Family offices are enabling their principals’ ambitions at a time of complexity and rapid change. New research reveals their foremost priorities.
The most influential Asian families are increasingly global in their scale and ambition. In just one illustration of this trend, Singapore and Hong Kong have welcomed the creation of hundreds of new family offices in the last few years alone, many of which are in the service of families that are relocating from overseas.
New research from DBS Private Bank, based on a survey of 200 Asian single family offices as well as wide-ranging discussions with senior family members and experts in the field, highlights some of the priorities that are front of mind for today’s ultra-high-net-worth individuals (UHNWIs).
For some, the most pressing considerations relate to challenges around owning properties and other assets in multiple countries and jurisdictions worldwide. A growing number, meanwhile, are focusing their attentions on philanthropy and new opportunities for impact investing. Others are committed to ensuring that the younger generation, wherever in the world they are living, are upholding their values and helping to guarantee the family’s legacy.
To help families address these priorities, the research indicates that Asian family offices may want to consider the following three questions.
1. How should we refresh our approach towards strategic risk?
Family offices are striving to enable their principals’ ambitions at a time of heightened strategic risk. As a broad category, this refers to the risks that arise from ineffective business decisions, or an organisation’s inability to adapt to changes in the operating environment. Today, it may extend to era-defining developments like climate change, technology disruption, and economic uncertainty.
Adopting an innovation mindset, by being open to new ideas and creative problem solving, will be vital for family offices looking to enhance how they manage such complex and evolving threats. With four in 10 family offices admitting that they are less than strong when it comes to managing risk in general, urgent attention may be required.
Although family offices must concentrate on the issues that impede their specific objectives – such as geopolitical or economic upheaval in their core markets – DBS Private Bank identifies two potential areas of strategic risk that need to be managed by all global families today.
First, it is essential that family offices ensure inter-generational harmony by bringing the second and third generations into investment planning and family governance discussions as early as possible. To engage younger family members, executives could ask how they can support their interests around sustainability, philanthropy and impact investing. They should also remember that the next generation, according to six in 10 family offices, expects wider ranging support than their elder relatives ever did.
Second, family offices need to give fresh thought to the digital risks inherent in supporting a large international family. With UHNWIs becoming targets for cyber criminals and ‘hacktivists’ in recent years, family offices should rethink their processes and arrangements around cyber. This could mean implementing a data governance framework to ensure security and resilience, as well as providing related training to family members.
2. How can we satisfy growing interest in new investment strategies?
By their nature, family offices can invest over a longer time horizon than other funds, and with less immediate need for liquidity. As a result, many are building up their exposure to alternative portfolio strategies and impact investing.
As governments explore blended strategies to finance sustainable developmental goals, families see an opportunity to drive meaningful change by supporting projects that are too risky for private-sector capital. In so doing, family offices are experimenting with philosophies like catalytic capital – which seeks to unlock societal transformation by making concessions around risk and return – and patient capital, which allows for returns over a long period.
Poman Lo, the founding managing partner of AlphaTrio – an impact fund that focuses on early-stage green-tech companies – believes that impact investing is “still in its infancy” in Asia. This may change quickly, however, as governments accelerate their net-zero activity.
“I believe the next generation of unicorns will be tech companies that are solving the world’s most pressing environmental challenges,” says Lo. “I consider it to be a new form of philanthropy because you empower impact alongside financial returns.”
For family offices, the immediate task should be to explore how these approaches can complement existing strategies and philanthropy activity, while refreshing their governance and due diligence frameworks where necessary. Inevitably, this may involve recruiting new talent or upskilling the existing workforce. Specialist talent is, however, already at a premium.
Carol Liew, the managing director of the ECCA Family Foundation, which started as part of North-East Family Office, sees talent as a particularly acute problem in Asia today. “Fighting for the right talent, when there’s been an explosion of family offices in Singapore, is always going to be difficult,” she says.
3. How can we guarantee the long-term future of the family?
Discussing the challenges that family offices in Asia face today, Chua Weiling, CEO of One Hill Capital, believes there is a “reluctance of patriarchs in some families to let go.”
A focus on the family’s legacy beyond the patriarch or matriarch – which might cover succession planning, education of younger family members, and a commitment to values preservation – needs to be a major priority for Asian family offices, especially for the many first-generation organisations whose founders are still actively involved in day-to-day matters. In this way, family office advisors can help prepare for the long-term success of the family.
Part of the challenge here is the requirement to have discussions with principals that may prove uncomfortable. For good reason, family offices consider succession planning to be one of the most difficult of all their responsibilities to master, and report that they are more likely to have related conversations with the younger generation than with their older relatives.
Succession planning is not something that can be put off forever, however. More than six in 10 family offices already believe that ambiguity here is creating a risk for the family office. At the same time, more than half acknowledge that they do not have conversations with family members about succession as often as they should. This needs to change.
Asian family offices must ask themselves these three questions as they support their principals and help to realise their ambitions for the future. As the DBS Private Bank research highlights, executives may face challenges that are unique to their families’ strategic goals, but all must be prepared to think differently and take bold steps forward. In a rapidly changing world, there is no time to wait.
