Family office segment set to boom: Credit Suisse
There are several good reasons why the number of single-family offices in Asia Pacific is set to soar, says Credit Suisse, which on Friday held its first family office forum in the region and launched a best practice guide on for families looking to start a family office.
The amount of family wealth under management thought necessary to set up a single-family office (SFO) is generally at least $100-150 million, noted Bernard Fung, Credit Suisse’s head of family office services and philanthropy advisory for Asia Pacific. And the Credit Suisse Global Wealth Report 2013 estimates that there are close to 34,000 ultra-high-net-worth individuals (UHNWIs) globally with more than $100 million in wealth, with 25% of these or more than 8,400 in Asia. And yet only 3% of the estimated 3,000 existing SFOs are in the region, managing $1.2 trillion of assets.
The estimated 100 FOs in Asia mainly includes those that are known in that they attend events and more openly seek and share information, he said. There are presumably many more, but Fung declined to speculate on the likely actual number.
Moreover, UHNWIs represent 60% of the client base of Credit Suisse Private Banking in Asia Pacific, and family businesses represents more than half of all listed companies in most Asian countries. In Hong Kong, India, Indonesia, Malaysia, the Philippines, Singapore and Thailand, the percentage of family businesses that are listed companies of over $50 million in market cap was over 60% as of end-2010.
If the ratio of UNHWIs in Asia were to reach that in the West, Fung sees potential for big growth in this area, particularly given that his team's main focus is on helping families set up offices rather than on servicing existing ones. There is also a growing number of Western family offices setting up or looking to establish a presence in Asia, he told AsianInvestor.
The number of families considering setting up an SFO is growing in Asia because the wealth creators from the first or second generation are approaching old age and so are increasingly facing wealth preservation and transfer issues.
Fung said the bank has seen a doubling every year in the amount of work it does for SFOs in Asia Pacific since he was appointed in December 2011, though he admitted this pace is not sustainable indefinitely.
In response to rising client demand for peer-to-peer information sharing, Credit Suisse held the inaugural Asia-Pacific family office forum in Hong Kong last week. It was attended by around 150 guests from both established and emerging SFOs from Asia Pacific and Europe.
That said, not all families really need or are prepared to set up a family office, noted Fung, as there are costs involved and they can raise other complexities.
“Simply passing on money isn’t the reason to set up an SFO. If you are looking to transmit something beyond just money, such as a set of values or principles that will last beyond the founder of the business – then you might need a family office.”
Meanwhile, Credit Suisse has seen an increase in demand from established FOs for investment banking services traditionally only available to hedge funds, said Raza Jafree, Asia-Pacific head of prime services for private banking.
The division, dubbed 'PS4PB', provides SFOs of a certain size with institutional trading and portfolio financing solutions. Typically these entities have liquid portfolios of above $50 million across equity or fixed income assets, leverage requirements and an active trading strategy. He said there were more than 150 client enquiries about PS4PB last year, and AUM grew 200% in the past 12 months in Asia Pacific.
Jafree cited an example of a Hong Kong-based SFO with $200 million in AUM, and a substantial portion of that was onboarded onto the bank's PS4PB platform. The office wanted a hedge fund style strategy with 50% in credit and 50% in systematic equity long/short trading.