contents€¦ · introduction 2. key characteristics a. the operating business b. the greater bay...

ContentsPreliminaries

Foreword

Executive summary

1. Introduction

2. Key characteristics

a. The operating business

b. The Greater Bay Area

3. Established Chinese family offices

4. Future Chinese family offices

5. Investments

a. Investment strategy

b. Asset allocation

c. Performance

6. Service providers

7. Afterword: about family offices

About us

05

06

08

11

14

18

21

33

45

46

48

52

55

61

66

BEIJING

GUANGZHOU

SHANGHAI

HONG KONG

3

Campden WealthResearch Team

Director of ResearchDr. Rebecca Gooch

Senior Research ConsultantsDr. Masud AllyDr. Gustavo Bonifaz

DesignElisa Barbata

FOTT Research Team

Fan XiaomanZeng Shuling

Acknowledgements

Jan Boes

Enrico Mattoli

Pierre-Guillaume Kopp

Blake Kwok

Jiang Yan

Meng Haojie

Dominic Samuelson

Gemma Samuelson

Nick Hayward

ISBN: 978-1-9993399-0-6

The Chinese Family Office and Wealth Management Report, 2020

4

Dear reader,

We are delighted to introduce the Chinese Family Office and Wealth Management Report. This study has resulted from the efforts and insights provided by several entities which are continuously striving to provide their clients with cutting-edge analysis, based on primary data. It has been undertaken by Campden Wealth in collaboration with FOTT, and in partnership with UBS and AVIC Trust in its production and distribution.

This report begins to fill an increasingly important vacuum of information, and the proceeding pages contain information on a range of topics – from Chinese family office operations and use of external service providers, to investments and performance, and the transition of wealth between generations.

The extraordinary economic growth that China has exhibited, and the rapidly developing financial infrastructure in the country, have driven a sharp rise in the number of ultra-high net worth individuals. Furthermore, as this research confirms, the wealth creators are now entering their mid-50s, and considering inheritance and succession planning. Thus, as explored in the proceedings pages, the Chinese family office arena has been growing and maturing, rapidly. The relatively subdued global economic environment and heightened uncertainty have, no doubt, affected business and investment in China, as elsewhere, but, seems also to be reinforcing the drive towards structure and organisation in Chinese wealth management.

One key finding is that, while many Chinese families of significant wealth are using family office services (64% of participants) – with their key motivation being the maintenance of wealth – they are also facing challenges, including in recruiting talent and finding external service providers. Trust appears to be amongst the central issues. Most of the families not currently using family office services are interested in doing so (75%), and, of those interested, most are actively taking measures to set up or join a family office (84%).

In terms of investments, we find that private equity (20% of the average portfolio) is preferred to public equity (17%). As with much of the character of the landscape, the central explanatory factor seems to be that the wealth creators are still around, still active, and keen to be hands-on.

We trust that this report will be a valuable resource for established Chinese family offices – to benchmark themselves – and families looking to use family office services – to help them plan and structure their operations and investments. It will also be of interest to global family offices – to get an insight into a central, but distinct, segment of the arena.

We would like to thank all the families and executives who shared their insights, and hope you enjoy the read.

Yours faithfully,

Foreword

Dominic SamuelsonChief Executive OfficerCampden Wealth

Anurag MaheshHead Global Family Office Group APACUBS Global Wealth Management

Fan Xiaoman Founder and CEOFOTT

Fan HuaVice General ManagerAVIC Trust

5

Executive summary

The central challenges are establishing a structure, recruiting talent, and finding service providers

Average age of wealth-holders is 55 years

Average family wealth is RMB 6.5 billion; average AUM, RMB 4.2 billion

Most families have maintained control of their business; two-fifths have listed their business

The average net wealth of the families represented in this report is RMB 6.5 billion (USD 943 million), and the average AUM of the family offices is RMB 4.2 billion (USD 604 million).

Establishing a family office structure accounted for 35% of the top ranked challenges that family offices are faced with; recruiting outside talent 21%, and finding experienced service providers 21%.

The average age of the generation currently in charge of family wealth is 55 years.

A substantial fraction of the families reported that they have either a majority stake in the core operating business (45%) or complete ownership (37%). Two-fifths said their business is listed.

Real estate is the most common industry in which wealth originates

Twenty-nine percent of participants reported that their family wealth originated in the real estate industry – twice the global figure. Real estate is followed by consumer discretionary (16%) and industrials (13%).

About two-thirds use family office services; key motivation is maintenance of wealthThe primary wealth management vehicle is a single family office for 30% of the families; commercial multi-family office (16%), and private multi-family office and hybrid family office (9.2% each).The maintenance of family wealth is the main motivation for establishing or joining a family office (47%).

6

Significant and active interest in family office services

Chinese families are looking for growth or balance

Of those who do not currently use family office services, over three-quarters are interested in either setting up a single family office (44%) or joining a multi-family office (33%).Of those interested, 84% are actively taking measures.

Roughly the same proportion of participants have adopted a growth-oriented investment strategy (44%) as a balanced approach (43%), and a much smaller proportion have adopted a preservation-oriented strategy (13%).

Fixed income constitutes the top asset class; private markets preferred to public ones

The top asset class in which family offices invest is fixed income (22% of the average portfolio). Private equity constitutes 20%, real estate 17%, and public equities 17%. The vast majority of respondents consider international investments (90%).

The average portfolio returned 11%

In the previous 12 months, Chinese family offices earned an average return of 11%.Private equity was the top performing asset class – direct investments returning 19% and fund-based investing 15%. Real estate also performed well – direct investments returning 14% and REITs 9.0%.

Service providers found through recommendations. Trust, confidentiality/security, and reputation the key criteriaThe most popular paths to service providers are recommendations from professionals already known (87%) and from family and friends (54%).Trust, confidentiality/security, and reputation are the most critical considerations – with 91%, 84%, and 76% indicating that these are very important criteria, respectively.

7

Introduction

“While a great deal of wealth has been amassed over the last two decades, there is not much conversation about how the underlying businesses were established or how the wealth was created. Reservations about discussing wealth is deep-rooted in Chinese history.”

1

L ast year marked the 40th anniversary of China’s ‘reform and opening-up’ policy. Between 1978 and 2010, the

country experienced rapid economic and social development, with Gross Domestic Product (GDP) growing at an annual average rate of 10%, and by as much as 15% per year.1 Over that time period, China emerged as the second largest economy in the world. While, since 2010, growth has steadily declined – from 10.6% in 2010 to 6.9% in 2016 and 6.6% in 2018 – it is still relatively high by current global standards – with global growth at 3.1% in 2018.2

In the last 30 years, Chinese capital markets have also rapidly developed, including the re-establishment of the stock and bond markets. By 2018, the Shanghai Stock Exchange was the fourth largest in the world by market capitalisation. The other two independent stock exchanges in China – Shenzhen and Hong Kong – are also currently in the top 10.

The extraordinary economic growth and the monetisation of assets has driven a sharp rise in the number of ultra-high net worth individuals (UHNWIs) in China. Many of the wealth creators – often a group of relatives – launched start-ups in the early 1990s and went on to build industry-leading companies, a notable proportion of which have only recently completed their Initial Public Offering (IPO).

As their wealth has grown, families have needed to consider the management of their assets –

hence the emergence of family offices in China. While these offices are generally investment-oriented, this research finds that the wealth creators are, on average, entering their mid-50s and have been naturally confronted with challenges related to protecting their wealth through the coming years, and dividing it / passing it down to their children and extended families. Hence, the sprouting interest in inheritance and succession planning.

As even the concept of a ‘family office’ is still rather nascent in China, the lines between family offices and other wealth management or family business entities, or UHNWIs, are often blurry. The rules and regulations governing family offices and family trusts are only beginning to be developed, and information about the space is scarce.

With this said, in recent years, the family office arena has been maturing rapidly. This has been helped by the fact that families do not need to ‘reinvent the wheel’, so to speak. They have been looking outwards from mainland China, including to Hong Kong and Taiwan, and adopting the best ideas and practices – albeit making specifically mainland adjustments.

According to some Chinese families, the recent drive towards structure and organisation in wealth management is also related to the relatively subdued investment returns achieved over the last few years. Others add that, in the last 15 years or so, Chinese families have been accumulating investment experience and, in turn, now want

8

greater control over their wealth and more personalised services.

In the words of one family member:

“While a great deal of wealth has been amassed over the last two decades, there is not much conversation about how the underlying businesses were established or how the wealth was created. Reservations about discussing wealth is deep-rooted in Chinese history.”

Hence the motivation to conduct this study – which aims, amongst other things, to provide insight into family wealth and its management, the burgeoning family office space, the transition of wealth between generations, and families’ use of external service providers.

Overall, Chinese families of wealth have stressed how varied the family offices – and, indeed, the families themselves – are, including in terms of structure and sophistication. Still, the character of the family office space is clearly and thoroughly shaped by the fact that the entrepreneurs/wealth-creators are still around, still energetic, and very hands-on.

This study has used a mixed methods approach to collect data. The quantitative component involved procuring data from Chinese families with a net wealth of, at least, RMB 350 million (approximately USD 50 million), including both families currently using single family office or multi-family office services and families planning to use such services. The data was collected through a questionnaire designed to explore a range of relevant topics, which was largely administered in person in mainland China. Family Office Think Tank (FOTT), which is based in Beijing, identified participants through its network of wealth holders and family offices. The data collection took place between March and August 2019, and, in total, 76 family members, senior family office executives, and family wealth managers completed the survey. In order to provide context and greater insight into the quantitative findings, Campden Wealth and FOTT also conducted in-depth qualitative interviews with 10 individuals/families.

Methodology

1The World Bank, GDP growth, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN [accessed September 2019].

2United Nations Conference on Trade and Development, https://unctad.org/en/pag-es/newsdetails.aspx?OriginalVersionID=1981 [accessed September 2019].

9

Chinese Family Office and Family Wealth Management Report, 2020 Introduction

10

Key characteristics

2

11

25% of participants have over RMB 5 billion managed, and the average AUM is RMB 4.2 billion (circa USD 604 million) (figure 3). Thus, about 65% of net wealth is managed.

This study is based on information provided by a range of individuals involved in the family office and wealth management landscapes in China.

About 17% of participants explicitly reported that they are family members. But direct family input is likely to be much higher – because founders (16%) and chairpersons (12%) of Chinese family offices are most likely family members, too (figure 1).

