A growth in the number of billionaires is seen in Asia. According to Forbes, China and India houses the second and third largest billionaires worldwide in 2022. Other Asian markets, including Hong Kong, Taiwan, South Korea and Japan, are also on top of the list. Knight Frank Wealth Report (opens a new window) estimates that Asia will show the fastest growth in the number of ultra-high-net-worth individuals (UHNWI), and by 2025, house about a quarter of the world’s UHNWIs.
Given the rise in billionaire population, increasing number of family offices have been set up to help billionaire families on wealth management. A study conducted by Mordor Intelligence (opens a new window) reported that a 38% growth in the number of global family office. In Asia-Pacific region, a remarkable 40% of family offices have been established since 2010, according to Campden Research (opens a new window).
Trends of family offices in Asia
Singapore and Hong Kong as popular locations
In Asia, Singapore and Hong Kong are popular options for the set-up of a family office and family funds. A study by Agreus (opens a new window) shows that 25% of family offices in Asia are located in Singapore, and 20% are in Hong Kong. They meet the criteria that these UHNWIs are looking for, including:
strong regulatory framework
established financial service industry and well-developed infrastructure
stable and pro-business government policies
skilled labour force and talent pool
is perceived as transparent
is where the family has existing private banking relationships
More diversified and direct investment
Unlike the older generations who adopt a more conservative investment style, the younger generations are willing to take more risks when it comes to investment. As they get involved in the family business, family offices are starting to make more diversified and direct investments, such as private equity and venture investment. For instance, Blue Pool Capital, the family office of Alibaba Group’s Co-founder Joseph Tsai, invested US$2.35 billion in Brooklyn Nets, making himself the second Chinese owner of an NBA franchise.
More co-investment among family offices
Co-investment allows families from different sectors to share resources, and make use of each other’s strengths, and mitigate risk. As it brings more stable investment returns, more family offices have adopted this new model of collaboration. Co-investment among family offices mainly occurs in two forms: the first is when a family office seeks to collaborate with other family offices who share similar visions and motives; the second is when several firms engage in investment projects under a multi-family office platform. It enables shared access to resources and reduced operation costs.
Increased focus on sustainability
As sustainability becomes an increasingly trending topic around the globe, family offices are focusing more on sustainable investing. APAC families are expecting to increase their sustainable investments from 26% in 2021 to 30% in 2022 and 43% in 2026. They also reported an average return of 10% in 2020 and 2021. In Hong Kong, 85% of family offices are expected to increase their allocation to ESG (Environmental, Social and Corporate Governance) or impact investing, according to a research (opens a new window) conducted by Family Office Association Hong Kong.
Risks faced by family offices
As their investment projects often involve a large sum of money, family offices tend to be more vulnerable to conditions, such as market volatility, economic recession and a global pandemic. In addition, family offices owning concentrated assets are exposed to a substantial loss if things go south as they are too dependent on those assets for return.
Reputation becomes an increasingly important asset for family businesses as consumers engage with business on a more personal level. The global community now pays more attention to businesses’ environmental, social and governance performance. Unethical, socially irresponsible business practices may lead to reputational damage, which is costly and timely to handle. Businesses may also face reputational damage if directors and key managers were found guilty of misconduct.
Cyber, Security and Fraud Risk
In this digital era, businesses are exposed to an increasing amount of cyber, security and fraud risk. Billionaire families and their family offices, in particular, are targeted by criminals as they control a large sum of money. According to the Bloomberg Billionaires Index (opens a new window), the combined wealth of Asia’s 20 richest families alone exceeds $495 billion, which is more than Hong Kong or Singapore’s GDP.
Dentons (opens a new window) reported that 26% of family offices have suffered a cyberattack. During a cyberattack, family wealth and digital assets may be fraudulently stolen. Moreover, sensitive data may be leaked to the public, which could harm the privacy, safety and reputation of the family and its businesses.
How to mitigate risks?
Educate members of the family office. In family offices, a single employee often has significant control over financial activities and family communication. They must therefore learn how to respond to cyber threats and fraudulent behaviours, and act in volatile situations.
Establish crisis management plans. Crisis management policies and procedures should be set up and communicated to family members and family office employees. During an emergency, this would guide them to minimize the adverse effect on the company.
Perform risk assessments. Family offices should actively engage in fraud prevention, deterrence and detection activities, and should not underestimate the occurrence and impact of cyberattack and fraud.
Data encryption and protection. Family offices should be more careful when handling sensitive data. They should also regularly update their IT system to have stronger data encryption and protection.
Diversify investments. Family wealth preservation is of equal importance with wealth growth. Family offices should therefore diversify investment to have a more stable return and avoid being over-reliant on a few investment projects.
Seek appropriate insurance. From a corporate perspective risk may be mitigated by transferring to various insurance policies including Professional Indemnity, Directors & Officers, Crime, Cyber and Employment Practice liability. For the family's personal and passion investments the cover can be arranged for global residential homes and contents, art, wine, jewellery, motor collections, yachts and other interests.
For more information on how to manage and mitigate family office risks, please contact your Lockton representatives:
Rob Russell, Regional Director – Asia, Global Professional & Financial Risks | +66 (0) 2 635 5000 (Ext. 2801) | email@example.com (opens a new window)
Melvyn Ford, Senior Consultant, Global Professional & Financial Risks, Greater China | +852 2250 2675 | Melvyn.Ford@lockton.com (opens a new window)
Juliana Yong, Vice President Specialties, Singapore | +65 8722 7625| firstname.lastname@example.org (opens a new window)