Asia: Service needs different model in emerging market

Entrepreneurial Asian families are getting richer faster than those anywhere else in the world. This is obvious when you consider they represent the vanguard of wealth creation in some of the most rapidly growing emerging markets.

What is less obvious is that they are relatively young in business terms, which means these families and their wealth are much more entwined with their companies.

This is why the family office is still a novelty in the region. There are about 100 single family offices in Asia, compared with 2,500 or so worldwide, according to a recent study by UBS and Campden Research*.

Three-quarters of these offices have been set up since 1990, according to the study, and more than 80 per cent of them have significant and extremely valuable holdings in the core family business.

Christian Edelmann, head of the financial services practice in Asia Pacific for Oliver Wyman, says this helps to illustrate why there are fewer family offices in emerging Asia especially.

"Wealth is much more tightly linked with corporate or entrepreneurial activity [in Asia]," he says. "Much more of it is tied up with capital raising, M&A activity and so on, which is why the big investment banks have been successful with wealth management businesses in the region."

This contrasts strongly with Europe and the US where family offices tend to manage much older money that is less connected with the original corporate activity and more focused on achieving decent returns that protect the family wealth for the longer term.

This picture is backed up in a global family office study done by Wharton Business School in 2008**. Asian families had on average 40 per cent of their wealth tied up in an operating business, compared with 28 per cent for Europe and 24 per cent for the Americas. The study found that less than half of an Asian family's wealth was managed through its office in Asia, while families in Europe and the Americas had about two-thirds of their wealth managed through offices in their regions.

The UBS/Campden study found that even where European family wealth was still tied to an operating business, clearer lines of demarcation were more noticeable.

But family offices are a growing form of wealth management in Asia. Fabian Salvi of Dragon Capital in Vietnam says his firm is seeing more interest from family offices developing in Asia. "This is an important signal because we are now seeing that in Asia, families are more interested in looking at investments outside China," he says.

Others see growth in the number of family offices in the region, "but there is not the [same] penetration here as in other regions, such as Europe or the US," says Paul Hodes, head of wealth management, Asia Pacific at Citigroup in Singapore.

He says Asian families need less complicated forms of estate planning than those in Europe because they just want to pass on their businesses to the next generation.

"In Europe and the US, people have sold or are more interested in selling their business and passing on wealth, which requires a different approach," he says.

Further, Mr Edelmann says, younger Asian families with only two or three children have less need for sophisticated advice whatever form the wealth takes. "In Europe especially, where there are often multiple generations of a family with children perhaps living in different places around the world, the tax and inheritance advice can be extremely complicated."

Of course, that does not mean things are always simple for families in Asia. The fierce $1.5bn battle between members of the family of Stanley Ho, the Macau casino mogul, which erupted in the Hong Kong courts early last year, shows what can happen with a complicated family tree.

Family offices can prevent disagreements by acting as the forum for family debates and providing transparency and records of transactions, consultants say.

But one thing that could hamper families looking to develop an office is a lack of people to run them. "There is a severe shortage of talent to run money in Asia, which makes it difficult to set up a family office," says Mr Edelmann.

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* Growing towards maturity: Family offices in Asia-Pacific come of age

** Single Family Offices: Private Wealth Management in the Family Context

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