Asia family offices pool resources to tap into deals – and stay viable

Family offices in Hong Kong and Singapore are joining hands to form formal and informal alliances as well as multi-family offices in a bid to 'scale up' on investments as well as related capabilities.

“A lot of family offices want to diversify further [in their investments]. Rather than going into a project themselves, they will get partners to come in, not just for money, but also for the latter’s expertise, connections etc.,” Kavi Harilela, director at Harilela Global Advisory and FGA Trust, told AsianInvestor.

“To be a family office, you need to have fairly large assets under management (AUM).

"The reality is many would rather consolidate and join a multi-family office, where you can group resources and make your operations more cost effective,” the third-generation member of the Hong Kong-based Harilela family said.

Kavi Harilela
FGA Trust

“Families with $100 million to $200 million may opt for multi-family offices, but those with a billion or more, can set up their own entity.”

"Still, I have seen multi-family offices started by four families, for instance, with each bringing in $1 billion each,” he added.

The founder of the family business, Hari Naroomal Harilela, who passed away in 2014, was often dubbed the richest Indian in Hong Kong.

The family dynasty is one of the best-known and among the wealthiest in the city.

CONSOLIDATION COMING?

Hong Kong and Singapore are home to about 15% of the world’s single family offices, according to McKinsey & Company's note titled Asia Pacific's family office boom: Opportunity knocks published in early September.

The two cities have about 4,000 single family offices in total -- four times as much as what they had in 2020.

Hong Kong and Singapore have seen robust growth in family offices in recent years.
Image credit: Shutterstock

“In Asia–Pacific, the costs of running a single-family office tend to be a bit higher than in the West due to the complexities of operating across multiple jurisdictions and the resulting need for highly skilled professionals and sophisticat­ed compliance frameworks,” Vishal Kaushik, associate partner at McKinsey & Company, told AsianInvestor earlier this year.

“Our analysis indicates that single-family offices in the Asia-Pacific region require at least $100 million in AUM to be viable, considering their expenses.”

Some single-family offices are expected to come together to build multi-family office structures to lower their operating costs, added Kaushik.

In the West, a sin­gle-family office typically has annual ex­penses of 1-2% of the family’s total active assets under management while in Asia–Pacific region, these costs can range from 1-3% for family offices with AUM of $100 million or more, according to McKinsey.

However, below this threshold, operating cost ratios tend to be 4-6%, research suggests.

“Consolidation is expected among smaller single-family offices given the rising costs of operating,” said Kaushik.

Incoming rules on Singapore’s family office framework will also increase compliance, due diligence and reporting requirements, while delaying timelines to win a single-family office license.

They will likely prompt smaller family offices to lower operating costs.

EXTRACTING EXPERTISE

The growing trend of pooling resources together is not just about money, noted Harilela; it can also be about bringing together different forms of expertise.

“Someone might be a hotelier, another a property investor, another might have expertise in oil and gas. You can't hire so much talent, so coming together can help one family tap into expertise from different families,” he said.

“The idea of families pooling resources makes a lot of sense because you are still getting the benefit of having a family office. You get to share investment strategies and that is one of the biggest value-adds,” Harilela added.

This is important because in many instances, a couple of family members are key decision makers in the family office.

“Sometimes they just see an opportunity and go for it. However, you need to analyse the fundamentals and operating metrics [to understand profitability and long-term business viability,” he said.

GROWING ALLIANCES

Teaming up with skilled partners has definitely become a trend in Hong Kong: The scion of the family that used to majority-own Hong Kong’s Wing Lung Bank earlier this year teamed up with an investment group to set up a single-family alliance in a bid to develop a support network for the rapidly growing industry in Hong Kong.

Samuel Wu, chief investment officer and executive director of family office Tridel Capital, joined hands with Ronald Chan, CIO of Chartwell Capital, a family office turned investment manager, to set up Chartwell Family Partners late last year.

A boom in single family offices in India also led Jai Rupani, principal and chief investment officer of the Dinesh Hinduja family office, to set up a peer network to help wealthy families navigate everything from setting up an office to investing while separating business and family fortunes.