Asia-Pacific Family Office Report 2023: Assets under management rise despite turbulent economic times
To describe 2022 as a difficult year would be a major understatement. Growing geopolitical tensions, resurgent inflation and volatile financial markets forced belt-tightening measures and a focus on more conservative investment strategies for family offices (FOs) around the world. Asia-Pacific FOs, however, have demonstrated their characteristic resilience with a significant assurgency in assets under management (AUM) in 2022.
According to The Asia-Pacific Family Office Report 2023 from Campden Wealth and Raffles Family Office, APAC FOs exceeded investment performance expectations in 2022. Despite the challenging economic landscape, 58% of family offices reported AUM growth, with 22% experiencing an increase of more than 10%.
“The leadership landscape in APAC family offices is undergoing a dramatic generational transition. Currently, 15% of these offices are led by the next generation, a number projected to surge to 47% in the next five years. This shift signifies a profound change in the region’s investment and management strategies, marking a new chapter for family offices in Asia-Pacific,” said Chi-man Kwan, Group CEO and Co-Founder of Raffles Family Office.
“The market’s volatility, further intensified by compressed risk premia, has been a notable challenge for family offices across the Asia Pacific,” Chi-man said. “Our observations indicate that family offices have effectively navigated these complexities through strategic diversification, defensiveness, durability, and dynamism.”
Kwan also highlighted the significance of proactive measures undertaken by these offices. “To shield against the impacts of inflation and interest-rate shifts, as well as to enhance operational flexibility, the adoption of advanced technology solutions has been pivotal,” he said. “Moreover, a strong emphasis on effective governance and succession planning has been central to their approach. The strategic exploitation of price corrections by these offices has contributed significantly to their robust performance, underscoring their ability to adapt to evolving market conditions.”
A MOVE TOWARDS GROWTH STRATEGIES AND EMERGING TECHNOLOGY
The report also found that the challenging financial markets of 2022 prompted a temporary shift in investment strategies towards conservative investments for many APAC FOs. 36% of those surveyed have now made an about-face and adopted growth strategies, with that number expected to reach 43% within five years.
“Based on the data collected, this outlook bodes well for bonds and potentially supports equities, assuming the economy maintains stability and avoids recession,” Adam Ratner, Campden Wealth’s Director of Research.
“Real estate remains the most favoured asset category for future investments,” says Chi-man Kwan. “This trend mirrors the region’s foundational wealth in real estate and family offices’ firm belief in its long-term growth potential in select core markets. Additionally, real estate is perceived as an effective hedge against inflation, which gains significance in a global context burdened by persistent high inflation rates.”
Of that investment focus, equities now constitute the largest asset class within the typical Asia-Pacific family office portfolio, making up 27% of the total, closely followed by private markets at 26%.
“Private markets provide opportunities for higher returns through investments in private equity, real estate and venture capital, often with lower correlation to public markets,” says Chi-man Kwan. “This combination allows family offices to balance risk and return while pursuing stable wealth preservation and growth objectives. We have been receiving higher demand for private market investment from our clients which contributed to the rapid growth of our private equity and real estate business, respectively, at this juncture.”
Looking towards emerging technologies, the report found that artificial intelligence is increasingly sought after from an investment perspective, with 32% of family offices actively looking to increase their engagement in this field, and an additional 39% planning to initiate an exposure.
“AI’s diverse applications, from automation to data analysis, make it a strategic area for potential growth and innovation in the investment landscape,” says Chi-man Kwan. “This trend reflects a recognition of AI’s transformative potential and its role in shaping the future of various industries.
“Raffles Family Office will focus on investing in quality companies within the private market to capture the irreversible technological trend. However, we will maintain discipline in valuation and take steps to mitigate risks related to exit strategies and illiquidity. This will include employing strategic structuring, such as convertible credit or high-yield private credit with warrants, to enhance our risk management approach in AI investments.”
WEALTH AGGREGATION ADOPTION AND EFFECTIVE COMMUNICATION
From an operational perspective, the report discovered that the adoption of relatively new wealth aggregation platforms, which can provide an overview of an organisation’s financial position by consolidating data from multiple banks and investment managers, is still relatively low. Currently, just 30% of family offices express a desire to leverage these platforms but this is anticipated to increase rapidly.
“Family offices recognise the potential value of wealth aggregation platforms tailored to their needs,” says Adam Ratner. “However, the initial slow uptake can best be attributed to the novelty of these tools and their high cost. Many family offices, particularly those serving smaller families, find the functionality of premium software exceeds their immediate requirements. Despite the current low adoption rate, our survey highlights a significant interest among non-users, indicating a potential surge in adoption as awareness and tailored solutions evolve.”
From a governance standpoint, APAC FOs are generally regarded as effective in ensuring capable individuals hold leadership positions (79%) and in making informed decisions (78%). However, they are perceived as less effective in facilitating a collaborative approach among family members (61%) and preventing conflict between family members (49%).
“Enhancing collaborative dynamics and conflict prevention within family offices hinges on fostering robust communication,” says Adam Ratner. “Our survey underscores the significance of communication, ranking it as the third-highest priority for family offices, following investment risk management and eldercare. To address these challenges, implementing formal governance structures like a family council and constitution could prove instrumental, reinforcing communication channels and promoting a more cohesive approach among family members.”
The report, which is accompanied by European and North American editions, is based on a statistical analysis of 76 survey responses from Asia-Pacific single family offices and private (not commercial) multi-family offices, with an average net worth (including operating businesses) of US $900 million and a collective wealth of US $68 billion. The family offices surveyed have, on average, US $500 million in AUM and aggregate AUM of US $41 billion.