Families’ average wealth is RMB 6.5 billion; family offices’ average AUM is RMB 4.2 billion

The net wealth of 45% of the families that participated in this study is over RMB 5 billion, and the average net wealth is about RMB 6.5 billion (circa USD 943 million) (figure 2).3

In terms of assets managed on behalf of the families (excluding operating business ownership),

Key characteristics

2

17%

Figure 1Roles of the survey respondents

16%

14%

12% 12%

9.2%7.9%

5.3%6.6%

Fam

ily m

embe

r

Foun

der /

Co-

foun

der

Chi

ef E

xecu

tive

Offi

cer

Cha

irper

son

Dire

ctor

Chi

ef In

vest

men

t Offi

cer

Busin

ess

owne

r / P

rinci

pal

Rese

arch

erO

ther

Note: Figures may not sum to 100% due to rounding

Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

Figure 3Assets managed on behalf of the family (excluding operating business ownership)

RMB 300 - 499 million

Average: RMB 4.2 billion(USD 604 million)

RMB 500 - 749 millionRMB 750 - 999 millionRMB 1.0 - 1.49 billion

RMB 1.5 - 2.99 billionRMB 3.0 - 4.99 billionRMB 5.0+ billion



27%

11%

5.6%5.6%

11%

14%

25%

Figure 2Family net wealth

RMB 300 - 499 millionRMB 500 - 749 millionRMB 750 - 999 millionRMB 1.0 - 1.49 billion

RMB 1.5 - 2.99 billionRMB 3.0 - 4.99 billionRMB 5.0+ billion



8.5%

7%

2.8%

11%

10%

15%

45%

Average: RMB 6.5 billion(USD 943 million)

12

These figures can be compared with the global and Asia-Pacific figures detailed in the Campden Wealth and UBS Global Family Office Report 2019. Globally, average net wealth stood at USD 1.2 billion and average family office AUM at USD 917 million; in Asia-Pacific, average net wealth stood at USD 908 million and average AUM at USD 600m. Thus, globally, about 76% of net wealth is managed, and, in Asia-Pacific, about 66% is managed. Overall, the China and Asia-Pacific figures are similar, and 20-35% lower than their global equivalents.

The average wealth and AUM of the family offices based in Hong Kong that participated in the global family office survey were USD 1.0 billion and USD 813 million, respectively. Thus, the Hong Kong net wealth figure is relatively close to the Asia-Pacific and China figures, while the Hong Kong AUM figure is about 35% higher (figure 4).

Family wealth resides mainly in operating businesses

In terms of wherein family wealth lies, on average, 45% is in the operating business, 27% and 21% are in financial instruments and real estate, respectively, and the balance (6.6%) is in collectibles or other hard assets, including art, cars, and wine (figure 5).

3 In this report, where RMB is converted into USD, the average rate during the data collection period, 6.88 RMB to USD, is used.

The average age of wealth-holders is 55 years

The average age of the generation currently in charge of family wealth is 55 years. In keeping with the significant generational transition that is currently underway worldwide, a notable proportion of respondents (55%) are in the older brackets, 55+ years, while a smaller proportion (21%) are in their younger years, 25-44, and likely only relatively recently transitioned into their wealth oversight roles (figure 6).

25-34 years old

Average: 55 years old35-44 years old

45-54 years old

55-64 years old65+ years old



Figure 6Age of the generation currently in charge of the family wealth

3.9%

17%

24%

37%

18%

Figure 4Average net wealth and average AUM

China

Global

Asia-Pacific

Hong Kong

943

1,200

908

1,000

604

917

600

813

65%

76%

66%

81%

Averagenet wealth(USD million)

AverageAUM

(USD million)

Percent Managed


Operating businessFinancial instruments

Real estate

Collectibles / other hard assetsNote: Figures may not sum to 100% due to rounding


Figure 5How the family wealth is split across holdings

45%

27%21%

6.6%

13

The operating businessReal estate is the most common industry in which wealth originates

Twenty-nine percent of participants reported that the family wealth originated in the real estate industry. After all, over the last 20 years, as China has served as the world’s manufacturing hub and moved up the global supply chain, incomes have increased. The new middle class – consisting of single-child households, who also face barriers to investing overseas – has demanded and bought real estate, and those higher up the income spectrum can often have multiple properties.

The 29% can be compared with the finding in the Global Family Office Report 2019 that real estate was the primary industry in which the family generated its wealth in 14% of cases.

In the present study, real estate is followed by consumer discretionary (16%) and industrials (13%). Consumer discretionary includes retail (5.3%) and clothing and textiles (also 5.3%), and industrials includes equipment manufacturing (9.2%) (figure 7).

Most families have maintained control of their business; two-fifths have listed their business

A substantial fraction of the families reported that they currently have either a majority stake in the core operating business (45%) or, indeed, complete ownership (37%) (figure 8).

Figure 8Family ownership in the operating business

Yes, majority stakeYes, complete ownershipYes, minority stake (with controlling rights)Yes, minority stake (without controlling rights)No, operating business was sold



45%

37%

8%

5.3%

4%

Figure 7Industry in which the family wealth originates



29%

16%

5.3%

13%

12%

3.9%

9.2%

2.6%

6.6%

Real estate

Consumer discretionary

Materials

Industrials

Information technology

Consumer staples

Health care

Financials

Energy

2.6%Communication services

Chinese Family Office and Family Wealth Management Report, 2020 Key characteristics

14

Two-fifths of families reported that their business is now listed (figure 9).

Figure 10Location of the operating business headquarters

1.3%

1.3%

1.3%

1.3%

1.3%

2.7%

2.7%

2.7% 8.0%SHENZHEN

TAIWAN

1.3%

1.3%

2.7%

19%

2.7%

4.0%

12%

13%

24%

5.3%



2.7%

Beijing popular for operating business headquarters

Most of the operating businesses associated with the families surveyed are headquartered in Beijing (24%), followed by Guangdong (19%). The latter includes Shenzhen (8.0%) and Guangzhou (2.7%). One quarter of the operating businesses are based in either Shanghai (13%) or Zhejiang (12%), and the remaining 32% are spread across a number of locations, including Shandong (5.3%) and Fujian (4.0%) (figure 10).

Figure 9Whether the operating business is listed

40%Yes 60% No


15

In terms of the distribution of industries across the locations, Beijing houses businesses in a range of industries – being the most or joint-most popular for six out of 10 of the industries. The most popular locations for real estate are Guangdong (23%, of which Shenzhen accounts for 18%) and Shanghai (also 23%); for industrials is Zhejiang (30%); for energy is Guangdong (40%, all of which is accounted for by the region excluding Shenzhen and Guangzhou), and for consumer staples are Guangdong (excluding Shenzhen and Guangzhou), Shanghai, and Shandong (with families surveyed split equally across these locations).

Domestic and global competition are key risks

The key risks that families believe they currently face in the management of their businesses include domestic and global competition, which 53% and 37% of participants indicated, respectively, and adaption to technology-driven platforms (34%). Fifty-two percent also said that the business environment within China presents risks, but many added that it also presents opportunities (figure 11).

Chinese families are diversifying to mitigate sectoral risk

Over four-fifths of families reported that, if their operating business risk is within a particular sector, they are investing in other sectors in order to mitigate that risk (figure 12).

Figure 11Key risks the family faces in its management of the business

Note: Figures need not sum to 100% because respondents can select multiple options


53%Competition within China

52%Business environment within China

37%Competition globally

34%Adaptation to technology-driven platforms for the business

24%Lack of interest in the business by the next generation

22%The impact of succession on the value of the business

20%Unplanned death of a family member

6.6%Family’s potential loss of control of the business

3.9%Family involvement

29%

The difficulties of passing on leadership responsibility from one generation to the next

18%

The conflict between the next generation and the old ministers of the family business

Figure 12Mitigation of sectoral risk

19%

No

81%Yes



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Private and business assets have been separated

Indicating that wealth management in China is more developed than sometimes assumed, almost 90% reported that the family’s private assets are either currently separated from its business assets (72%) or will be separated in the future (17%) (figure 13).

In our interviews with them, however, some families urged a nuanced interpretation of such figures, particularly because “if there is any problem and the operating business finds that it requires capital, the entrepreneur will typically be the first person to inject capital into the business.”

Figure 13Separation of private and business assets

17%

2.7%

8%



Yes, the family’s private assets are currently separated

Yes, the family’s private assets will be separated

No Don’t know

72%

“If there is any problem and the operating business finds that it requires capital, the entrepreneur will typically be the first person to inject capital into the business.”

We interviewed a family member who outlined the challenges his family’s manufacturing business is currently facing.

“Firstly, beginning about 30 years ago, China’s manufacturing industry took off. With globalisation, many developed countries, including the US, UK, and Germany, relocated their factories to China, and China became the world’s factory. That certainly helped our family build up its business. But, now, everything has changed. The US, concerned about domestic jobs, is engaged in trade tensions with China – and, in fact, albeit to a much lesser degree, with other countries. This will affect living standards around the world and will affect our business.

Secondly, labour costs in China have been escalating.

Thirdly, real estate is becoming more expensive.

Finally, technology is evolving so rapidly and business in general is becoming faster and faster. On the one hand, this creates opportunities for all manufacturing businesses – to use more advanced machines or systems. On the other hand, systems will keep having to be upgraded – and if you slack, you will get left behind by your competitors. Regarding the trade tensions, there is the potential for the entire technological process to radically change – with, for example, the emergence of domestic rather than global leaders.

Overall, manufacturing in China is becoming more and more complicated.”

Challenges in manufacturing

Case study

17

Focus on

The Greater Bay Area

In this context, going forward, it will be important to track the GBA family office space.

At present, 33% of the families in our sample which use family office services indicated that their family office is based in either Hong Kong, Guangzhou, Shenzhen,

• The Greater Bay Area (GBA) consists of the two Special Administrative Regions of Hong Kong and Macau, and nine cities in Guangdong Province.

• With a combined GDP of USD 1.6 trillion, it represents about 13% of China’s overall GDP and is comparable to South Korea, the world’s 11th largest economy.

• In July 2017, the central and relevant local governments signed a framework agreement on the development of the GBA. This will involve the deepening of cooperation between the cities/regions, playing to their distinct strengths, and the building of a world-class metropolis.

• In February 2019, the central government issued a much-anticipated blueprint for development. This includes near-term targets until 2022 and longer-term targets until 2035, and sections on developing an international technology and innovation hub; expediting infrastructural connectivity; building a globally competitive modern industrial system, and developing a quality living environment.

• Some of the related projects are already underway. Last year, President Xi Jinping opened the world’s longest sea crossing bridge, which connects Hong Kong to Macau and Zhuhai. The Chinese government has also announced tax subsidies for talented individuals from outside mainland China who move to the GBA.

• The GBA’s financial sector will benefit from the greater trade and capital flows and greater financing demand, and the government is also promoting active participation of the GBA in the related work of the ‘Belt and Road’ initiative.

• Since the trade and technology tensions between the US and China erupted, the latter has implemented a number of fiscal and monetary policies to support economic growth. The tensions heighten the significance of developing the GBA, and it is quite likely that the government will move timelines forward for a number of initiatives.

Data sources: Greater Bay Area, Major Social and Economic Indicators, 2018, https://www.bayarea.gov.hk/en/about/the-cities.html [accessed October 2019]; The World Bank, GDP, https://data.worldbank.org/country/ [accessed October 2019].


or Guangdong more generally. This is equivalent to only 16 families, however, and any resulting statistics should therefore be treated with caution.

