Chinese family offices earn average return of 11 percent in 2019

Average family office client wealth is US$940 million, according to new report

Chinese family offices earned an average return of 11 percent in 2019, according to a report put out by UBS and AVIC Trust. The average net wealth of families that were clients of the family offices was 6.5 billion yuan (US$940 million).

The report, which was conducted by consultancies Campden Wealth and FOTT, also showed that the average assets under management (AUM) of the family offices was 4.2 billion yuan while the average age of wealth holders was 55 years. The majority of families either have complete ownership of their business (37 percent) or a majority stake (45 percent).

The data was obtained from Chinese families with a net wealth of at least 350 million yuan using either a single-family office or multi-family office services, or planning to use such services. The survey took place between March and August 2019 and had replies from 76 family members, family office executives, and family wealth managers.

Forty-four percent of participants said they adopted a growth-oriented investment strategy while 43% had a balanced approach, showing that wealthy Chinese families are looking for growth or balance. Thirteen percent adopted a preservation-oriented strategy. It can be seen that Chinese families are significantly more focused on growth, as 25 percent of global and Hong Kong wealthy families have a similar outlook.

Real estate was the most common industry in which wealth originated with 29 percent of participants reporting that their family wealth came from this sector. This was followed by consumer discretionary at 16 percent, industrials at 13 percent, and information technology at 12 percent.

For family office portfolios, private equity was the top performing asset class with direct investments returning 19 percent and fund-based investing 15 percent. Real estate also performed well with direct investments returning 14 percent and REITs 9 percent.

Almost three-fifths (59 percent) of families said that the next generation is involved in a management/executive role at their family office. Twenty-nine percent said they sat on the board of their family office, while only 2.9 percent said there is no involvement from the family at all.

Families also said it was difficult to find and retain outside talent as turnover is high and they were concerned about whether individuals were just trying to gain know-how or obtain sensitive information. As a result, most family office employees are Chinese and have a social relationship such as family friend or business relationship with the families.

Several families expressed concerns over geopolitical and economic volatility and dramatic transformation within the next five years. However, some families were relatively optimistic about investment while others said they might move towards a preservation investment approach.

One family office executive explains, “I am not optimistic about the next 12 months. The global economy is struggling – the major European economies, the Japanese, and the US economy are all slowing, as is the Chinese economy, which has been the engine for global growth. Furthermore, policy-makers have limited tools at their disposal. I am being extremely cautious.”

Most of the family offices in the study are based in Beijing (38 percent), with 20 percent in Shanghai and 15 percent in Hong Kong.