”
Time for action
Despite their growing influence, family offices in Asia do face unique challenges, given it is harder for them to scale versus larger institutional investors.
This means while family offices want the same breadth and depth of products and solutions as institutional clients – and at competitive pricing – they lack the infrastructure not only to manage multiple broker relationships but also to effectively monitor their financial and risk exposure.
Instead, there is greater need to forge strategic partnerships with select institutions that can offer them a comprehensive set of offerings.
HSBC is well positioned, given its private banking arm is working ever more closely with the investment bank to serve the evolving needs of family offices and meet their sophisticated demands for complex products like illiquid credit, private deals and prime services. HSBC has an enhanced coverage model that facilitates single family offices across Asia to access the firm’s investment banking specialists.
“We work with family offices at different stages of their lifecycles – often with very distinct ambitions and needs ranging from investment, philanthropy to multi-generation wealth protection,” says Kerri Lim, Ultra High Net Worth Segment Head, Asia, HSBC. “Internationally minded family office clients appreciate our superior global connectivity and unique ability to provide services beyond traditional private banking, providing seamless one-bank coverage and comprehensive solutions tailored to their ever-evolving personal and investment banking needs.”
However, if family offices really want to take advantage of institutional-level services, getting their structure right is key.
In Asia, many wealthy families have historically managed their wealth through fragmented corporate structures, in which case they are unable to benefit from a bank’s sophisticated product and service offerings.
Robust governance and organisational structures within family offices help manage and mitigate risks when dealing with complex products, and help banks with regulatory compliance. A formal structure also provides family offices with more credibility and shows they are serious about becoming active investors rather than passive custodians of wealth.
While a move towards putting in place a strong corporate structure has been seen over the past decade, there are still many wealthy families that are yet to transition to a full-fledged family office model.
Solid future
It’s time for them to act. Having a formalised structure is crucial for family offices to access the full suite of institutional solutions offered by investment banks like HSBC.
“HSBC is well-positioned to support the changing needs of family offices in Asia by offering a suite of tailored and diversified wealth management and investment banking solutions that are invaluable during uncertain times,” says Nick Thompson, Managing Director, Institutional Sales Wealth, Hong Kong, HSBC. “Our presence in key hubs, combined with our deep understanding of local regulatory landscapes and emerging market trends, allows us to offer family offices strategic insights, critical international connectivity and innovative investment opportunities – all of which they need to navigate a complex financial environment.”
The future of family offices in Asia is promising, given expectations of a further wealth rise and, in turn, more demand for professional wealth management services.
By redefining capital flows, driving demand for diversified products, and challenging traditional models of service delivery, family offices are reshaping the wealth management industry – and setting the stage for a new era for the sector.
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[1] Hurun Report - Info - Hurun Global Rich List 2024
[2] Hurun Report - Info - Hurun Global Rich List 2024
[3] Hurun Report - Info - Hurun Global Rich List 2024
[4] Written reply to Parliamentary Question on family offices (mas.gov.sg)
[5] Market study reveals more than 2,700 single-family offices are thriving in Hong Kong | Deloitte China
[6] GIFT City: Azim Premji’s family office: India’s new finance hub GIFT City gives first nod to rich to invest abroad - The Economic Times (indiatimes.com)