The average wealth of the families in the region is RMB 10 billion, and their family offices manage, on average,

Families studied with family offices

in GBA

33%

Average wealth of the families in the region

RMB 10 billion

13%of China’s

overall GDP

5%of China’s

overall population

1%of China’s

overall land area

SOUTH KOREA GDP (2018)

GREATER BAY AREA GDP (2018)

USD 1.6 trillion

USD 1.6 trillion

AUSTRALIA GDP (2018)

UNITED KINGDOM GDP (2018)

USD 1.4 trillion

USD 2.8 trillion


18

DONGGUAN

HUIZHOU

HONG KONG

SHENZHEN

MACAU

JIANGMEN

ZHUHAI

FOSHAN

ZHONGSHAN

GUANGZHOU

• Area (sq km): 14,891• Population (mn): 4.15• GDP (RMB bn): 220.2

ZHAOQING

• Area (sq km): 1,784 • Population (mn): 3.31• GDP (RMB bn): 363.3


• Area (sq km): 1,736• Population (mn): 1.89• GDP (RMB bn): 291.5

• Area (sq km): 33 • Population (mn): 0.67• GDP (MOP bn): 440.3

• Area (sq km): 1,107 • Population (mn): 7.5• GDP (HKD bn): 2842.9






GDP (USD bn)

42.4

55.5

42.2

144.4

332.3

352.1

362.7

120.3

59.6

52.8

32.0

RMB 7.3 billion in assets – about RMB 3.5 billion and RMB 3.1 billion more than the overall averages, respectively.

In terms of the industries in which wealth in the region originates: real estate (38% versus the overall figure of 29%); information technology (19% versus 12%);

consumer discretionary (19% versus 16%); health care (13% versus 9.2%); energy (6.3% versus 6.6%), and consumer staples (6.3% versus 3.9%).

A substantial fraction of the families have either a majority stake in the core operating business (31% versus 45% overall)

or complete ownership (56% versus 37%). None hold a minority stake (versus 13.5% overall), and, in 13% of cases, the operating business was sold (versus 4.0% overall). Sixty-three percent of families reported that their business is now listed (versus 40% overall).

The average age of wealth-holders in the region is 52 years – 3 years below the overall average.

Of the families using family office services, 56% use a single family office; 31% use a hybrid office, and 12.6% use either a commercial or private multi-family office.

19


20

Established Chinese family offices

3

21

This section of the report is concerned specifically with participants who already have some family office affiliation.

64% of respondents use family office services…

A substantial 64% of the participants in this study reported that their primary wealth management vehicle is a family office: single family office (30%), commercial multi-family office (16%), and private multi-family office and hybrid family office (9.2% each) (figure 14).

This finding should, however, be treated with some caution. Firstly, it is likely that families using family offices were more likely to partake in this study. Secondly, there is some fluidity in how the relevant terms – including ‘family office’ – are understood and used, particularly as these concepts are still relatively novel in parts of mainland China.

It should also be noted that, according to our interviewees, the vast majority of family offices in China are embedded within family businesses.

…and they do so to maintain family wealth

The maintenance of family wealth is the most popular core reason that originally motivated the families to establish or join a family office (47%). This is followed by the office being an investment platform (24%) and it being both a deal and investment platform (24% each) (figure 15).

Interest in family offices is on the rise

Over three-quarters of the families reported that they either established or joined a family office after 2010. In the last six years, interest has been growing, and almost one-third reported that they began using family office services in either 2018 (13%) or in the first eight months of 2019 (18%) (figure 16).

Established Chinese family offices

3

Figure 14Primary wealth management vehicle

Single family office

Commercial multi-family office

No wealth management services used

Wealth management is outsourced to external wealth managers/advisers

Advice from family/friends

Private multi-family office

Hybrid family office



30%

16%

12%12%

12%

9.2%

9.2%

Figure 15Reason for setting up or joining the family office

To maintain family wealth for multiple generations

To solely be an investment platform

To be both a deal and investment platform

To preserve family harmony



47%

24%24%

5.3%

22

Beijing is popular for participating family offices

Most of the family offices that participated in this study are based in Beijing (38%), which houses almost twice the number of those in Shanghai (20%), the second most popular location. Hong Kong follows, with 15% (figure 17).

Based on our discussions with the families and with other experts on the ground, however, this might reflect the fact that our network is particularly extensive in Beijing. Shanghai is likely to house more family offices, and Shenzhen houses many, too.

Figure 16Year family office was formed or joined



24%

0.0%

11%

5.3% 5.3%

7.9% 7.9%7.9%

13%

18%

2010

or

prio

r20

1120

1220

13 2014

2015

2016

2017

2018

2019

Figure 17Location of the family office

Note: Figures may not sum to 100% due to rounding. Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

2.6%

2.6%

20%

38%

2.6%

5.0%

12%

15%

5.0%

2.6%

23

In terms of the services that the family offices provide, substantial proportions of the families reported that investment-related activities such as asset allocation, traditional investment, and alternative investment are performed wholly in-house rather than wholly outsourced (59% versus 9.4%; 56% versus 6.3%, and 48% versus 6.1%, respectively).

In addition, a substantial share reported that accounting services are provided either in-house or both in-house and out-house (52% and 42%, respectively), and it is similar for financial planning (55% and 39%) and estate management (39% and 55%).

While 32% reported that they outsource legal services, 67% provide these either wholly in-house or in some combination with external partners.

As indicated by comparison with figures contained in the Global Family Office Report 2019, Chinese family offices provide practically the entire range of services wholly in-house to a lesser degree than the global average. For example, in China, 14% of family offices provide concierge services and security in-house while, globally, 65% do. The exceptions are estate planning (39% versus 27%) and legal services (19% versus 4.2%).

In most service categories, Chinese family offices also wholly outsource less than their global peers. For example, in China, 21% of family offices outsource IT while, globally, 53% do. The exceptions include family governance and succession planning (26% versus 6.8%) and trust management (45% versus 29%).

The implication is, of course, that Chinese family offices depend on a combination of in-house and external provision of most services to a greater degree. The biggest differences include philanthropy (China 52% versus global average 20%) and management of high value physical assets (55% versus 24%).

Single family offices serve, on average, three family members; multi-family offices eight families

For single/hybrid family offices, the average number of family members served is three, which tallies with the historical one-child policy and with the indication from our interviewees that family offices generally serve immediate rather than extended families (figure 18).

For multi-family offices, the average number of families served is eight.

Looking ahead, some of our single family office interviewees mentioned the ultimate aim of drawing in other families or merging with other family offices in order to benefit from economies of scale and improve access to deals.

Chinese family offices provide a range of services

The majority of our interviewees said that, while Chinese family offices provide a range of services, they are generally investment-oriented and also tend to do substantial legal work. Our quantitative data appears to lend some weight to this (figure 19).

Figure 18How many family members or families the family office serves

3Average

8Average

For single/hybrid family offices, how many family members

does the family office serve?

For multi-family offices, how many families does the family office serve?


Chinese Family Office and Family Wealth Management Report, 2020 Established Chinese family offices

24

Figure 19How services are provided – in-house, outsourced, both



14%38%48%

Concierge services and security

55%6.1%39%

Financial planning

59%9.4%31%

Asset allocation

45%26%29%

Family governance and succession planning

39%6.5%55%

Estate planning

52%0.0%48%

Manager selection / oversight

38%10%52%

Investment banking functions (deal sourcing, due diligence, capital structuring, exits)

35%10%55%

Management of high value physical assets (e.g., property, art, yachts)

16%39%45%

Insurance planning

48%6.1%45%

Alternative investment

39%9.1%52%

Philanthropy

52%6.5%42%

Accounting

38%28%34%

Family counselling / relationship management

16%38%47%

Tax planning

61%3.2%35%

Risk management

53%6.3%41%

Real estate

32%32%35%

Training and education

19%32%48%

Legal services

56%6.3%38%

Traditional investment

39%13%48%

Financial accounting / reporting

28%21%52%

IT

57%3.3%40%

Support for new family business and other projects

13%45%42%

Trust management

10%28%62%

Other office services

In-house Outsourced Both

Fam

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25

The average family office has nine members of staff; the chairperson is usually a family member

The family offices consist, on average, of two family members and seven non-family members, with family members generally taking up the key role of chairperson (74%) and many also serving as a director (43%) or CEO (29%) (figures 20 and 21).

Chinese family office salaries are lower than global ones

Some of our interviewees indicated that Chinese family office salaries are substantially lower than both global averages and the averages across the Asia-Pacific region. This is corroborated by comparison of the data collected for the present study with the remuneration data contained in the Global Family Office Report 2019.

The average base salary in China in 2019 for CEOs, CIOs, COOs, and CFOs stood at RMB 865,000 (approximately 38% of the global average), RMB 660,000 (36%), RMB 450,000 (30%), and RMB 410,000 (29%), respectively (figure 22).

Figure 20Number of family members and non-family members working in the family office



2Average

7Average

9Average

Family members

Non-family members

(professional)

Total

Figure 21The roles played by family members in the family office



74%

43%

29%26%

23%

17%

Cha

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son

Dire

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Chi

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xecu

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Offi

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Chi

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Partn

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Figure 22Base salary of key personnel, 2019

Chief Executive Officer

Chief Investment Officer

Chief Operating Officer

Chief Financial Officer

Traders

Portfolio Managers

865,000

660,000

450,000

410,000

285,000

265,000

126,000

96,000

65,000

60,000

41,000

39,200

335,000

266,000

213,000

208,000

-

-

Chinese averages

RMB USD USD

Global averages



26

In terms of Next Gen education and work experience, interviewees recounted the experiences of family members:

“One family member has been preparing since she was young – 13 or 14 years old. After school or during the holidays, at every opportunity, her father took her to meetings. They might have been about some new technology, new pipelines, or some specific research. Initially, she was not able to fully understand them, but she listened and, over time, she came to understand the basic structure of investments. I imagine preparing children and also gauging whether they have an interest in the family business and/or investments in this manner is probably very different from in Europe or the US.”

“Every summer, we interned in the company or the family office. You’re working, you’re sitting next to CEOs, and people who are experts in their fields – there is no better way to understand a business than talking directly with its founder. This is very common in China and it has always been like that.”

Most of the Next Gens interviewed pursued their tertiary education overseas. However, they did not necessarily read for degrees in business- or finance-related subjects. As one interviewee explained:

“A lot of people do not have a formal education in finance, and working in a family office or working in finance, more generally, does not require it.”

Upon graduation, one interviewee spent a few years in finance before joining the family office.

Next Gen education and work experience

Case study

He explained:

“Through investment banking, one gets a grasp of the whole financial sector and receives a great deal of training in due diligence and financial statement analysis. I think my path is somewhat representative of others in China. It is the only kind of formal external training children often get.”

In fact, in some cases, upon graduation, Next Gens immediately joined the family office.

“I imagine preparing children and also gauging whether they have an interest in the family business and/or investments in this manner is probably very different from in Europe or the US.”

27

The Next Gen are involved and have influence

Nearly three-fifths (59%) of families reported that the next generation is involved in a management/executive role, while 29% reported that they sit on the board. Fifty-nine percent reported that Next Gens have some involvement – such as on a project-by-project basis or to gain work experience – and only 2.9% reported that they are not involved at all (figure 23).

