Over the past decade, the global landscape of wealth has undergone a significant transformation, marked by an extraordinary increase in the number of billionaires and ultra-high-net-worth individuals, especially in Asia. The Hurun Global Rich List 2024, released earlier this year, reveals that the global billionaire count has expanded by 5%, with China emerging as the leading nation, closely followed by the United States as a secondary hub for wealth accumulation.[1]
In a striking development, India has emerged as a formidable contender, welcoming nearly 100 new billionaires to its ranks, with Mumbai officially surpassing Beijing as Asia’s new billionaire capital.[2]
This unprecedented surge in wealth has catalyzed the establishment of family offices, which have quickly become the preferred mechanism for the management of private fortunes. These offices not only offer a sophisticated array of investment strategies that are meticulously aligned with the unique needs of wealthy families but also facilitate greater control over their financial affairs.
In the Asian region, which is home to nearly half of the world’s billionaires, cities like Singapore and Hong Kong have proactively curated frameworks to attract family offices by offering enticing tax incentives and cost benefits. This strategic construction has reaped significant rewards, with Singapore reporting nearly 1,400 single-family offices by the end of 2023,[4] while Hong Kong proudly boasts over 2,700 single-family offices.[5]
India, eager to join the trend, took a significant step in January by sanctioning its first family office located in the Gujarat International Finance Tec-City,[6] marking its entry into this burgeoning market.
Bridging the gap
The family office concept is not a novel idea. In the United States and Europe, ultra-high-net-worth individuals have long embraced family office structures to enhance their wealth and facilitate its transfer to subsequent generations. However, in emerging markets, particularly in Asia and the Middle East, the adoption of this structure is still in its infancy, yet it is rapidly gaining momentum among the first-generation leaders of swiftly expanding businesses.
As family offices hire in-house investment professionals with experience managing institutional funds, it is natural to expect them to want to access the same broad suite of financial instruments that they are used to trading.
Abhinav Sinha, HSBC
Typically, family offices commence their journey with around USD $300 million in assets under management but have the potential to exceed $1 billion. They can operate from a single jurisdiction or across multiple locations, and often employ numerous professionals to fulfill their diverse requirements, spanning portfolio management, accounting, and legal services.
These family offices are inducing significant changes in the financial landscape, driven by a pressing need to diversify their investment portfolios in a turbulent economic climate and to gain access to advanced financial products offered by financial institutions.
Banks that successfully implement a comprehensive coverage strategy are those leveraging both their private banking and investment banking divisions to meet clients’ diverse needs, which range from cross-asset returns to new market access.
Abhinav Sinha, Co-Head of Equity Sales in Asia at HSBC, emphasizes the rising trend of derivatives usage among these family offices, whether it be for portfolio optimization or to pursue alpha strategies akin to those typically utilized by alternative asset managers, such as hedge funds.
“As family offices hire in-house investment professionals with experience managing institutional funds, it is natural to expect them to want to access the same broad suite of financial instruments that they are used to trading,” states Sinha.
We have been connecting Asia and the Middle East for more than 130 years, and that experience comes in handy, especially when servicing family offices across the corridor, where their investment flows continue to evolve.
Selene Chong, HSBC
This evolving landscape is significantly reshaping capital flows between Asia and the Middle East and transforming how banks cater to family offices. “We have been connecting Asia and the Middle East for more than 130 years, and that experience comes in handy, especially when servicing family offices across the corridor, where their investment flows continue to evolve,” remarks Selene Chong, Deputy Global Head of Equities and Head of Equities, Asia at HSBC.[8][A1] “Asian investors are increasingly eyeing higher-yield assets outside their local markets, while family offices in the Gulf are directing more capital into alternative investments within Asia – with HSBC serving as a vital conduit for these ventures.”
Time for action
Despite their growing influence and stature, family offices in Asia encounter distinct challenges, as scaling remains significantly more cumbersome compared to larger institutional investors.
Consequently, while family offices aspire to access the same breadth and depth of offerings as their institutional counterparts, complete with competitive pricing, they often lack the necessary infrastructure to effectively manage multiple broker relationships or to routinely evaluate their financial and risk profiles.
This situation underscores the necessity for fostering strategic alliances with select institutions capable of providing a comprehensive suite of services.
HSBC stands out in this regard, with its private banking division increasingly collaborating with its investment banking side to address the evolving demands of family offices and meet their complex needs for sophisticated products such as illiquid credit, private equity opportunities, and prime services. The bank has developed an enhanced coverage model that enables family offices throughout Asia to readily interact with its investment banking specialists.
“We work with family offices at various stages of their lifecycles, often with distinct ambitions and requirements regarding investment, philanthropy, and intergenerational wealth preservation,” comments Kerri Lim, Ultra High Net Worth Segment Head, Asia at HSBC. “Clients who operate internationally greatly value our superior global connectivity and our unique capability to deliver services that extend beyond traditional private banking, allowing for streamlined, one-bank coverage and comprehensive solutions meticulously tailored to their ever-changing financial and investment requirements.”
Nevertheless, if family offices genuinely desire the benefits of institutional-level services, establishing a solid operational structure is paramount.
In Asia, numerous affluent families have historically managed their assets through fragmented corporate frameworks, which inhibits their ability to fully leverage a bank’s advanced product offerings.
Establishing robust governance and organizational structures within family offices is essential for managing and mitigating risks when engaging with complex products while also aiding banks in adhering to regulatory standards. A well-defined structure enhances the credibility of family offices and signals a serious commitment to being active investors rather than mere stewards of wealth.
While there has been a notable shift towards instituting strong corporate structures in the last decade, many wealthy families have yet to migrate fully to the comprehensive family office model.
Solid future
It is imperative for them to take decisive action. Having a structured approach is critical for family offices aiming to unveil access to the complete array of institutional solutions available from investment banks like HSBC.
“HSBC stands well-equipped to meet the evolving needs of family offices in Asia by delivering a diverse range of tailored wealth management and investment banking solutions that are particularly advantageous during these uncertain times,” asserts Nick Thompson, Managing Director of Institutional Sales Wealth in Hong Kong at HSBC. “Our strategic presence in key financial centers, combined with our deep understanding of local regulatory frameworks and emerging market dynamics, enables us to provide family offices with strategic foresight, crucial international interconnectivity, and innovative investment avenues – all essential for navigating the complexities of today’s financial environment.”
The outlook for family offices in Asia appears promising, fueled by anticipated further increases in wealth, stimulating even greater demand for professional wealth management services.
By redefining capital dynamics, propelling the need for diversified investment products, and challenging conventional service delivery models, family offices are not only reshaping the wealth management landscape but also laying the groundwork for a new era in this sector.
Disclaimer:
FOR PROFESSIONAL INVESTORS AND ELIGIBLE COUNTERPARTIES ONLY
The information conveyed in this transmission is exclusively intended for the recipient and is not for general distribution.
This material does not constitute Investment Research. It has not been prepared by HSBC’s Research Department. This is a desk view and not a recommendation. Investors are encouraged to make their own evaluations and investment decisions.
[1] Hurun Report – Info – Hurun Global Rich List 2024
[2] Hurun Report – Info – Hurun Global Rich List 2024
[3] Hurun Report – Info – Hurun Global Rich List 2024
[4] Written reply to Parliamentary Question on family offices (mas.gov.sg)
[5] Market study reveals more than 2,700 single-family offices are thriving in Hong Kong | Deloitte China
[6] GIFT City: Azim Premji’s family office: India’s new finance hub GIFT City gives first nod to rich to invest abroad – The Economic Times (indiatimes.com)
[7] New networks of capital | Insights | HSBC
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