Operational costs have been rising in the family office space across Asia Pacific as management of these offices are more willing to take on staff or restructure, encouraged by the positive investment returns of previous years.
The region’s family offices have the highest total operation cost at 115 basis points, and offices in Hong Kong have the highest costs in Asia with 121 basis points, according to data from the Global Family Office Report 2015 by research firm Campden Wealth and UBS.
According to the report, there are a number of factors driving costs. Most directly impacting costs this year is a willingness to take on staff or restructure, buoyed by the positive investment returns of previous years.
Despite the rising cost of managing wealth in Asia Pacific, family offices are the second best investment performers across the globe in 2014, a return of 6.2%, down from 7.6% from 2013.
The strong performance of family offices in Asia Pacific can be attributed to their large holdings in private equity, which is over 27% of a Hong Kong family office. But overall, family offices in Hong Kong achieved lower returns in the region.
Asia’s family wealth remains largely based in the hands of a first generation of entrepreneurs and business creators, who are usually actively involved in its management. The region’s demographics have supported this trend, with men and women often remaining capable and active well into their 80s. However, the inevitable passage of time means the issue of how best to pass on the management and ownership of these wealth is becoming more urgent.
The report notes that the objectives of family offices remain unchanged from last year in the Asia Pacific. Families are primarily concerned with ensuring that the family offices facilitate intergenerational wealth management successfully.
More cautious investment strategies
Despite robust returns relative to their peers (family offices in Europe, North America and in other emerging markets), offices in Asia-Pacific were more cautious in their investment strategies than the average family office in the study and are exhibiting a move away from growth-focused investment strategies towards balanced and preservation strategies.
“Asia-Pacific family offices bucked the multi-year trend that has been seen globally towards more risk taking in investment strategies, and are taking a more cautious approach. This very much reflects the volatility seen in the market, and the economic uncertainties that prevail, says Dominic Samuelson, CEO of Campden Wealth.
Fifty-five percent of family offices in Asia-Pacific are engaged in philanthropy through the family office. This is on the rise, with just under a fifth of family offices looking to set up philanthropic programmes within the next 18 months.
“The family offices in Hong Kong are actively engaged in philanthropy. They typically support children and youth, poverty initiatives and education. In the next three years, they expect to increase slightly the allocation of AUM reserved for philanthropy, which currently stands at 3% of AUM,” Samuelson adds.