The proportion of family offices with Next Gens holding management/executive roles and the proportion with Next Gens having some less regular involvement are notably higher amongst

Figure 23Next Gen involvement in the family office

Management/executive role

Some involvement (e.g., on a project-by-project basis, work experience)

Involved in philanthropy

Sit on the board

Next generation is too young

N/A family has no successors

No involvement at all

OtherNote: Figures may not sum to 100% due to rounding


59%

59%

38%

29%12%

2.9%

2.9%

8.8%

Chinese family offices than global ones, with the global averages standing at 36% and 32%, respectively. In contrast, the proportion in which Next Gens have no involvement is substantially lower, with the global average standing at 28%.

Regarding their influence, the next generation appear to have, at least, some say across the board. The vast majority are involved, either a partial or significant amount, with the family’s long-term investment objectives (85%), day-to-day investment decisions (84%), and investment strategy (81%) (figure 24).

According to our interviewees, typically, the Next Gen will take up investment management roles and sit on the investment committee. They will be paired with a professional investment manager and will also be expected to learn by observing the older generation in action.

Figure 24Next Gen influence



21%

18%

21%

18%

15%

16%

25%

22%

45%

42%

48%

52%

44%

50%

38%

41%

33%

39%

30%

30%

41%

34%

38%

38%

Strategy of the family office / wealth management activity

Investment strategy

Family office structure and governance

Family office staffing

Long-term investment objectives of the family

Day-to-day investment decisions

Philanthropy

Allocations to sustainable/impact/ESG investments

None Some Significant amount


28

Families have different plans about the long-term management of their offices

Of the participants in this study who already have some family office affiliation, 46% reported that, in the long-term, family members will run the office. 31% reported that it will be run by professionals, and 23% do not yet know (figure 27).

The patriarch/matriarch is in charge

A large majority of the families reported that either the patriarch or matriarch is primarily in charge of setting the family office’s objectives and strategies – 53% and 31%, respectively. Only 3.1% said that an external third-party leads on this front (figure 25).

Two-thirds (66%) reported that the strategies currently in place ensure a legacy for the current and future generations of the family, suggesting that long-term wealth and succession planning are still in need of development (figure 26).

According to one family office executive:

“In China, it is typical that the decision-maker makes every decision and seldom does he or she delegate the whole investment mandate or related decisions to a manager or the second generation. Even the second generation would have to obtain approval from the actual decision-maker.”

As another interviewee added, however, there is some subtlety. Many family offices have a standard investment process – i.e., with investments being presented to an investment committee. It is that, ultimately, the patriarch or matriarch “has the most power to determine the decisions.”

“In China, it is typical that the decision-maker makes every decision and seldom does he or she delegate the whole investment mandate or related decisions to a manager or the second generation. Even the second generation would have to obtain approval from the actual decision-maker.”

Figure 25Responsibility for setting the family office’s objectives and strategies

31%

13%

3.1%



Patriarch

Matriarch

Next generation member

External third-party

53%

Figure 26Does the strategy ensure a legacy for the current and future generations of the family?



Yes

No

Don’t know

66%6.3%

28%

Figure 27Who the family office will be run by in the long-term

Family membersProfessionals outside the familyDon’t know



46%

31%

23%

29

Families’ most important objective is long-term wealth preservation

When families were asked to rank their three most important objectives, long-term wealth preservation ranked number one (35%), followed by strategic and tactical investment management (24% and 18%, respectively).

Figure 28Ranking of the family’s three most important objectives

Note: This table shows how the first, second, and third ranked objectives are distributed across objectives. Figures may not sum to 100% due to rounding.


35%

24%

18%

8.8%

5.9%

2.9%

2.9%

2.9%

0.0%

0.0%

0.0%

0.0%

0.0%

15%

12%

2.9%

8.8%

21%

21%

2.9%

0.0%

18%

0.0%

0.0%

0.0%

0.0%

8.8%

8.8%

2.9%

12%

18%

2.9%

8.8%

8.8%

5.9%

5.9%

5.9%

8.8%

2.9%

Long-term wealth preservation

Investment management strategic

Investment management tactical

Intergenerational wealth transfer structure

Centralised control and improved risk management

Family administration and professional services

Tax efficient wealth transfer

Vehicle for family intergenerational cohesion

Family real assets management

Consolidating information and reporting

Economies of scale in operating / investing costs / dealing with financial services counter-parties

Vehicle for the promotion of core family values and traditions set by the patriarch / matriarch

Vehicle to support and reward positive behaviour from family members and without support for negative behaviour

Number 1 objective Number 2 objective Number 3 objective

Other notable objectives include centralised control and improved risk management – which features prominently amongst the second and third ranked objectives (21% and 18%, respectively) – and establishing a structure to transfer wealth between generations – 8.8% and 12% (figure 28).


30

Establishing a family office structure, recruiting talent, and finding service providers are family offices’ central challenges

Respondents were also asked about the challenges that the family office is facing at present, and, in addition to establishing a family office structure – which accounted for 35% of the top ranked challenges – as corroborated by our interviews, recruiting outside talent (21%) and finding experienced service providers (also 21%) were central issues (figure 30).

According to several of our interviewees, Chinese families are heavily engaged in determining how to objectively interpret relevant regulatory policies and tease out the related investment opportunities. Indeed, across the second and third ranked challenges, planning with regulatory uncertainty was prominent (24% and 18%, respectively).

Family offices are looking to establish investment strategies/guidelines

When families were asked to rank the top three governance priorities for the family office in the next 12-24 months, establishing investment strategy/guidelines was the most popular (34%), followed by risk management (investment, IT, etc.) (26%) (figure 29). These are also the top global priorities; although, year-on-year, risk management typically ranks as the number one priority for global family offices.

Succession planning is another important governance priority, accounting for 14%, 26%, and 11% of the first, second, and third ranked priorities.

Figure 29Ranking of the family office / wealth management staff’s top three governance priorities

Note: This table shows how the first, second, and third ranked governance priorities are distributed across priorities. Figures may not sum to 100% due to rounding


34%

26%

14%

8.6%

8.6%

5.7%

2.9%

0.0%

0.0%

26%

29%

26%

5.7%

0.0%

2.9%

0.0%

2.9%

8.6%

5.7%

29%

11%

17%

5.7%

5.7%

2.9%

2.9%

20%

Investment strategy/guidelines

Risk management (investment, IT, etc.)

Succession planning

Control policies

Establish clear guidelines for communication between family offices and families

Human capital oversight

Include non-family members in the activities of the family office

Designing the board / key responsibilities of senior staff

Involve the next generation

Number 1 priorityNumber 2 priority

Number 3 priority

Figure 30Ranking of the family office’s top three challenges

Note: This table shows how the first, second, and third ranked challenges are distributed across challenges. Figures may not sum to 100% due to rounding


35%

21%

21%

5.9%

15%

15%

24%

2.9%

0.0%

8.8%

18%

47%

Establishing a family office structure

Recruiting outside talent

Finding experienced service providers

5.9%5.9%2.9%

Compliance with laws and regulations

2.9%24%18%

Planning with regulatory uncertainty

8.8%15%

5.9%

Defining the family office’s purpose

Formulating a structure for next generation succession

Number 1 challenge

Number 2 challengeNumber 3 challenge

31

In our conversations with families regarding recruitment of non-family employees into family offices, the theme which emerged most clearly was trust – which trumps all other factors in the recruitment process, including the candidate’s investment skills.

Several families mentioned the difficulty of finding and retaining suitable outside talent. They said that turnover is high and expressed their concerns about whether individuals were attempting to simply pick up know-how in the budding industry or, worse still, obtain sensitive information (e.g., personal or portfolio information to use for their own advantage).

In the words of two family office executives:

“In China, there are a lot of very young – in their early 30s – and very hungry – i.e., financially-driven – individuals. There is a shortage of particular kinds of investment talent and abundant opportunities. An individual might stay with his employer for a few years and then be offered several multiples of his current pay by another firm.”

“You invest in him for several years, and then, one day, he leaves with all your information.”

Most family office employees are Chinese and have a pre-existing social relationship – e.g., they might be a family friend or a friend-of-a-friend – or business relationship with the family. In our conversations with them, families described an organic process in which they work with the individual over time, increasing their collaboration. The individual might be their ex-private/investment banker, someone with whom deals were conducted, or a longtime employee in the family business finance department. One family office executive described one case:

“The CEO of the family office, after graduation, became the personal assistant to the patriarch of the family and then, over a decade, worked her way up to become a very trusted friend of the family. This is not a one-off situation.”

Recruitment and trust

Case study

Some families explained that they closely guard their investment information from outside employees, who work on a project-by-project basis. They are aware that this approach can, at least, exacerbate the problems – implying a lack of trust. According to one family office executive:

“This dilemma is something many family offices in China are constantly thinking about.”

Other families use contract clauses for some protection:

“There are some terms in contracts whereby the employee makes a commitment which restricts his or her ability to join other family offices.”

“There are written agreements – i.e., that you cannot disclose certain things or use certain information for your own gain – but they [ex-employees] still have the information, and it is difficult to know if that information has been disclosed and difficult to enforce the agreements.”

Professionals involved in the family office space suggested that employee frustration might be based on their limited decision-making power and the fact that many family offices have not closely considered the links between employee and portfolio performance and not closely linked performance and pay. On the thorny issue of remuneration, one professional added:

“Families are very concerned about whether outside employees are loyal and generating value. They wonder, ‘now that the lawyer [let us say] is one of my own, do I have to pay him such a high rate?’. On the other hand, the lawyer probably thinks, ‘I am not being remunerated at the market rate’.”

It should be noted that another likely reason for dependence on social and professional networks is that the Chinese recruitment industry is also still in its infancy.

“Families are very concerned about whether outside employees are loyal and generating value.”


32

Future Chinese family offices

4

33

This section of the report is concerned specifically with participants who are interested in setting up or joining a family office.

Significant and active interest in using family office services

Of the participants in this study who do not currently use family office services, over three-quarters stated that they are interested in either setting up a single family office (44%) or joining a multi-family office (33%). A further 10% have yet to determine their interest (figure 31).

Of those interested, 84% are currently taking active measures to set up or join a family office (figure 32).

Growth in family offices likely to be strong in 2019

In terms of dates for setting up or joining a family office, most of the relevant families said, when surveyed between March and August 2019, that they were planning to do so sometime in the rest of the year (45%). There was also significant activity planned for this year (21%) and some for 2021 (10%) (figure 33).

Future Chinese family offices

4

Figure 31Interest in using family office services

Yes, in setting up a single family office

Don’t know

Yes, in joining a commercial multi-family office

Yes, in joining a private multi-family office

Not interested


Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Manage-ment Survey 2019

44%

18%15%

13%

10%



Figure 32Whether the family is taking active measures to set up or join a family office

16%

No

84%

Yes

Figure 33Year family office will be formed or joined



45%

21%

10%

24%

2019

2020

2021

2022

or l

ater

34

32% of the relevant families indicating that their office will be based in the city. This is followed jointly by Beijing (21%) and Guangdong (21%), with the latter including Shenzhen (12%), and then by Zhejiang (15%) (figure 34).

