Asian family office succession quickens
Increased costs, outsourcing, tech adoption and the altering in offering for 2023. This article was first published by The Asset, January 20, 2023.
The Asian family office sector in Singapore has flourished over the past few years as the city-state is increasingly seen as a safe haven for wealth and for developing regional investment opportunities, while having appealing tax incentives. It also offers wealthy families with a safe and predictable environment in which to raise its next generation.
However, as the number of family offices in Singapore increases, building a family office in the Southeast Asian wealth hub is becoming a competitive sport. Challenges in recruiting the best talent and rising costs are among the challenges families face in professionalizing their operations.
The Asset (TA) spoke with Valerie Mantot-Groene (VMG), regional managing director for Asia-Pacific at Apex Group, a global financial services provider, to get an overview of the current topics and themes affecting family offices.
TA: Are rising costs on the horizon in 2023 for Asian family offices?
VMG: 2023 will bring a renewed focus on costs for family offices building experienced teams, implementing the latest technology and scaling operational infrastructure in-house. For some, these costs may become prohibitive, especially for single family offices. While rising costs will have a lesser impact among the larger family offices, or multi-family offices, we expect to see clients re-evaluating what can be outsourced to drive greater efficiency in their operations.
TA: So, will this put a dampener on family office hiring this year?
VMG: Top of mind for our family office clients at present is the perennial challenge of staying up to date with the ever-increasing compliance, human resource and other regulatory obligations. To do this, requires the right team, with the qualifications, experience and crucial soft skills to thrive in a family office environment.
Amid the “great resignation” of 2022, the talent market has become increasingly competitive and shows no signs of shifting to benefit employers in the year ahead.
Increasingly, family offices in Asia are not only struggling to find the personnel with the required skill sets, but the size and cost of a fixed internal team for complex investment management operations may prove to be disproportionate when weighed up against the returns generated. Even when the right investment professionals are in place, there are other functions that require staffing, such as administration and reporting.
In 2022, we saw high-profile examples of families falling into the trap of operating with an underpowered skeleton staff, increasing the burden on valuable employees and, in the long run, leaving the family underprepared – and potentially exposed – in essential areas, such as compliance and reporting.
For all but the wealthiest of families and multi-family offices, the cost of hiring in both operational and investment functions can be prohibitively expensive; and, it is for this reason that in 2023, we expect that many will turn to increased outsourcing as a much more viable option than building an entire team under one roof.
TA: Is the Covid-19 pandemic still affecting decision-making in the Asian family office space?
VMG: Although the development and application of new technology was in motion long before the pandemic, its arrival has accelerated adoption. With social distancing measures in place around the globe, family offices were quick to harness virtual technology. This was not solely to ensure continued communications, but also to enable trade executions, data storage and report creation. Though initially introduced as a temporary measure, many of these practices are here to stay, reshaping the way family offices manage their money.
However, post-pandemic, many are finding that the capital and resource investment required to launch digital investment management operations are considerable. Furthermore, families understand that keeping operations in-house also means owning the associated risk.
As a result, they would rather outsource this to a reliable third party, meaning that for a fraction of the cost, family offices can take advantage of the latest, most advanced technology and are offered greater choice through a combination of the provider’s joint ventures with technology firms, as well as their own proprietary platforms.
Following the lifting of most pandemic related restrictions in 2022, we saw a dramatic shift toward the greater internationalization of family offices. Family office members have reviewed their personal circumstances in the last year and found that with advances in technology and a fresh approach to what being at work means, they can now work from anywhere in the world – including the jurisdictions which offer the most attractive regulatory framework, adviser and service provider ecosystems to support the management of their wealth.
In particular, we will be keeping a close eye on Singapore, which has seen extraordinary numbers of families establishing (or redomiciling) their offices to this jurisdiction, due to its innovative and supportive structuring solutions and community of experts.
One of the many indirect impacts of the pandemic we have seen among our family office clients in Singapore and the wider Asean [Association of Southeast Asian Nations] region is the acceleration of generational moves of power as health concerns become more prominent and the moving up of the timelines for succession planning.
Decision-making power is being shared and succession planning is happening sooner than initially planned. The older generations of family office leaders have sought to transition and include the heirs more effectively into their businesses and investment management operations at a faster pace.
TA: Where and in what will Asian family offices be investing in this year?
VMG: Investment portfolios are where a family’s objectives are brought to life, and it is clear that portfolios are being shaped by several themes that will be a focal point in 2023 and beyond.
Firstly, Family Offices are showing growing interest and greater comfort with direct investing, appreciating the higher level of control (including board positions) to enable active management and the cost benefits that it provides.
Secondly, purpose-led investment is not a new concept for family offices, which have always sought to align their portfolios with their principles, understanding that their resources can make a difference while still generating strong returns. Indeed, the next generation in family offices is increasingly keen to be seen to be acting beneficially for others and the planet.
In 2022, ESG [environmental, social and governance] matured as an investment theme, however, the spotlight has been shone on investment “greenwashing” by regulators and the media, interrogating and calling out those who misreport or mislead on the ESG credentials of their investments.
In 2023, we believe family offices will be more cautious, but not discouraged from making ESG-aligned investments. Instead, they will seek out the advisers and technologies that allow them to capture the right ESG data from their investments, benchmark and understand its meaning, and to quantify positive change in their portfolio over time.
TA: Will the FTX collapse frighten Asian family offices away from crypto investments? Or will the generational shift keep the asset in view?
VMG: Family offices are naturally cautious around cryptocurrencies following the high-profile FTX collapse, which confirm many of the older generation’s worst fears about investing in crypto. However, in the current market conditions, we are seeing more broadly, a trend towards more tangible assets in the portfolios of our family office clients.