Family offices seek external specialists to help professionalise
The family office sector in Hong Kong is buoyant, but industry reports suggest increased expertise in the multiple roles of wealth, governance and legacy are key to future success
Hong Kong’s family office sector is undergoing a transformation, moving beyond a period of expansion to embrace a new era of professionalism. This shift is seeing a growing number of wealthy families bringing in external specialists to not only manage their assets but also to navigate the complex dynamics of family governance and legacy.
A March 2024 estimate by Deloitte indicated a total of 2,703 family offices operating in the city, with a substantial 885 of these managing assets of US$100 million or more. The size of the sector has been attributed to the appeal of the family office model as a more integrated approach to wealth management, complemented by the local government’s tax and regulatory incentives.
As the industry matures, a trend towards professionalisation is emerging, marked by an effort to integrate external specialists who can balance the competing interests of wealth, governance and legacy.
Professor Winnie Qian Peng, director of the Roger King Centre for Asian Family Business and Family Office at the Hong Kong University of Science and Technology, emphasises that what suits the family best always comes first.
“Everybody wants to set up a family office [and] hire two to four investment professionals,” Peng says. “In fact, families often don’t understand the necessary budget, or what types of roles the family office can play. What kind of rules do they want the family office to operate by? What are the guiding principles or family values?”
For Peng, the three key roles of a family office are to manage family wealth, oversee family dynamics and relationships, and preserve the family legacy. “Managing the family itself is more important than managing the wealth,” Peng stresses. “Only one of the roles of the family office is about wealth management. For the third role, family legacy, that’s talking about public projects, philanthropy, art investment.”
Equipping the next generation is key to ensuring that these needs are met. BNP Paribas’ The Asia-Pacific Family Office Report 2024 – recently published with Campden Wealth – surveyed 76 family members and family office executives. More than 40 per cent of respondents listed next-generation qualification as the most prominent challenge to succession planning. To Peng’s point on preserving family harmony, 31 per cent of respondents listed infighting between family members as a key issue. However, none of the respondents mentioned successor reluctance as a challenge to succession planning, suggesting an inherent willingness within the next generation to take the reins, provided they are adequately prepared.
Professor Peng is optimistic about the inherent capabilities of this emerging cohort. “A lot of these families are quite well educated,” Peng says, “especially the next generation. A lot of them may even have working experience in a bank. Learning ability is much more important than what kind of knowledge you possess now because the world is changing so fast.”
Aside from local universities offering a range of family office-focused curricula – whether short courses or full master’s of science programmes – the Hong Kong Securities and Investment Institute also offers a 12-module programme on behalf of Henley Business School at the University of Reading. The course covers everything from set-up, tax considerations and philanthropy, to portfolio and operations management, to relating with service providers like banks and law firms.
The time to learn is now, as family offices fine-tune their wealth management strategies. PwC’s Global Family Office Deals Study 2024 finds that single family offices are increasingly shifting focus from property and funds towards direct investments in start-ups or via mergers and acquisitions. The BNP Paribas report also showed that in terms of investment strategy, family offices went from opting for either a balanced or wealth-preserving investment strategy (53 per cent and 28 per cent of responders respectively in 2023) to focusing – in the ensuing five years to 2028 – on growth (44 per cent of responders) over a balanced or preserving strategy (42 per cent and 15 per cent respectively).
Engaging one or more external professionals is a solution to managing this transition, with the BNP Paribas report showing that less than 10 per cent of responding family offices have a family member acting in a specialist role such as chief investment or financial officer.
Smaller family offices in the region (those with assets of less than US$500 million) already employ an average of 10 staff members, engaged to handle the accounting, administration, succession and tax planning, family services, technology, investment management and back office, and legal services.
“For most of the [newly wealthy], the family office is managed by the family members, not by others,” Peng reveals. “First generation family business entrepreneurs and owners seldom trust other people; they want to do things on their own. For younger Asian family offices, they need a long time with professionals to establish trust.”
When it comes to retaining external professionals, the BNP Paribas report cites a limited pool of candidates with the appropriate interpersonal and professional skills as the two most significant issues. The three next most significant issues had to do with lining up proper compensation or career incentives.
“If the single family office is doing investment,” Peng says, “they will upskill naturally, outsource to other people like wealth management or asset management companies, private banking. But these professionals have to understand the family dynamic; they need to understand the family’s interests. If you can design the family office properly, it can help to preserve not just family wealth, but also family harmony, values and legacy.”