Shanghai is the most popular city for future family offices

In terms of the regions in which family offices will be based, Shanghai is the most popular – with

Figure 34Likely location of the family office



ZHEJIANG

32%

21%

12%

2.9%

21%

2.9%

2.9%

2.9%

2.9%

15%

35

was the only region outside Asia selected by the relevant families (figure 35). Some specified New York, and others, Silicon Valley in California.

These findings broadly echo the Global Family Office Report 2018, which found that 40% of the family offices in Asia-Pacific with secondary branches house them in Asia, while 20% do so in North America.

For second branches, Hong Kong is the most popular region; the US is the only region outside of Asia specified

The participants in the study that currently use family office services were asked whether they are considering setting up a second office and, if so, to indicate, in a free-text field, their region of preference. Hong Kong (37%) and Singapore (24%) were the most popular, and the US (22%)

Figure 35Preferred regions for second family offices



Hong Kong 37% Singapore 24% US 22% Beijing 6.6%

Shanghai 6.6% Fuzhou 0.8% Don’t know 3.3%

Chinese Family Office and Family Wealth Management Report, 2020 Future Chinese family offices

36

Service provision similar in practice and plans

The families that are planning to establish family offices in the future also indicated which services they will likely provide.

Notable findings include that substantial shares of the families reported that investment-related activities such as asset allocation and traditional investment are more likely to be performed wholly in-house rather than be wholly outsourced (57% versus 13% and 58% versus 4.2%, respectively) – which aligns with the indication from families that already use family office services regarding their actual practices.

Overall, it appears that the difficulty of outsourcing might be underestimated.

In 16 out of 24 services, families (that will use family offices) plan to depend on wholly in-house provision less than families (currently using family offices) actually do. For example, whereas 7.7% of the former plan to provide training and education wholly in-house, 32% of the latter do so.

In seven out of the eight remaining services, families plan to both in-house and outsource more than is currently done in practice.

In 21 out of 24 services, including 14 of the aforementioned 16 cases, families plan to wholly outsource more than is done in practice. For example, whereas 54% of families (that will use family offices) plan to outsource legal services, 32% of families (currently using family offices) actually do so. Whereas, plans are more in favour of wholly outsourcing than wholly in-housing investment banking functions and financial accounting / reporting (44% versus 20% and 33% versus 29%, respectively), in practice, families provide these services in-house more than outsourcing them (38% versus 10% and 39% versus 13%, respectively).

In two out of the three remaining services, the proportion indicating a combination of internal and external provision is higher in plans than in practice.

37

8.7%57%35%

46%12%42%

57%13%30%

42%17%42%

35%19%46%

20%44%36%

42%13%46%

19%54%27%

28%12%60%

50%19%31%

42%17%42%

29%25%46%

12%46%42%

46%8.3%46%

56%12%32%

7.7%50%42%

3.8%54%42%

58%4.2%38%

29%33%38%

12%40%48%

65%7.7%27%

16%60%24%

21%33%46%

48%16%36%

Figure 36How services will be provided – in-house, outsourced, or both




Financial planning

Asset allocation


Estate planning

Manager selection / oversight

Investment banking functions (deal sourcing, due diligence, capital structuring, exits)

Management of high value physical assets (e.g., property, art, yachts)

Insurance planning

Alternative investment

Philanthropy

Accounting


Tax planning

Risk management

Real estate


Legal services

Traditional investment

Financial accounting / reporting

IT

Support for new family business and other projects

Trust management

Other office services

In-house Outsourced Both

Fam

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Gen

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esChinese Family Office and Family Wealth Management Report, 2020 Future Chinese family offices

38

…as is Next Gen involvement

Regarding how the next generation will be involved, 40% plan to have Next Gens in management or executive roles, while another 40% plan to bring them in on a project-by-project or internship basis, and 32% expect that they will sit on the board (figure 39).

The former two figures contrast with the corresponding ones for families already using a family office, amongst which 59% have Next Gens that hold management/executive positions and the same proportion have Next Gens with some involvement in the family office.

On average, family offices expect to start off with six members of staff

The family offices that will be set up are forecasted to consist, on average, of two family members and four non-family members (figure 37). The offices already set up consist of two family members and seven non-family members. The difference might be the result of families starting out with smaller numbers of staff and, as they mature, taking on additional professionals. It might also be related to families overestimating the amount that family members / non-family members can achieve, and resonates with the previous suggestion that the difficulty of outsourcing is underestimated.

Family member roles similar in practice and plans...

The roles which family members are most often forecasted to take up are director (60%) and chairperson (48%) (figure 38).

Notable differences with family offices already established include that, amongst the latter, a greater proportion indicate that family members actually serve as chairperson (48% planned versus 74% in practice) and as CEO (12% versus 29%). This might indicate an evolution in family involvement in family offices in China.

Figure 38The roles family members will play in the family office



48%

60%

12%

20%16%

8.0%

Cha

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Dire

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Chi

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Figure 37Number of family members and non-family members that will work in the family office



2Average

4Average

6Average

Family members

Non-family members

(professionals)

Total

39

anticipated to have ‘no influence’ and ‘significant influence’ in 7.7% and 15% of cases, respectively, but currently have such influence in 16% and 34% of cases, respectively (figure 40).

Practically the same percentage of the two groups – those planning to use and those using family offices – reported that the patriarch is primarily in charge of setting the family office’s objectives and strategies (54% and 53%, respectively). However, amongst the former group, the ranking continues with a Next Gen member (31%) and then the matriarch (7.7%), and amongst the latter, it continues with the matriarch (31%) and then a Next Gen member (13%) (figure 41).

Regarding the influence the next generation will have, it appears that they will have, at least, some say across the board.

In terms of differences between current plans and current practice, the next generation are forecasted to have both ‘no influence’ and ‘significant influence’ less commonly than they actually have. In terms of investment strategy, Next Gens are expected to have ‘no influence’ and ‘significant influence’ in 8.0% and 20% of cases, respectively, but they currently have such influence in 18% and 39% of cases, respectively. In day-to-day investment decisions, Next Gens are

Figure 39How the Next Gen will be involved in the family office

Management / executive role

Some involvement (e.g., on a project-by-project basis, internship)

Involved in philanthropy

Sit on the board

Next generation is too young

N/A family has no successors

No involvement at all

Don’t know



40%

40%

32%

32%

16%

12%

4.0%

4.0%

Figure 40The level of influence the Next Gen will have



8.0%

7.7%

8.0%

8.0%

64%

77%

64%

56%

28%

15%

28%

36%

8.0%60%32%

Strategy of the family office / wealth management activity

8.0%72%20%

Investment strategy

16%56%28%

Family office structure and governance

16%64%20%

Family office staffing

Long-term investment objectives of the family

Day-to-day investment decisions

Philanthropy

Allocations to sustainable/impact/ESG investments

None Some Significant amount


40

In the long-run, the family offices will be run by a blend of family members and non-family professionals

Eighty-one percent of the relevant families reported that, in the long-term, the family office will be run by a blend of family members and professionals outside the family; 11% said that it will be run by family members, and 7.4% said that it will be run by professionals (figure 43).

Importance of long-term wealth preservation reiterated

The families planning to establish a family office were asked to rank their three most important objectives. Like amongst those already using a family office, the top ranked objective was long-term wealth preservation, but it was less popular (22% versus 35%). Strategic and tactical investment management (both 15%) were also prominent. Centralised control and improved risk management (19%) and tax efficient wealth transfers (19%) were the most frequently selected options amongst the second and third most important objectives, respectively (figure 44).

Eighty-eight percent of the relevant families indicated that their strategy ensures a legacy for the current and future generations of the family (figure 42).

Figure 41Responsibility for setting the family office’s objectives and strategies

31%

7.7%

7.7%



Patriarch

Matriarch

Next generation member

External third-party

54%

Figure 42Does the strategy ensure a legacy for the current and future generations of the family?



YesNo

Don’t know

88%

0.0%

12%

Figure 43Who will run the family office in the long-term

Family membersProfessionals outside the familyBlend of family members and professionals outside the family



11%

7.4%

81%

41

Families looking to establish a family office are prioritising risk management

Families planning to use a family office were asked to rank their top three governance priorities in the next 12-24 months, and amongst the top ranked priorities, in line with wider global trends, risk management was the most popular (28%), followed by investment strategy/guidelines (20%) (figure 45).

Figure 44Ranking of the family’s three most important objectives

Note: This table shows how the first, second, and third ranked objectives are distributed across objectives. Figures may not sum to 100% due to rounding


22%

15%

15%

11%

3.7%

3.7%

19%

11%

3.7%

7.4%

11%

7.4%

7.4%

3.7%

0.0%

3.7%

7.4%

19%

Long-term wealth preservation

Investment management strategic

Investment management tactical

Intergenerational wealth transfer structure

0.0%19%7.4%

Centralised control and improved risk management

Family administration and professional services

Tax efficient wealth transfer

0.0%0.0%15%

Vehicle for family intergenerational cohesion

19%15%11%

Family real assets management

0.0%0.0%3.7%

Consolidating information and reporting

7.4%0.0%7.4%

Economies of scale in operating / investing costs / dealing with financial services counter-parties

0.0%3.7%3.7%

Vehicle for the promotion of core family values and traditions set by the patriarch / matriarch

Number 1 objectiveNumber 2 objective

Number 3 objective

Figure 45Ranking of the family office / wealth management staff’s top three governance priorities

Note: This table shows how the first, second, and third ranked governance priorities are distributed across priorities. Figures may not sum to 100% due to rounding


12%

4.0%

8.0%

4.0%

16%

12%

20%24%12%

Investment strategy/guidelines

28%16%16%

Risk management (investment, IT, etc.)

Succession planning

0.0%12%16%

Control policies

0.0%20%12%

Establish clear guidelines for communication between family offices and families

12%4.0%4.0%

Human capital oversight

Include non-family members in the activities of the family office

12%4.0%4.0%

Designing the board / key responsibilities of senior staff

12%8.0%8.0%

Involve the next generation

Number 1 priorityNumber 2 priority

Number 3 priority


42

In terms of differences between this group and the group consisting of those already using a family office, a greater proportion of the former stressed designing the board / key responsibilities for senior staff (12% versus 0.0%), which is understandable given their relative stage in the process. They also stressed involving the next generation more heavily (12% versus 0.0%).

Recruiting talent and finding service providers are the key challenges in establishing a family office

Families planning to set up a family office were also asked about the challenges they are facing in the process, and, in addition to the trials associated with establishing a family office structure – which accounted for 55% of the top ranked challenges – recruiting outside talent (27%) and finding experienced service providers (64% of the number two ranked challenges) were central issues (figure 46).

