Asiamoney.com: The buzz about family offices

Asiamoney.com, January 27 2011

Citi’s launch of a new private banking division centred on family office clients last week was the latest in a sequence of similar initiatives by international private banks. It reflects the growing importance of this powerful but vaguely defined segment of the market.

Citi’s new business is called Global Family Office and Institutional, and its North Asia arm will be headed by Richard Straus, a 24-year veteran of the bank.

Citi is following the Swiss heavyweights in building a dedicated business. In December, Credit Suisse Private Banking announced its first family office hub, in Singapore, with Bernard Fung at the helm. Credit Suisse says the hub is “set up to provide advice, infrastructure and access for UHNW clients to help them jump start their family office plans in a secure and independent environment, while providing them networking and education opportunities, as well as back and middle office support.”

A few weeks later, on January 7, UBS established a regional family services unit, to be led by Yan Lau. Also based in Singapore, this feeds in to an existing global business headed by Mario Marconi, global head of family services.

Why the new businesses? Amy Lo, who heads ultra high-net worth services for Asia Pacific at UBS, says that “wealthy individuals and families often face uniquely complex situations,” and that the regional unit was set up to meet demand for non-financial services such as philanthropy and family advisory. In fact, the business won’t give advice on anything investment-related, leaving that to other parts of the UBS private banking business.

Instead, the role of these new teams is largely functional: the process of setting up a structure, dealing with wealth transfer, and building governance, rather than a focus on investment (although they will link in to investment specialists elsewhere in the bank – in Credit Suisse’s case, a dedicated investment consultant, Johnny Heng, is assigned to family office clients). It’s a more complex and refined area than one might think: in the governance sphere, for example, it is common to build family constitutions, family assemblies, family councils, even boards of directors.

Some offer training to family office staff, whether the family members themselves, their employees, or the next generation who will later come to manage the wealth. That might even include kids: never too early, it is said, to understand how money works.

This focus on logistics and infrastructure over investment policy comes through in the backgrounds of some of the appointees: Fung at Credit Suisse used to run Innotech Advisers, which was the family office investment vehicle of Lord Sainsbury, owner of the UK supermarket chain; Lau at UBS started out as a tax consultant.

What exactly is a family office? The term is still somewhat nebulous, particularly in the Middle East, where it is clearly targeted by international asset managers. It can, literally, just mean a family, perhaps with a patriarch who has had responsibility for that family’s wealth and now needs estate planning advice; or it can be a sophisticated institution in its own right with teams of investment personnel and formal corporate structures. As a rule of thumb, many banks tend to cover family office wealth within their ultra-high net worth capability – an equally nebulous term, but one which Merrill Lynch and Capgemini, for example, define as having investable assets of US$30 million or more, excluding the primary residence. Credit Suisse says its family office hub caters to “Asia Pacific clients who have embryonic ideas about setting up a single family office,” and says they are “typically UHNW families with substantial wealth, whose principals are going through generational transfer issues while aiming to continue to grow their business and family wealth.”

Underpinning the trend to build specialist businesses is the emergence of family offices as a discrete bloc of capital. This is partly because of the demographics of new wealth in Asia. Many private clients are the first generation in their family to have accumulated significant wealth; as that generation starts to consider transferring that wealth on to children or others, more and more have opted to set up a formal family office.

And there’s no question that this segment of the market is growing fast in Asia. Capgemini’s Asia Pacific wealth report for 2010 stated that the ultra-HNWI population of Asia Pacific grew 36.7% through 2009 to 19,600 people, and that their wealth grew 42.6% (oddly, the report doesn’t state the dollar figure, but based on other findings in the report it must be over US$2 trillion).

Private banks without dedicated family office segments will argue that they have been serving this group of clients perfectly well for decades without having to create new titles to emphasize that role. But whatever the banks decide to call it, there’s no question that family office wealth in Asia is going to become an increasingly potent source of revenues for all of them, bringing with it a need to provide not only good investment ideas but estate planning skills.