Asia's wealthy establishing more family offices to chase returns
Family business owners are expected to set up family offices in mainland China and Hong Kong as their profits have taken a hit from the pandemic, a new PwC report has found.
According to the PwC Global Family Business Survey 2021 and Global Family Business Survey-China report released on Tuesday (May 18), 46% of family business owners thought that the pandemic had a bigger impact on growth than the Great Recession did, which had a negative impact on family business profit (see chart below).
Source: PwC Global Family Business Survey 2021
The pressure placed on their business and operations will likely lead these business owners to set up family offices to balance risk and capture return, experts told AsianInvestor.
“Families are striving for their future legacy and we see the growing trend of them setting up new family vehicles such as single-family offices or multi-family offices,” John Wong, PwC’s China and Hong Kong family business and private client services leader, told AsianInvestor.
Families have different purposes for setting up family offices, Wong said. Some are looking for additional avenues for investment management, while others are looking to drive the family business, Wong added.
The PwC report, which captured insights of 2,801 family businesses globally, of which 129 were based in mainland China and Hong Kong, found that most of these businesses planned to expand and diversify in the coming years.
The key priorities for Hong Kong family businesses over the next two years were: expansion into new markets/client segments (53%), increasing their use of new technologies (52%), and product/service diversification (50%).
Wong noted that Hong Kong is still in high demand as a destination for family offices.
He told AsianInvestor that the family office segment’s demand has been “overwhelming” in recent years and Hong Kong has been attractive as a financial hub.
“Normally, families set up their family vehicles [in places] with proximity to their family roots or business operations. Nowadays, some of them may also set up additional offices that provide easier access to investment,” Wong said, adding that he believes Hong Kong is in a good position for these needs and the trend is set to continue.
However, both family businesses and offices have faced headwinds during the pandemic, Eva Law, founder and chairman for the Association of Family Offices (AFO) in Asia, told AsianInvestor.
With Covid-19, the biggest challenge to multi-family offices (MFOs) is the limited mobility, which has made client acquisition and service difficult, she said. Meanwhile, technologies continue to disrupt the market and empower investors to access solutions and make investments on their own.
“MFOs are facing fee pressure and operational challenges and they need to provide more balanced input about investing in fintech,” she said. She added that MFOs also need to invest in having talent that can provide “superb and a differentiated client experience”.
MORE OPTIMISTIC
The PwC report also found that mainland Chinese family businesses are more optimistic than their Hong Kong and global peers about their growth targets for 2021 and 2022.
By the end of this year, 73% of family businesses in Mainland China expect to see their business grow compared with 53% in Hong Kong and 65% globally. At the same time, 89% of mainland Chinese businesses expect to see growth in 2022 compared with 83% in Hong Kong and 86% globally.
Source: PwC Global Family Business Survey 2021- China Report
“The optimism of mainland Chinese family business operators was down to the better control of the outbreak, and China’s economy recovering faster than other markets,” said Wong, adding that overall digitalisation in mainland China is also running faster than global peers, which helps family business operations and recovery.
The report also found that family businesses value their environmental, social and governance (ESG) profiles. The survey found that 79% of mainland Chinese family businesses “strongly agree” or “agree” that sustainability is at the heart of everything they do. In comparison, only half in both Hong Kong and globally agreed or strongly agreed.
“The key for family businesses is sustainability which paves the way for families to set up family offices," Wong said.