Figure 46Ranking of the family’s top three challenges regarding the family office

Note: This table shows how the first, second, and third ranked challenges are distributed across challenges. Figures may not sum to 100% due to rounding


55%

27%

0.0%

0.0%

18%

9.1%

0.0%

18%

18%

Establishing a family office structure

Recruiting outside talent

0.0%64%0.0%

Finding experienced service providers

0.0%0.0%0.0%

Compliance with laws and regulations

9.1%9.1%18%

Planning with regulatory uncertainty

Defining the family office’s purpose

9.1%0.0%45%

Formulating a structure for next generation succession

Number 1 priority Number 2 priority Number 3 priority

In our conversations with families, several discussed issues surrounding governance:

“In Asia in general, it is challenging to push for change and for formal policies and processes.”

One interviewee added that:

“In Chinese families, it is partly emotional – some things are not said.”

Overall, especially amongst the first generation, governance is still a relatively unfamiliar concept. It is, however, one that is gaining traction:

“As the second generation is increasingly brought into the fold, it informs and educates the first generation, and recommends ways to change based on international standards.”

In many cases, for both the first and second generations, governance is simply not yet a priority. In the current economic climate, in which meeting return targets is becoming increasingly difficult, governance and succession planning will quite possibly fall further in priority.

According to another interviewee:

“Many Chinese families have difficulties with communication between the first and second generations. The issue is that they have such different backgrounds, including education and work experience. I think they need a professional to bring them together and help them to appreciate each other’s values and goals, to help them work together.”

Governance, succession, and the next generation

Case study

“Many Chinese families have difficulties with communication between the first and second generations. The issue is that they have such different backgrounds, including education and work experience. I think they need a professional to bring them together and help them to appreciate each other’s values and goals, to help them work together.”

43


44

Investments

5

45

Investment strategyChinese families are still looking for growth, but there are signs of a change in focus

In terms of investment strategy, roughly the same proportion of participants in the study reported that they have adopted a growth-oriented approach (44%) as a balanced approach (43%), and a much smaller proportion have adopted a preservation-oriented approach (13%) (figure 47).

When comparing these figures to those contained in the Global Family Office Report 2019, it appears that families in China are significantly more focused on growth, with the proportions adopting growth standing at 25% globally; 19% in the Asia-Pacific region, and 25% in Hong Kong.

According to some of our interviewees, investment strategy in the Chinese family office space is generally quite informal – with investment patterns shifting – and there is a notable emphasis on ‘the next hot thing’.

While growth is still the goal, as one interviewee explained:

“Five years ago, businesses were returning 20% to 30% and families were looking for investment returns of, at least, 10% to 20%. Gradually, however, families are shifting emphasis from growth to preservation.”

The change is, in part, a long-term one – relating to the age of the wealth creators – but it has also been prompted by slowing economic growth in China, the low interest rate environment, and failures amongst third-parties and the related losses.

Design and executionParticipants in the study were asked a series of questions about the design and execution of their investment strategies.

When asked if the design of the family office’s investment strategy is outsourced to advisers and then executed internally, 41% said yes, while 59% said no (figure 48).

Investments

5

Figure 47Investment strategy



Growth

Balanced approach

Preservation

43%

13%

44%



Figure 48Is the design of the investment strategy out-sourced to advisers and then executed internally?

59%No 41% Yes

46

Amongst the yes-group, 100% reported that the patriarch/matriarch has the final say on the investment strategy (figure 49).

If a family member is responsible for the investment strategy, in the vast majority of cases, he/she has prior experience working in a professional investment environment (81%) (figure 50).

While 86% of families indicated that they are restricted in their strategy to asset allocations based on the knowledge of the patriarch/matriarch/next generation, only 25% said that family offices will outsource this work to professional investment advisers in the future. Thirty-four percent said that the current arrangements will remain in place, and 42% said that they do not yet know what will happen (figure 51 and 52).

Figure 52If yes, will this arrangement stay the same, or will the family outsource its asset allocation to professional investment advisers?



It will stay the same

It will be outsourced to professional investment advisers

Don’t know

25%

42%34%

“Five years ago, businesses were returning 20% to 30% and families were looking for investment returns of, at least, 10% to 20%. Gradually, however, families are shifting emphasis from growth to preservation.”



Figure 49If the investment strategy is outsourced to advisers, does the patriarch/matriarch have final say on the strategy?

0.0%No

100%

Yes



Figure 50If a family member is responsible for the investment strategy, does he/she have prior experience working in a professional investment environment?

19%

No

81%Yes



Figure 51Is the family office restricted in its strategy to asset allocations based on the market knowledge of the patriarch/matriarch/next generation?

14%

No

86%

Yes

47

Asset allocationThe average portfolio is diversified across asset classes; fixed income constitutes the top asset class; private markets preferred to public ones

In terms of asset allocation, the average portfolio appears to be diversified across asset classes.

Family offices, on average, allocate over half of their portfolios to fixed income (22%), equities (17%), and real estate (13%), with fixed income being the top asset class in which they invest (figure 53).

The balance includes a total allocation of 20% to private equity – which, in turn, includes allocations of 11% and 9.2% to direct and fund-based investments, respectively, and which is more popular than public equity.

Figure 53Approximate average asset allocations

Fixed income

Private equity, funds

Hedge funds

Other tangibles

Equities

Real estate, direct

Commodities

Cash or equivalent

Private equity, direct

REITs

Agriculture

Other

Approximate Chinese average asset allocation Approximate Global average asset allocation

22%

9.2%

4.6%

2.0%

17%

13%

2.3%

10%

11%

4.5%

1.0%

2.8%

16%

7.7%

4.5%

—

32%

17%

—

7.6%

11%

1.0%

1.4%

—

Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019; The UBS / Campden Wealth Global Family Office Survey 2019

Note: The asset allocation data from the Global Family Office Report 2019 sums to 97.7%, as the commodities categories are classified differently between the two reports and thus cannot be directly compared. In the Global Family Office Report, commodities totals 3.2%, which consists of 1.4% for agriculture, 0.8% for gold / precious metals, and 1.0% for other commodities.

Chinese Family Office and Family Wealth Management Report, 2020 Investments

48

In terms of how the average Chinese portfolio differs from the average global one, the former has larger allocations to fixed income (22% versus 16%), REITs (4.5% versus 1.0%), and cash (10% versus 7.6%) and a lower allocation to equities (17% versus 32%) and direct real estate (13% versus 17%).

International investmentsChina has various rules and regulations governing capital outflows and, in the last few years, some restrictions – for example, on mergers and acquisitions (M&A) and on real estate transactions – have been intensified.

Looking ahead, on the one hand, growth is slowing, the exchange rate of the renminbi has been volatile, and the US/China trade tensions are ongoing.

On the other hand, as Chinese manufacturing continues to advance, enterprises will continue to set up operations abroad; China has issued explicit guidelines outlining deals that are both encouraged and discouraged, and the ‘Belt and Road Initiative’ is concerned with building infrastructure links between China and the developing world.

In this context, while some family offices indicated that they have extensive experience in overseas investment, others suggested that they are focused heavily on domestic investments. Sophistication in this respect does not seem to be related to AUM in a simple way.

But, in terms of whether families, at least, consider international investments, the vast majority (90%) indicated that they do (figure 54).

In some cases, family offices allocate half of their portfolios to private equity direct deals, funds, or some combination. In fact, some of our interviewees explained that many Chinese family offices were established specifically to make private equity investments.

Several of our interviewees indicated that their allocations towards private equity and real estate have recently been boosted – prompted by relatively attractive returns and diversification benefits in the especially choppy and uncertain global market environment.

The substantial allocation to fixed income is interesting – especially given the apparent popularity of growth-oriented investment strategies. But interviewees pointed out that it includes overseas or foreign-currency denominated bonds and non-traditional bonds and bond strategies.

With regard to the public markets, a common approach is to focus on assessing the macro environment, choosing strategies, and picking managers - i.e., not actively trading shares.

Another notable finding is that there is a sizeable 10% allocation to cash or equivalents.

In terms of asset allocation differences by wealth, the wealthier families (above RMB 3.0 billion) have greater allocations to private equity (+10%), hedge funds (+1.4%), and cash (+3.8%); and the relatively less wealthy families have greater allocations to fixed income (+6.0%) and real estate (+6.6%).

Interestingly, there is negligible difference in allocations to real estate between families that originally amassed their wealth in the real estate industry and families that originated it elsewhere. There is also negligible difference in the ratio between allocations to real estate direct deals and REITs between the wealthier and the relatively less wealthy families.

49

Asset allocation plansCuts likely coming to commodities, other tangibles, and real estate; boost likely for private equity

Regarding plans to change asset allocations in the next 12 months, in net terms – i.e., the difference between the number of families that plan to increase versus decrease their allocations – large numbers plan to invest less in commodities (46%), other tangibles (84%), direct real estate (46%), and REITs (30%). On real estate, several of our interviewees expressed concerns about the sustainability of China’s rising property prices, but others were confident that the authorities would be able to stave off a bust (figure 55).

On the other hand, many plan to invest more in private equity funds (24%) and some in hedge funds (12%). While most of our interviewees expressed their keenness to invest in private equity direct deals, it is also clear that the resources required and the risk entailed are substantial barriers, which is nudging family offices toward investment managers.

Generally, Chinese family offices are notably adventurous – i.e., they have a high risk tolerance – in domestic investing. They have accumulated a great deal of knowledge about the relevant issues within China. They have a much subdued risk appetitive, however, in overseas investing – for example, preferring to invest in mature markets and hold cash, traditional fixed income, or real estate.

Figure 54Consideration of investment outside of China



Yes

NoDon’t know

4.4%5.9%

90%


50

Figure 55Plans to change allocations over the coming 12 months

Fixed income

-100 100-90 90-80 80-70 70-60 60-50 50-40 40-30 30-20 20-10 100

Equities



Real estate, direct

REITs

Hedge funds

Commodities

Agriculture

Other tangibles

Cash or equivalent

Other

More Less Net

53%

47%

53%

62%

27%

35%

56%

27%

40%

8.0%

50%

40%

48%

53%

47%

38%

73%

65%

44%

73%

60%

92%

50%

60%

5.0%

-6.0%

6.0%

24%

-46%

-30%

12%

-46%

-20%

-84%

0.0%

-20%

Ass

et c

lass


51

PerformanceIn the previous 12 months, the average portfolio returned 11%

Family offices were surveyed between March and August 2019, and over that time they were asked about their investment returns (in local currency) in the 12 months prior to the date of their participation. In response, families reported that they earned an average overall portfolio return of 11% (figure 56).

Private equity was the top performing asset class – with direct investments returning 19% and fund-based investing returning 15%.

Real estate also performed well – with direct investments returning 14% and REITs returning 9.0%.

The returns for private equity directs and real estate directs were also the most variable between the family offices, along with public equities.

Most families said that, in the last 12 months, investment performance has been satisfactory.

On direct private equity deals – e.g., direct pre-IPO/venture deals – some families said that, while, in the last few years, returns have been strong, the next 12 months are much more uncertain:

“Some companies were listed and immediately dropped below the issue price, and some companies – for example, involved in cryptocurrencies – tried to list and were unsuccessful. Obviously, for families who invested in those companies, exiting is now a major problem.”

“Performance in the past year has been fine, but, next year, we are anticipating lower performance. Family offices in China are now starting to find that there are so many companies and that exit options are limited.”

