Asian family offices are keeping their powder dry, being more selective on private markets, and increasing efforts to prepare the next gen to take over the family’s wealth, with a recent uptick in demand for services such as trusts and succession planning.
This is according to Jonathan Gan, head of global family office group for South Asia at Citi Private Bank, commenting on the bank’s latest Global Family Office Report 2023, which surveyed 268 family office respondents, representing a total of US$565 billion in wealth. Asia Pacific accounted for 21% of respondents.
Despite seeing a big shift to cash allocations, with 54% increasing their allocations to cash, a majority of family offices expect positive returns on their portfolios in the next 12 months, highlighted Gan. Moreover, close to half of them anticipate returns to improve by 10% to 15%.
Source: Citi Private Bank Global Family Office Report 2023
“Unlike institutional investors, family offices tend to show more home bias when investing. And because of the slowdown in Asian public equities coupled with rising interest rates, there has been an increase in market apathy, where clients tend to put more money on the sidelines,” Gan told Asian Private Banker in a recent interview.
He added that the high cash allocation suggested that there is a lot of dry powder, and once there is more visibility in the markets, clients will put their money back to work.
Private markets and fixed income
Gan observed that APAC family offices are more selective when it comes to finding the right private market solutions.
Jonathan Gan, Citi
“In Asia Pacific, family office respondents have been a lot more selective when it comes to the deployment of capital into private market investments. This, in part, is due to currently subdued public equity markets in Asia.”
Gan highlighted that private equity firms have not been able to unlock their invested capital in their portfolio companies through the IPO market, resulting in Asian family office investors having less competition for deals and hence being spoilt for choice.
“Even though 69% of Asia families are likely to engage in private investments, that is still the lowest compared to the other regions,” Gan explained.
Having said that, he believes families in Asia remain keen to deploy money into the private markets, whether it’s private credit or equity, but because of the higher return profiles and it being a buyer’s market now, they can be more selective.
“We believe, in the near term, fixed income will continue to be an interesting bright spot for families to look at. We also do feel that public equities in select spots have been points of interest, especially in technology.”
Preparing for the next gen
Despite families in Asia having a shorter history of wealth when compared to North America or EMEA families, Gan believes that wealth management services are still the primary focus for APAC families. This is because the landscape in Asia is still very much centred around the first generation preserving wealth for the next generation.
“We have seen an uptick in insurance, trust services, succession planning, estate tax planning and family governance. These have all come into play in the last 12 months because it is being driven by the first generation who are preparing for the second generation to take over.”
Gan highlighted that in Asia, a lot of wealth is created by entrepreneurs and families with their own businesses. There will always be a proportion of the next generation who may opt to branch out on their own and start their own ventures.
To prepare the next generation to take over the family office, Citi has a programme called ‘Citi Latitude’ to engage and educate the next gen on investment and business activity.
“We have also seen [the trend] that the next gen are getting more involved in the private banking matters of the family office, and the next gen are mirroring what their parents have been doing with their money,” he noted.
There are also some families that carve out pools of capital for the next-gen to try their hand at investing. For instance, the first gen will allow the next gen to explore venture capital opportunities which could be synergistic with the main family business.
“In Asia, we still see a lot of involvement from the first gen in terms of guiding and setting investment parameters for the next gen,” explained Gan.
Professionalising family office
Citi Private Bank has also seen an increased focus on urgency in terms of professionalising the family office.
According to the report, about 63% of Asian respondents have already separated their family office entities from their family businesses, so it is no longer the parents talking about their family office investments and their corporate businesses together at the dinner table.
“Another 13% are also currently on the way to do so, which would mean more than 75% or three-quarters of the Asia Pacific respondents are getting professional and external expertise to help run their family offices,” he said.
Gan believes that the industry will continue to see the family office landscape evolve as more professionalisation comes to fruition.
“The pool of capital coming from family offices continues to grow at a fast clip, and we could soon likely see family offices banding together to go after bigger deals, and potentially merging into multi-family offices to achieve more economies of scale.”
