Single-family offices (SFO) in the region are moving towards a multi-family office (MFO) model as they try to cut costs, but the transition isn't without its challenges.
“The family office industry is consolidating, given the cost pressure, and it is becoming increasing difficulty to hire talent. Multi-family offices offer the benefits of shared resources and shared costs”, Roger Zhu, CEO of Winfield Global Capital, a Singapore based MFO told AsianInvestor.
Winfield Global Capital transitioned from a SFO to a MFO model in 2022. One of reasons for the change was the “principle’s personal interest of getting into Fintech and his openness to managing wealth for friends since the existing infrastructure can be shared”, said Zhu.
Winfield Global Capital
It evolved from and is wholly owned and backed by Chinese single family office Jinzhang International Fund Management, established in 2018.
Franklin Medici also transitioned from a single family office to a multi-family model in 2020.
“The upward path of SFO is narrow. Most SFOs are usually small scale, so there are bottlenecks of development and resources, and this is the biggest driver for transitioning to a MFO model”, said August Xu, CEO of Franklin Medici.
Franklin Medici is a Singapore based MFO that transitioned from being an SFO. SG Royal is the single family office behind the MFO and their assets were combined in 2020. SG Royal now acts more like a limited partner to multi family office Franklin Medici.
Transitioning to a MFO often involves setting up robust compliance and legal frameworks to meet regulatory requirements of a country.
MFOs may also have better access to capital for investments and expansion, as they need to meet the financial requirements for obtaining licenses and complying with regulatory capital adequacy rules.
Winfield’s Zhu also noted that, “setting up a MFO enables us to manage the wealth in a more structured, professional and sustainable manner and also boost reputation, particularly in the context of obtaining licenses in a jurisdiction like Singapore and Hong Kong.”
For Mephezalea Asset Services, a SFO based in India and Singapore there were few additional motivations.
They established an India-based MFO named Mephezalea MFO LLP in India in 2021, after getting approval from the Securities and Exchange Board of India (SEBI). They are still awaiting Monetary Authority of Singapore’s approval to open a MFO in Singapore.
“In recent times, we have observed a growing trend of wealth generation, particularly in techpreneur-driven economies like India," said Yogiraj Nadgauda, head of family office (ex-India) at Mephezalea Family Office.
"However, we saw a lack of structured and well-planned wealth management solutions that can cater to such a family’s unique needs. Drawing from our extensive experience spanning more than two decades, we were motivated to offer comprehensive wealth management solutions to such like-minded high-net worth families."
Regulatory hurdles, cultural adjustments, transparent communication, and operational changes are some of hurdles faced during the transition from a SFO to MFO. However, “one the foremost challenge we face revolves around trust,” said Xu.
“Other investors and SFOs scrutinise how we manage their assets. They conduct thorough comparisons and pose numerous questions, such as what sets our advantage, and how we differ from private banks, investment institutions, or hedge funds.
Another crucial aspect is the fee structure. This may involve waiving a significant portion of management fees and adopting a more participatory approach through carry interest,” he added.
Carry interest pricing from an MFO perspective refers to the calculation and management of interest rates, costs, and returns associated with holding diverse financial positions for multiple families, with a focus on tailoring strategies to individual client goals and risk tolerances.
Winfield's Zhu also highlighted some of the regulatory challenges involved in the transition.
“After getting the license as a MFO there are internal audits, external audits, and annual submissions that need to be done as per MAS requirements,” he said.
There are also anti-money-laundering (AML) and know-your-customer (KYC) regulations that need to be complied with for each external client.
As an SFO, no such monitoring is needed on an ongoing basis,” Zhu said, noting that checks are done only when the initial account is opened. A SFO also does not require a license, he said.
MODEL OF OPERATION
While transitioning from a SFO to MFO model, various structural models can be employed to accommodate the needs of multiple families.
“We employ a combination of various approaches, with three primary modes”, said Xu.
“The first is market-based investments where brokerage trading platforms are utilized. In this method profit-sharing and risk-sharing are easily achieved among participants. Second is the direct investments which are facilitated through structures like Variable Capital Companies (VCCs). Selective funds is the third unique approach.
"We utilise an intermediary platform to onboard the selected funds. Interested single-family offices can directly subscribe to these funds through the platform. This approach offers the benefits of avoiding redundant management fees, ensuring transparency, and streamlining fund administration for compliance purposes," Xu added.
Xu said his company generally avoids the fund-of-funds model, given that many single-family offices are reluctant to bear duplicate management fees.
Winfield Capital prefers the variable capital company structure, given the Singapore government has been promoting it and providing a lot of incentives.
AsianInvestor will be hosting its Family Office Briefing in Hong Kong on November 28. For more details, click here.