Figure 56Investment return for the previous 12 months

Fixed income

Asset class Return

Equities



Real estate, direct

REITs

Hedge funds

Commodities

Agriculture

Other tangibles

Cash or equivalent

Other

Overall

7.3%

13%

19%

15%

14%

9.0%

4.6%

6.6%

6.9%

6.5%

4.0%

8.2%

11%



52

Several families expressed that the geo-political and economic context in which family offices operate is increasingly volatile, and that, within the next five years, the environment could be dramatically transformed. The likelihood of a reversal in the globalisation which has occurred over the last two decades or so was raised several times.

One family office executive explained:

“I am not optimistic about the next 12 months. The global economy is struggling – the major European economies, the Japanese, and the US economy are all slowing, as is the Chinese economy, which has been the engine for global growth. Furthermore,

The next 12 months – dealing with changing geo-politics and economics

Case study

“I am not optimistic about the next 12 months. The global economy is struggling – the major European economies, the Japanese, and the US economy are all slowing, as is the Chinese economy, which has been the engine for global growth. Furthermore, policy-makers have limited tools at their disposal. I am being extremely cautious.”

policy-makers have limited tools at their disposal. I am being extremely cautious.”

While many families see an economic downturn on the horizon, some are relatively optimistic about their investment opportunities:

“Certainly, even in the next 12 months, valuation methodologies will evolve. But, the downturn itself, government intervention, and rapidly changing technology will bring forth opportunities.”

Others reiterated a likely move in investment strategy towards preservation and an even greater emphasis on the domestic market.

53

In our conversations with respondents, several explained that there is a strong interest amongst Chinese families of wealth in private markets.

There are a number of closely related reasons.

In the last decade or so, the Asian stock market indices have not shown a significant change and, in China, there is not a great deal of experience of making money on the market. As one interviewee explained:

“Many of the current wealth holders in China built their own companies from scratch and are naturally drawn to – and enjoy – private equity and venture capital deals.”

These deals entail greater information asymmetries and opportunities; more hands-on investment screening, and more active strategic and operational involvement. Family offices stress that through involvement with private equity and venture capital investments:

“You really get a feel of what is going on in the next three to five years; you see what kind of industries and opportunities are emerging; you meet brilliant general partners and hungry young entrepreneurs.”

The wealth holders are keen to recreate their success – in a new sector – and invest in their successors – that is, in the next generation of entrepreneurs. Family offices stress the centrality of the private markets to Chinese commerce and economic growth, and the wider motivations include contributing to and being part of the miraculous Chinese growth story:

“Without private capital, most of the new and exciting business ideas would never take off.”

There are some concerns that China will not be able to sustain its double-digit GDP growth

A taste for private markets

Case study

in the next decade; that the impulse to chase the next ‘hot thing’ – whether that be machine learning, blockchain, cryptocurrencies, or even cannabis – is not always matched by the deep expert knowledge required to adequately differentiate between projects, and that there is a bubble which is inflating which will inevitably burst.

On the other hand, several family office executives advised that:

“Although there is a great deal of interest in the new and rapidly evolving technologies and other novel opportunities, few family offices are as yet making substantial investments in them.”

Some are certainly engaged in a process of learning – visiting companies and conducting due diligence – and are actually making investments – but these are mainly relatively small ones made in order to obtain better insights.

The family offices’ entrepreneurial spirit might not be significantly diminished by the wealth transition currently occurring. The entrepreneurs have been raising and preparing the second generation. Some families have described a family entrepreneurial spirit – or entrepreneurialism as a family value – which has developed through the next generation sitting in on meetings from a young age and the family bonding through exchanging ideas and making investments together.

As one Next Gen and family office executive explained:

“The next generation are not purely financially driven. They are more interested in being able to present an investment thesis to the family”.


54

Service providers

6

55

Families use a range of service providers and buy a range of services

Chinese families use a range of service providers, with lawyers and private bankers being the most common, as indicated by 79% and 73% of participants, respectively (figure 57).

They outsource a number of services, with tax and legal advisory, investment management, and risk management and insurance, being the most common, as indicated by 83%, 68%, and 63%, respectively (figure 58).

At present, families engage an average of three commercial banks, three investment banks, two private banks, and one trust bank. The number of investment banks engaged varies the most – with some families using as many as 10 (figure 59).

Service providers found through existing professional relationships and recommendations from close ones; trust, confidentiality/security, and reputation are key criteria

In terms of how service providers are identified, as strongly corroborated by our interviews, the most popular paths amongst families – by far – are recommendations from professionals they already know (as indicated by 87% of participants) and recommendations from family and friends (54%) (figure 60).

In terms of the importance of various criteria in the selection of financial service providers, as corroborated by our interviews, families indicated that trust, confidentiality/security, and reputation are the most critical considerations – with 91%, 84%, and 76%, respectively, indicating that these are very important (figure 61).

Few of the criteria families were presented with were classified as unimportant or very unimportant. Notable exceptions were whether the service provider is a state or non-state entity (which 16% and 23% indicated were unimportant or very unimportant) and whether it is a Chinese or non-Chinese entity (14% and 26%, respectively).

Service providers

6

Figure 57Types of service providers the family uses

Lawyer

Private banker

Fund manager

Investment management consultant

Investment banker

Asset manager

Trust banker

Commercial banker

Accountant

Custodian

Trustee

Head hunter

Broker

79%

73%

64%

53%

52%

50%

50%

47%

36%

35%

35%

30%

21%



56

37% 33%

16% 16%30% 21%

35% 35%43%

Figure 58Types of services the family uses

Tax and legal advisory

Establishment of a family trust

Philanthropic management services


Reporting and record keeping


Estate and wealth transfer

Administrative services

Support for new family business


Compliance and regulatory assistance


Investment management services

Risk management and insurance services

83% 43%63%68% 46%



Figure 60Methods for identifying external service providers

Recommendations from professionals you already know

Recommendations from family and friends

Published track record

Response to direct solicitation

Comparative shopping

News sources



87%

54%

28%26%

12%

10%

Figure 59How many financial service providers the family engages

1Average

Trust banks

2Average

Private banks

3Average

Commercial banks

3Average

Investment banks


57

Trus

t

Rep

utat

ion

Cro

ss b

orde

r

exec

utio

n ab

ilitie

s

Long

-ter

m p

rior

rela

tions

hip

Qua

lity

of

com

mun

icat

ion

skill

s

Chi

nese

ent

ity

Sta

te e

ntity

Clo

se fr

iend

or

fam

ily

reco

mm

enda

tion

Non

-Chi

nese

ent

ity

Non

-sta

te e

ntity

Con

fiden

tialit

y /

secu

rity

Inve

stm

ent

trac

k re

cord

Zero

or

little

cou

nter

-

part

y fin

anci

al r

isk

Very important

91%

8.7%

76%

24%

53%

44%

1.5%

19%

67%

12%

2.9%

11%

34%

29%

26%

63%

32%

2.9%

1.5%1.5%

32%

64%

3%

1.5%

26%

39%

21%

12%

1.5%

24%

40%

21%

15%

1.5%

6.3%

36%

34%

22%

1.6%

84%

14%

1.4%

62%

36%

1.4%

46%

50%

4.4%

Important Unimportant Very unimportantNeither important nor unimportant

Figure 61The importance of the following criteria when selecting a financial service provider



Chinese Family Office and Family Wealth Management Report, 2020 Service providers

58

The families have indicated that they are most interested in benchmarking themselves against their regional peers – with 69% stating that they would be keen to obtain information on the structures and performance of other family offices within Asia-Pacific (69%) – and also very interested in their local peers – 45% indicating their enthusiasm for information on offices within China (45%). They are far less interested in global family offices – with only 6.0% expressing an interest in information on offices outside the Asia-Pacific region (figure 63).

Chinese families are well-connected to each other and to families in Asia-Pacific

In terms of networks between family offices – to facilitate the exchange of ideas/experiences or facilitate co-investment – families revealed that there are few official platforms in China. Part of the reason is that families are concerned about privacy; they are wary of service providers diluting networks, and, especially for the larger families, it is not too onerous to reach out to other families directly. There are more informal arrangements and members of networks tend to be long-time associates.

More than half of the families reported that they have access to other family offices within China (62%) and within Asia-Pacific (54%) to communicate or collaborate with, and over one-third also have access to other offices outside Asia-Pacific (35%). Over seven percent (7.4%) indicated that, while they do not have it at present, they would be keen to establish such access (figure 62).

Figure 62Do you have access to other family offices to communicate or collaborate with?

Yes, within ChinaYes, within Asia-PacificYes, outside Asia-PacificNo, not interestedNo, but we would like access



62%

54%

35%

10%

7.4%

Figure 63Would it be helpful to receive information on the structures and performance of other family offices locally, regionally or globally?

Yes, on family offices within Asia-Pacific

Yes, on family offices within China

Yes, on family offices outside Asia-Pacific

No



45%

69%

6.0%

9.0%

59

In terms of external service providers, the majority of families expressed that, in general, they are difficult to find. Some explained that this might have to do with the fact that there are large numbers of brokers in the market, but not firms that advise on the quality of brokers, or firms that advise on the best service providers for particular transactions. One said:

“Everyone is claiming that they can do this or that, but families do not have the time to conduct due diligence on each of them.”

Some explained that:

“In general, it is difficult to find integrated service providers – that is, ones that are able to provide the personalised services that family offices require.”

In fact, they explained that they see a great deal of growth in the Chinese single family office space, in part, because of the

Finding qualified external service providers is a challenge

Case study

absence of service providers who are able to differentiate between and satisfy family needs. They also reiterated their fears that external service providers will improperly use their information.

One factor to consider, however, is that the wealth creators are very self-reliant and hands-on – which, according to some interviewees, can render them hesitant to turn to others for help.

The interviewees suggested that, with the transition of wealth and power, there is likely to be a substantial shift:

“The second generation are usually educated abroad and fluent in English, and they often have some professional work experience. They are likely to have different expectations to their parents and have more experience with, and trust in, service providers.”

“In general, it is difficult to find integrated service providers – that is, ones that are able to provide the personalised services that family offices require.”

Chinese Family Office and Family Wealth Management Report, 2020 Service providers

60

Afterword: about family offices

7

61

What is a family office?

Essentially, a family office is a private office dedicated to managing the affairs of a family with considerable wealth. Thus, family offices are as varied as families and their affairs themselves are.

What are the types of family office?

There are four main types of family office:

1. Single family office (independent of the family business)

2. Single family office (embedded in the family business)

3. Private multi-family office (originated by a founding family and widened out to include multiple families. The offices are owned by families and operated for their benefit)

4. Commercial multi-family office (owned by commercial third-parties and look after multiple families)

To this list, virtual family office might be added. This is an office that typically has only one or two members of staff who arrange for the outsourcing of the vast majority of the services the family requires.

Who are family offices best suited for?

The decisions regarding whether your family should use family office services, and, if so, regarding what type of family office it should set up or join; where that family office should be based; how it should be structured; how many staff it should employ, and what it should do in-house and what it should outsource, should be shaped by the family’s particular characteristics, strengths, requirements, goals, and purposes. Thus, at the outset, these should be explicitly and clearly determined, and, periodically, reconsidered.

