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.
COVID-19 continues to rear its ugly head. Asian economies to varying degrees have a taken a hit, putting them on fragile ground as they make a recovery.
Nonetheless, the future is bright for the continent. Asia as a whole remains on a long-term, upward economic trajectory.
According to a McKinsey report, total Asian wealth management revenue reached $90 billion at the end of 2019. Pre-pandemic, the number was expected to increase by $70 billion by 2025. In a COVID-19 world, that 2025 number has been revised to increase by $25 billion in a "muted recovery" scenario. Meanwhile, total investor wealth levels should return to historical growth rates by 2023.
And the Asia-Pacific region will be one of the fastest growing regions for wealth.
There will be more than 168,000 ultra-high net worth individuals (UHNWIs) by 2025, according to a Knight Frank report. Indonesia, India, New Zealand, and China will see notable growth in their UHNWI population, the report noted.
Furthermore, pre-pandemic commentary from Anurag Mahesh, head of UBS bank's family office operations in Asia, should still hold true relative to the rest of the world:
"The number of family offices in Asia far outpaces" the rest of the world.
“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.”
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.
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.
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.
The driving factor behind the talent war in Asia is that the continent added almost 2,000 millionaires every day in 2017, according to Capgemini.
And the supply of wealth managing talent to match the rising number of wealthy people has not kept 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. They're less likely to have a vision for their middle- and back-office.
"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."
Further supporting concern over a talent shortage across the financial industry is PwC's 19th Annual Global CEO Survey (2016). The survey found that 70% of financial services CEOs see limited availability of skills as threats to growth, up from 56% in 2011.
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 to set it up implement the steps and achieve the goals, especially if they lack experience in the investment management space.
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.
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 pay top dollar for top talent.
Doing everything on one's own while lacking the 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.