HK, SG family office boom fuels demand for exclusive deals, investment services

A boom in family offices in Hong Kong and Singapore is driving demand for a host of investment services and specialist service providers, according to a recent McKinsey note on Asian family offices.

Hong Kong and Singapore are home to about 15% of the world’s single family offices, according to the consultancy’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.

SERVICE ECOSYSTEM GROWTH

This, in turn, has stoked demand for targeted  offerings ranging from fund placements and due diligence to estate planning and impact investing.

Vishal Kaushik, associate partner at McKinsey & Company, noted that the product ecosystem is expanding with service providers scouting for exclusive deals for family offices and ultra high net worth clients, either internally manufactured or through third-party partnerships with fund placement companies.

The industry is also witnessing strong growth in wealth tech firms that are trying to solve access and liquidity issues through private assets tokenisation.

“We expect further expansion of this space and enhanced collaboration across the various service providers (beyond banks) e.g. insurers and asset managers,” he added. 

“Insurers, in particular, are setting up teams to directly engage with family offices to provide highly customised solutions while expanding the solution set beyond investments (traditional and alternatives) to estate planning.”

While wealth into both Hong Kong and Singapore has primarily come from Asia -- mainland China, India and Indonesia and other Southeast Asian markets – wealth flows are expected to increase from Europe and North America as many investors see Asia as a safe haven, McKinsey said.

The desire by these family offices to diversify portfolios and invest beyond traditional stocks, bonds and real estate and into alternatives has already been widely reported.

Still, family offices in the Asia Pacific have limited access to tailored alternative investment solutions such as access to early-stage start-ups, pre-initial public offerings (IPOs), and institutional-grade infrastructure solutions, said Kaushik.

SOURCING TOP DEALS

The challenges for family offices are two-pronged – they need access to unique and exclusive deals and due diligence support for investment opportunities.

“Service providers have the potential to source top deals in alternative investments in line with family office needs (for example, creating exclusive “founders’ clubs” across multiple geographies where start-up founders can connect and co-invest in deals),” said Kaushik.

“Providers can also support families in conducting independent due diligence on deals being considered.”

About 30% of family office investments in Asia are allocated to alternatives (with a focus on exclusive deals such as pre-IPO, access to start-ups, private credit, and evergreen funds), according to McKinsey.

In Europe, about 50% of family office investments are in alternatives, it said.

Co-investments have been gaining ground among family offices for alternative investments, AsianInvestor reported earlier this year.

SERVICE PROVIDERS' OPPORTUNITY

One example of a service provider capitalising on the private markets boom is fund placement agency Eastbound Equity, which works with about 700 global investors – roughly half of which are family offices – and connects them to different fund strategies.

“About 60% of them [its investors] are in Europe while 35%-40% are in APAC, although that share is growing rapidly, founder Joep Uijttewaal told AsianInvestor.

Eastbound Equity currently works with investors in Singapore, Hong Kong, Japan, Korea, Taiwan and Australia.

The Amsterdam-headquartered company opened an office in Singapore in early September with plans to build its footprint in the region.

“We currently have four full-time employees and we have an advisory network. We are looking to expand further with another two hires in the next six months,” Uijttewaal said.

“We will also open an office in Sydney to service the Australia and New Zealand markets."

Uijttewaal noted growing opportunities for investors in private credit, venture debt and growth credit.

“Secondary markets are also a big opportunity in Asia, and there is a funding gap there too, both LP [limited partner]-led secondaries and GP [general partner]-led secondaries.  We see a lot of interest in strong secondary funds in the region.”

FOMO MUCH?

Still, the surge in services and offerings -- and providers -- may not be all good, according to some industry experts.

“With more service providers flocking to the scene, the market could become oversaturated, leading to intense competition,” said Neil Synnott, chief commercial officer APAC at investor services company IQ-EQ.

“Family offices might find it increasingly challenging to discern genuinely valuable opportunities from the noise.”

He also noted that the rush to alternative assets might be driven more by “fear of missing out” than by a profound understanding of these complex instruments.

 “This could lead to misallocations of capital and potential losses,” he said.

Engaging with established, reputable service providers can help navigate the complexities of the alternative asset landscape, Synnott added.