Thursday, December 7, 2023

Family Offices in Asia, the Middle East to Double, Insead Says

Klaus Wille
April 27, 2015 | 12:08 pm
Luxury yachts illuminated at night sit moored in front of residential buildings in the Sentosa Cove during the Singapore Yacht Show in Singapore, on April 25, 2014. (Bloomberg Photo/Sam Kang Li)
Luxury yachts illuminated at night sit moored in front of residential buildings in the Sentosa Cove during the Singapore Yacht Show in Singapore, on April 25, 2014. (Bloomberg Photo/Sam Kang Li)

The number of family offices in Asia and the Middle East will more than double to about 400 over the next eight years as the ranks of wealthy individuals swell, Michael Prahl of Insead business school said.

Driven by the region’s economic expansion, the number of wealthy individuals is expected to rise 40 percent by 2023, Prahl, executive director at Insead in Singapore, said in an interview on April 24.

Asia is lagging behind the US and Europe in family-office services. Seventy-six percent of Asia’s family offices were started since 2000, according to UBS Group, whereas they took off in Europe and the US in the second half of the last century. Insead estimates that there might be as many as 200 family offices in Asia currently, compared to about 1,000 in Europe and 3,000 in the US

“Given the youth of the family-office industry in Asia, there is a big desire and need to catch up to professionalize,” said Prahl, who does research and regularly hosts conferences on family offices.

Family offices manage assets as well as provide tax, legal, accounting and philanthropy services to the wealthy.

In Europe and the US they typically have one or two family members involved in asset allocation decisions, generally engaging through the investment committee, according to Prahl. Activities such as managing trading positions and manager selection are left to that body or the investment professionals themselves. In Asia, the family is much more in control of investment decision making, Prahl said.

In the average Asian family office, just three investment professionals manage about $400 million of assets, according to Insead. That compares with five to six professionals managing between $300 million and $1 billion in Europe or the US.

Family interference

Family office teams in Asia also have to cope with interference by family members in how their assets are invested, according to Prahl.

“Oftentimes, the principal has his network of friends and advisers who provide him with investment ideas,” Prahl said. “Those investment ideas can be erratic as they may not fit the portfolio and get in the way of a structured and strategic asset allocation.”

This unpredictability and interference remain among the biggest roadblocks to attracting top talent with institutional background in Asia, he said.

“Asset managers, coming from a top-tier bank and joining a family office, don’t like being micromanaged by the principal,” Prahl added.

Maturing faster

Wealthy families’ businesses in Asia are often too integrated with their asset management, meaning that some employees are taking on roles they might not have experience or be qualified for, Prahl said.

“As an example, the chief financial officer of the family business becomes the chief investment officer of the family wealth organization,” he said.

Asia’s family offices have the chance to mature faster than their peers in Europe and the US did, Prahl said.

“What we are seeing among Asia’s family offices, is a huge interest in learning,” Prahl said. “That and the benefit of being able to observe the evolution of the family office model in the US and Europe means they can in some instances move forward faster.”


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