How Hong Kong family offices navigate generational divides
Family offices based in Hong Kong underscore sound governance and effective education to navigate conflicts between principals' personal preferences, generational divides and prevailing market conditions.
“We need to make sure the guidelines of the investment committee are in line with what the principal may want. Sometimes it’s not in line, and it is our job to actually tell them at that time, where and why we should invest, and how we are looking at the risk management and risk-return profiles,” said Charlie Bigard-Ong, co-founder and managing partner of Hong Kong-based single family office Augventive Limited.
Personal interests may clash with market realities or portfolio objectives such as diversification, she noted, with some favoring concentrated bets, she noted.
“So, that’s our job to do the education,” Bigard-Ong told a panel discussion at AsianInvestor’s 13th Family Office Briefing Hong Kong recently.
Augventive Limited manages the wealth of an entrepreneur from Southeast Asia. Its portfolio is skewed toward alternative assets.
Bigard-Ong said family offices must outline the pros and cons of families’ calls on investment, which can also vary between generations over matters such as asset selection and investment horizons.
In Asia, the first generation often still controls family businesses, and thus has more say in investment decisions. Yet the second generation’s views sometimes make more sense.
Under such circumstances, adhering strictly to predetermined investment guidelines is crucial, she said.
ART OF BALANCING
Some families may allow the younger generation to shadow the investment committee to form their own proposals. Then the family office and family members can sit together and compare findings to assess different proposals, she noted.
Donny Lam, chairman of DL Family Office, a Hong Kong multifamily office serving Greater China clients, noted that for some families, wealth transition to the second generation is underway.
However, he said, some principals retain a strong view on matters such as risk appetite and how the money should be managed, while the second generation favour emerging areas like biotech, or private equity in general.
“That's why we have to balance out the different views,” Lam said.
DL Family Office manages discretionary mandates for global multi-asset investments.
In one case, for example, Lam persuaded a father: “You have to let the kids determine. Because at the end of the day, this is where we'll pass to them to manage. So, you better let them learn earlier, rather than isolate it. If they make a mistake, they make the smaller mistake rather than make a big mistake.”
“This is part of the journey we are walking along the clients,” he added.
Stephen Pau, chief investment officer of Hefeng Family Office, a Hong Kong-based multifamily office, echoed these views on proactive intergenerational engagement.
“There is still a gap between these two generations,” Pau said at the same panel.
“When we do the portfolio review or the market outlook, sometimes we would have to educate them in terms of new ideas, like alternative, market-neutral hedge funds, or private credit…It takes time,” he said.
Hefeng Family Office manages global multi-asset portfolios for Chinese families.
Pau noted that families are generally familiar with traditional asset classes but may not know the weightings or return prospects.
Hence, it’s about marrying the risk-return appetite of the clients with suitable market opportunities, he said.