The rise of Asian family offices reflects not just the greater economic prosperity of the region, but also a need for expertise in running these organizations.
Post-global pandemic, Asian economies have rebounded, albeit at varying speeds and degrees.
The continent has demonstrated its resilience in the wake of COVID-19 and it remains on a long-term, upward economic trajectory.
And the Asia-Pacific region will be one of the fastest growing regions for wealth.
According to research by Accenture, Asia is the key battleground for wealth management firms. These firms foresee rapid growth, aiming to double assets under management (AUM) and boost revenues by 60% by 2025 compared to 2021 levels.
In 2021, there were about 7.2 million high net worth individuals (HNWI) in the Asia-Pacific region. In a report by global consultant Henley and Partners, India produces far more new millionaires than it loses to migration. It expects India’s high net-worth individual population to rise by 80% by 2031, making it one of the world’s fastest-growing wealth markets during this period.
A report in The Print states that Singapore continues to attract millionaires from the rest of Asia. With a net inflow of approximately 2,800 high net-worth individuals in 2022, it is emerging as Asia’s top wealth management center.
"The number of family offices in Asia far outpaces" the rest of the world.
And on the family office front, “the number of family offices being set up in Asia far outpaces” the rest of the world, said Mahesh, “Wealth here is getting more and more sophisticated and being created at a rather unprecedented pace.”
In fact, 40% of all family offices in Asia-Pacific have been established since 2010.
The super wealthy in Asia increasingly look for more complex, global investments at a time when a record number of patriarchs cede control to the next generation, according to Bloomberg.
As these family offices want to grow and preserve wealth, they look at investment vehicles that will achieve those goals.
Alternative investments are one example. According to Lombard Odier's 2022 APAC HNWI study, Asia-Pacific high-net worth individuals are repositioning their portfolios, diverting more from traditional asset classes such as equities and bonds. The study noted an increase of 37% in the past 2 years of investing in alternative or private equity assets.
Another study found that 57% of family offices in the region are looking to increase exposure in private equity funds, and 39% look to invest directly in private equity. Real estate and digital assets are other areas they're investing in more.
The reason for starting a family office (FO) is simple: to maintain and grow the family's wealth for future generations. To achieve these objectives, FOs will hire the best wealth managers available.
Family offices in Asia indeed have been growing over the past few years, especially in Singapore and Hong Kong. There is a growth in the billionaire population in the region and family offices have a huge role in managing family finances, assets, succession planning, and legal matters.
Finding the top wealth managers in the region, however, won't be easy. Family offices in Asia could find themselves in bidding wars for the best talent.
For example, in Hong Kong and Singapore, competing firms on average are willing to offer wealth managers pay increases of 30% or more to switch companies, according to Bloomberg.
According to Glassdoor findings, the national average salary for a Personal Wealth Manager in Singapore is US $2,949 per month, or US $35,388 per year. And in Hong Kong, the average pay for a wealth management job is US $4,283 per month, or US $51,400 per year.
Indeed, raises may be needed if the supply of wealth managing talent to match the rising number of wealthy people cannot keep up:
"For a huge market like this, (the number of licensed relationship managers) is certainly not enough. That's why we are seeing a talent war.
It won't be easy to retain people when they get a 20 to 30 percent premium and an upgrade in title."
- Amy Lo, Head of the Private Wealth Management Association, Hong Kong
Though these studies and comments came prior to the pandemic, the talent shortage remains.
The long-term picture points to a rise in demand for such talent.
If the demand for wealth management talent is any indication of what's to come, then demand for middle- and back-office experts should follow.
After all, setting up a family office cannot be reduced to simply the hiring of investment advisers.
Family offices need qualified portfolio accounting specialists who can run their reconciliation and performance reports, among other operational services required. Empaxis can help.
When high- and ultra-high net worth individuals set up a family office, they have a vision to generate and/or preserve wealth.
But they're less likely to have a vision for their middle- and back-office.
"The biggest challenge for anyone starting a family office is the sheer volume and complexity of all that you have to do," said Christian Armbruester, whose family started Blue Family Office in 2010.
"It’s not just about the resulting (investment) performance, but also all the admin, operation, people and resources you require to execute the chosen strategy."
In addition, our previous blogs have highlighted the need for the financial services industry to attract young talent, including solutions for hiring beyond physical proximity to the office.
Between wealth management talent shortages and rapid industry growth, family offices in Asia may find themselves paying a premium for talent.
Outsourcing is one way to acquire talent and keep costs down.
It's one thing for HNWIs and UHNWIs to know what they want from starting a family office.
It's another thing, however, to implement the correct steps to achieve those goals.
One might have a basic understanding about how things function, but many lack the skill sets required to tackle everything from investment management to middle- and back-office functions, as well as technology and compliance.
Without experience, doing things on one's own can prove costly and inefficient. Consider these scenarios:
In the situations, outsourcing could help reduce that risk. Consider the benefits below.
When the in-house talent is hard to find, family offices in Asia can explore the OCIO (Outsourced Chief Investment Officer) path. Though a relatively new phenomenon in Asia, the OCIO is there for firms that want some or all of their assets managed or invested by third-party experts.
Learn more about the benefits of an OCIO.
As for operations and technology, outsourcing gives family offices access to these areas of talent.
Firms like Empaxis, that originally started out of a multi-family office, understand what it takes to serve a family office's operation.
Whether it's expertise in portfolio accounting, automation, or upgrading family offices' technology to a cloud-based turnkey solution, we have the talent and tech for you.
And as more family offices invest in private equity, they need help processing the investment statements, and Empaxis has a an automated solution.
As mentioned earlier, Asian family offices would have to pay a premium for in-house talent, but outsourcing provides a way to access talent and cut costs.
Because third parties devote resources to perfecting their skill, they find ways to make processes more efficient. In turn, they pass the savings on to their clients.
With outsourcing, family offices are paying strictly for labor costs. They don't have to pay for benefits, perks, sick-leave or vacation days associated with in-house hires.
Thus, for a family office to try and set everything up on their own can be ineffective and a waste of resources. Outsourcing can help prevent those situations.
When it comes to outsourcing, family offices strictly pay for labor, and they pay for the labor as they need it.
Working with a third party makes it easier for FOs to ramp up or down their operations.
When things get busier or slower, the outsourcing provider adjusts staffing needs accordingly. They already have the trained backups to perform the work and can be used and set aside at any time.
In contrast, in-house hiring can be tricky because family offices must deal with "flood" and "drought" periods.
Floods occur when the workload exceeds staff capacity, and droughts occur when there's not enough to work go around.
Granted, it's hard to predict how much in-house labor you need, but employee idle time wastes resources. Outsourcing may help solve this issue.
In addition to labor, the services provider may have the technology that family offices need to scale. A turnkey asset management platform, as mentioned above, is one of those areas where family offices can benefit.
As Asian family offices continue to grow so will the demand for talent.
However, the growth in talent has not kept pace. As a result, family offices will have to pay top dollar for top talent.
Doing everything on one's own while lacking the necessary experience can be a costly endeavor. Outsourcing can help reduce these risks.
Outsourcing companies that serve family offices have the resources to run middle- and back-offices in an efficient manner. New Asian family offices may benefit from the help of such experts.
Empaxis helps family offices by providing world-class technology, automation, and operations outsourcing services. Want to chat? We're happy to have a conversation.
Our monthly newsletter features helpful resources, articles, and tips to implement at your investment firm. Enter your email below to subscribe:
