A growing number of family offices in Asia-Pacific are upgrading their technological capabilities, particularly in response to the disruptions brought about by the Covid-19 pandemic. This digital trend applies not only to communication but also to the way trades are executed, data are stored and reports are created.
“We are now at a stage where consumers are comfortable interacting with artificial intelligence such as chatbots, which are now sufficiently advanced to deliver banking services effectively,” Valerie Mantot ep Groene, regional managing director, APAC, at global financial services provider Apex Group, tells The Asset in an interview. “We believe that the pandemic has accelerated this, and the behaviour changes regarding our relationships with technology will be permanent. This is no different in the family office space.”
However, she points out that many families are finding the costs and resources associated with launching digital investment management operations are significant. For all but the wealthiest of families, the cost of these technology platforms can be prohibitively expensive and it is for this reason that outsourcing is much more viable than building the entire digital infrastructure under one roof.
Families understand that keeping operations in-house also means owning that risk. As a result, many are choosing to outsource digital operations to a reliable party.
“For a fraction of the cost, family offices can take advantage of the latest, most advanced technology and are offered greater choice through a combination of the provider’s joint ventures with technology firms, as well as their own proprietary platforms,” she says.
More private investment platforms are rolling out across Asia and are being increasingly utilized by family offices (FOs) and multi-family offices (MFOs) for their ease of use and access to smaller tranches of exclusive investment offerings. And as more wealth is passed on to the next generation, this theme will continue, diluting and disrupting the conventional investment conduit between family offices and venture capital firms and banks.
This is not an entirely new trend. “We have seen family offices ratchet up the number of direct investments in their portfolios for several years,” Mantot ep Groene says. “The new generation is a key catalyst for this: they are becoming more actively involved in managing their money, travelling to top universities, and bringing new insights home with them. They have a greater sense of ownership of their wealth that they are bringing to the family office.”
Next generation wealth
And despite their numerous initiatives to retain the scions of their long-term clients, private banks could end up losing the accounts as next-gens take advantage of the growing number of alternative offerings and break out to form their own relationships.
“The future of private banks in Asia is at a pivotal moment. In order to survive and indeed thrive, they must rapidly adapt to meet the needs of the new generation – both in the way they deliver their services, and also to accommodate the new types of investment they are looking to make,” she says.
For example, many of Asia’s wealthiest families built their fortunes on traditional business ventures: real estate, heavy industry and manufacturing. However, in the past 12 months, investment managers in Asia have begun to witness stronger demand for sustainably managed portfolios.
The generational shift is believed to be the main driver. Younger family business leaders are more aware of the importance of sustainability in business operations and the wider world and are more personally engaged in environmental, social and governance (ESG) issues.
Attracting global wealth
In 2021, Mantot ep Groene anticipates that many wealthy families will be looking more closely at their geographic financial arrangements, in part due to the movement restrictions brought about by the global pandemic.
“Singapore has long been a global centre for wealth managers due to its tax treatment of high-net-worth families, and a regulatory environment designed to accommodate innovation,” she says.
Singapore’s popularity as a hub for FOs and MFOs has strengthened over the past year despite the Covid-19 situation. There are an estimated 200 single-family offices in Singapore managing assets of about US$20 billion, and according to industry insiders a number of European, Middle Eastern and US families are keen to set up in the city state.
For example, billionaire investor Ray Dalio, the founder of Bridgewater Associates, and Bayshore Global Management, the family office of Google co-founder Sergey Brin, have both recently announced plans to set up in Singapore.
Talent pipeline stress
Introduced in 2020, the Variable Capital Company (VCC) structure is a corporate entity designed to allow onshore funds to be easily launched in Singapore, and the flexibility it affords has attracted attention within the family office community with over 200 launches being recorded.
Asia is home to more ultra-high net worth individuals than anywhere else in the world. This situation creates a two-pronged challenge for the wealth management industry: competition for investment management business and talent.
“A family office’s purpose is to maintain control over family wealth so that it can be preserved and grown for future generations. However, the talent shortage in the wealth management and private banking sector means it may be difficult to fill vacant roles,” Mantot ep Groene says.
This talent pipeline stress is seeing family offices focus on employee retention. Some families are even looking to offer key team members phantom shares as a form of additional incentive, with other families considering expansion of their list of beneficiaries to include employees who are trusted in-house advisers, she adds.