Published on December 3rd, 2013
Next generation of Asia’s super rich adopt western attitudes to preserving family values
The number of Asian family offices looking to invest in property is set to rocket, as millionaires flourish in the region and a younger generation takes a more sophisticated approach to wealth preservation
Asia’s modest market for investment by family offices is on course to explode in line with economic growth and growing affluence within the region.
Fewer than 150 Asian family offices are in operation (excluding Australia), but wealth intelligence expert WealthInsight anticipates the creation of 1,000 new family offices by 2020, triggered by a surge in the number of millionaires and billionaires over the next two years from 3.3m to almost 15.8m.
Rising wealth is creating more millionaires and billionaires in Asia than in any other global region. Of those, Japanese millionaires have the most to spend, with a potential $4.45trn to invest in 2012, according to various wealth reports, followed by China’s $3.12trn.
A change in the way Asia’s super rich manage their wealth is also a major factor driving growth in the family office market.
Michael Dwyer, chairman of Oxley Capital, which works with family offices in property and other sectors, says: “The family office model in Europe and Australia is run like a corporation, with governance. In Asia, until recently, that model hasn’t existed; it operates like a pyramid with the head of the family at the top.”
However, as a younger generation of wealthy individuals that have spent time in Europe and the US move up the family ranks, the structure is being flattened “with the aim of having all the technology and horsepower of a listed company. The wealth is already there as a family; it’s now morphing into a family office,” Dwyer says.
REITs were first step for families
This shift begins with families embracing real estate investment trusts as a property tool. The REIT concept came into being in Singapore in 2001 and the sector already totals about $50bn. “Families want to put a lot of their assets into REITs. It’s one of the first things they do in becoming a family office,” says Dwyer.“Vibrant things are happening with families,” he adds.
Family offices are designed to preserve wealth and manage that of the super rich, defined as those worth $1m upwards. The bulk of their portfolios are made up of long- term investments, often including property in places such as Hong Kong and Singapore – the optimum locations to park wealth, as a result of their stable economic and social systems and low taxes.
While real estate is just one asset class family offices invest in, their fire power is so great that it has the potential to move the market. “The money involved is incredible,” notes Dwyer.
Asian family offices with notable real estate investments include Singapore’s Wen Ken Group, Hong Kong’s Financial Partners Limited and India’s Godrej Investments.
“[FAMILY OFFICES’] first acquisition is driven by wealth preservation and will be without risk. following this, and with a greater understanding of the market, more and more investors are prepared to head up the risk curve”
Jeremy Waters, Knight Frank
“We’ve seen an increase in family office activity in Hong Kong and Singapore, representing wealth from Indonesia and China,” says Jeremy Waters, partner of global capital markets at Knight Frank.
There has been a strong level of past interest between Singapore and Australia, while Chinese wealthy individuals are also increasingly attracted to Singapore. “Investors are diversifying into markets they understand and where they are comfortable with the fundamentals,” Waters says.
Another factor driving investment by wealthy Asian families is an increasing desire to diversify away from home markets, partly driven by wealth preservation. “Where there may be past political volatility, such as in Indonesia, there is a desire to invest off-shore in safe haven markets,” says Alistair Meadows, regional director of Jones Lang LaSalle’s international capital group in Singapore.
Various government market-cooling measures targeting the residential sector in Hong Kong, China and Singapore have compounded the trend to look overseas.
Over the past nine months, Waters has seen some family offices pursue a more opportunistic approach in new markets. They are becoming increasingly active in key European cities such as Paris, Munich, Hamburg, Berlin, Madrid, Rome and Milan.
Singapore-based Bright Ruby, a large investment manager that looks after a Chinese conglomerate’s wealth, is reportedly active in London, while earlier this year Knight Frank sold West End office and retail block 52 Conduit Street to a private investor – thought to be a family office from Hong Kong.
London and Paris offer stable income
These investors typically seek secure assets with stable income in core markets. Prime London and Paris retail deals are highly sought after among Asian family offices.
“Generally the first acquisition is driven by wealth preservation and will be without risk,” says Waters. “Following this, and with a greater understanding of the market, more and more investors are prepared to head up the risk curve, although often this is driven by a lack of available stock.”
Meadows is seeing interest in Southern Europe, for example Spain and Portugal. “There has been a strong increase in Chinese interest in Portugal, based on a visa programme available for individuals and international groups that invest over €500,000,” he says.
Inter-regional and intra-regional capital flows are increasing from private investors. A healthy flow of new money, combined with a fresh approach, means demand for wealth management will soon outstrip supply, creating ideal conditions for the growth of new family offices, WealthInsight predicts.
“The need from a generational point of view has not come up in past,” says WealthInsight analyst Oliver Williams. “Considering the amount of new money in India and China, and that there has been no emphasis on generation wealth transfer, family offices play a role in gapping the generations and are an ideal structure to suit Asia’s ageing population.”