Factors to consider

Objectives and purposes

What will be the family office’s objectives? Common ones include to preserve wealth, to facilitate

intergenerational wealth transfer, to organise the education of the next generation, to encourage entrepreneurialism in the next generation, and to support family cohesion.

What is your family’s purpose? For example, if your family is aiming to preserve wealth, what is the end goal? Is it to provide an economic foundation for subsequent generations? To what extent does the family have a social mission?

According to some family office executives, family offices have been slow to adopt mission statements, and the challenges have included conveying the importance of mission statements to older members of the family and getting family members to agree on the terms of the statement. But, globally, the family office space is maturing. In 2018, two-thirds of family offices had some form of mission statement in place, whether that be written and fully documented (32%) or merely verbalised (31%).

Some families set up a single family office intending for it to evolve into a private multi-family office. There are numerous benefits, including bigger networks of contacts, greater assets under management, and cost and risk sharing. There are also many challenges, including the coordination between different families.

Net wealth

What is the family’s net wealth, and what will be the family office’s assets under management?

In general, families with wealth in excess of $150 million are in a strong position to consider whether they want to establish a single family office.

Certainly, families with less wealth might also benefit from establishing such an office, especially if they limit the objectives and the number and nature of the services provided – focusing on their strengths and carefully using external service providers. But, in general, such families might want to consider joining multi-family offices or establishing virtual family offices.

For reference, amongst the participants in the Global Family Office Report 2019, the average net

Afterword: about family offices

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wealth of families with single family offices stood at USD 1.3 billion, with USD 802 million (or 62%) being managed by the family office, while the average wealth of families using multi-family offices stood at USD 880 million. In the Asia-Pacific region, the average net wealth of families with single family offices stood at USD 908 million, with USD 600 million (66%) being managed by the family office.

Costs

Setting up and operating a single family office can be expensive. It includes initial costs related to infrastructure and hiring, and ongoing operating costs in the form of rents, wages, and fees. As detailed in the Global Family Office Report 2019, the average cost of running a single family office is 116 basis points of AUM, consisting of 67 basis points in operating costs and 49 basis points in investment manager administration and performance fees.

Families that are unable or unwilling to cover the full breadth of these costs might consider joining a multi-family office, where the costs are generally lower and more predictable, and exit is simpler. For reference, the average cost of running a multi-family office is 110 basis points – consisting of 64 basis points in operating costs and 46 basis points in investment manager administration and performance fees.

Questions which your family will need to consider include, who would be accountable for both the upfront and ongoing costs of running the family office? How would these costs be split between family members, who might reply on different services?

Complexity

In general, the more complex the family, the more likely it is that a single family office, with its multi-faceted offerings, will be the suitable fit. The relevant questions include: how many generations and how many family members are to be served; how geographically spread are those family members; how complicated are the family’s current investments and the management of its assets; how tailored does the family want services to be, and what weight does the family put on confidentiality.

Some family offices cater to single nuclear families, while others cater to a myriad of families across different generations and familial links.

As children become adults, they start their own families, come up with their own ideas for business enterprises, financial investments, and philanthropic causes, and it is not uncommon for tensions to arise regarding inheritance and succession.

In some offices, the principal asset is the family business; in others, the family’s wealth is divided across a wide range of assets, industries, and geographic regions.

If your family is new to the family office space, one way to ‘dip your toe’ in before committing fully to a single family office, is to join a multi-family office in order to learn from like-minded peers and better understand how a family office operates. Another way is to create a virtual family office.

Where, what, and how?

Location

In terms of where to locate a family office, families naturally need to take into account where they live and work, and also how geographically spread their family members are. Other important considerations include access to service providers and talent – and also access to investment opportunities, e.g., start-ups and entrepreneurs – and the location’s legal, regulatory, and tax environment.

Over time, some family offices open additional branches and expand their geographic reach. Amongst the participants in the Global Family Office Report 2018, 21% had two offices; 7.1% had three offices; 3.4% had four, and 2.2% had five. Amongst those in Asia-Pacific with secondary branches, 40% housed them in Asia-Pacific, 20% in North America, 20% in Europe, and 20% in Emerging Markets (South America, Africa, and the Middle East).

Structure

In terms of family office structure, it is a good idea to consult advisers, other families, and other family offices for advice.

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Many families have a family constitution or equivalent document, which, in addition to establishing the family office’s mission and scope, specifies family members’ roles and responsibilities and outlines conflict resolution mechanisms.

In terms of decision-making structures, in some family offices, important decisions are taken by one or two key members of the family. In other cases, there is a family board, which, of course, requires the family to decide who will serve as board members. Some families also have a family council, which is an advisory board consisting of representatives from different generations, branches, or geographies where applicable. Families must also decide whether boards/councils will consist entirely of family members or a combination of family and outside professionals. More generally, they must consider what types of professionals would be best placed to fulfil the family’s objectives (e.g., experts in banking and finance, law, tax, specialists in certain asset classes or in managing personal assets).

As detailed in the Global Family Office Report 2019, family offices are increasingly putting governance structures in place to further professionalise their operations: between 62% and 74% of family offices have different forms of investment guidelines and monitoring strategies in place, and 54% provide market monitoring and analysis services. Improving communication between the family members and family office is the number one governance priority for families over the next 12-24 months (66%), while risk management is the number one priority for family offices (64%).

Staff

Naturally, the number of staff working within a family office varies considerably – from one or two employees to 100 or more – depending on the number of family members and families served and on the type and number of services provided. Family office employees have to understand the family’s culture and purpose, and they have access to a great deal of private and sensitive information. In the recruitment process, due emphasis should be put on cultural fit, likely tenure, and, above all, trust.

Services

Family offices are often initially set up for investment and wealth management purposes. They might start off embedded within the family business, or they might be set up after the sale of a core operating business.

It should be noted that some family offices are highly specialised. For example, an office might manage capital for a single family and focus exclusively on venture capital investments. In that case, the office might better be described as a single LP fund / family fund.

Over time, many family offices evolve and grow to provide a range of administrative, family professional, and general advisory services.

Investment-related

activities

Family

professional services Administra

tive

services

Figure 64Example of family office services


Family Office

Services

Tax planning

Asset allocation

Traditional and alternative

investments

Bookkeeping

IT

Management of contracts Family

governance and succession

planning

Concierge services and

security

Family counselling

Financial planning

Legal services

Manager selection/oversight

Gen

eral

advisory

serv

ices

Chinese Family Office and Family Wealth Management Report, 2020 Afterword: about family offices

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In-house or outsourced?

Family offices usually depend on a combination of in-house and outsourced services. Outsourcing provides families with flexibility; it reduces their obligation to pay permanent staff wages, and it allows access to a wider pool of experienced professionals. It should also be noted that family offices are often small outfits: as detailed in the Global Family Office Report 2018, the average single family office employs 11 full-time staff and four part-time staff. Therefore, it is sometimes more pragmatic and cost effective to outsource certain services (e.g., IT, cyber security, tax, and legal work) to specialists, particularly for newly established family offices that are trying to find their feet.

Over time, however, if the level of work required is consistently high enough to merit bringing staff in house, this can be a fruitful option to allow family offices greater control over certain work streams and greater customisation, along with the ability to reduce third-party fees. In some cases, families view the family office as a platform for nurturing next generation talent and, in such cases, certain services might be brought in-house, even if they can be performed less expensively or likely to a higher quality by third-parties.

According to the Global Family Office Report 2019, family offices mostly outsource their legal services – with 63% entirely outsourcing this and 33% using a combination of in-house and external provision. Family offices also mostly outsource private banking services – also 63% entirely outsourcing, and 13% using a combination of in-house and outsourced provision. IT and global custody and integrated investment reporting are other popular services to outsource.

Excluding paying for office overheads and other office services, which are naturally an in-house expense, family offices are most likely to internally handle asset allocation (with 73% providing this service entirely in-house and 17% using a combination of in-house and external

provision) and internally provide support for new family business and other projects (79% and 15%, respectively).

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About Campden Wealth

Campden Wealth is a family-owned, global membership organisation providing education, research and networking opportunities to families of significant wealth, supporting their critical decisions, helping to achieve enduring success for their enterprises, family offices and preserving their family legacy.

The Campden Club is a private, qualified, invitation-only Members Club representing 1,400 multi-generational business owning families and family offices across 37 countries. The Club provides peer networking on a global scale, bespoke connectivity around aligned objectives, shared knowledge & best practices, co-investment opportunities with qualified liquid investors and support for the NXG. Campden Club Members also enjoy privileged access to generational education programmes held in collaboration with leading global universities.

Campden Research supplies market insight on key sector issues for its client community and their advisers and suppliers. Through in-depth studies and comprehensive methodologies, Campden Research provides unique proprietary data and analysis based on primary sources.

Campden Wealth owns the Institute for Private Investors (IPI), the pre-eminent membership network for private investors in the United States founded in 1991. In 2015 Campden further enhanced its international reach with the establishment of Campden Family Connect PVT. Ltd., a joint venture with the Patni family in Mumbai.

For more information: campdenwealth.com

Enquiries: [email protected]

T: +852 2682 0418

About FOTT

Family Office Think Tank (FOTT) is the leading professional consultancy for ultra-high net worth Chinese families and family offices. We help our clients establish and improve family office services by applying our insights, gained through primary research and industry best practices. FOTT also provides virtual platforms to facilitate family links to global service providers, and operates two official accounts on the WeChat platform, Huiyu Family Office Think Tank and Family Office Business Review.

FOTT was set up by Family Office, the only high-end finance and economics magazine in China, and other financial experts.

Our CEO, Xiaoman Fan, is a senior media worker in the Chinese financial and economics areas. She has over 20 years of experience and a large network of relationships. In 2001, she participated in establishing China Times; in 2006, set up China Money weekly newspaper; 2011, China Money magazine; 2016, China Money/Family Magazine AB print, and 2017, Family Office magazine. In 2016, she also founded Huiyu Family Office Think Tank.

What does FOTT do?

• Introduce the best family office and wealth management services globally to ultra-high net-worth Chinese families.

• Work with global institutions to develop financial strategies to meet the unique challenges of our clients under different market environments.

• Source and promote direct investment opportunities in the US, Europe and elsewhere for our clients.

• Organize and host business conventions and trips in the US, Europe, and elsewhere to provide bilateral, peer-to-peer, and targeted communications between our Chinese member clients and executives globally.

• Provide a membership-based information platform that helps in the sharing of insights and the best practices of family offices globally.

• Publish the annual “FOTT Family Office White Paper”, which integrates our primary research with other leading industry research.

• Help our member clients selectively expand their social networks in China and globally.

• Provide customized consulting service for our member clients.

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About AVIC

UBS provides financial advice and solutions to wealthy, institutional and corporate clients worldwide, as well as private clients in Switzerland. UBS’s strategy is centered on our leading global wealth management business and our premier universal bank in Switzerland, enhanced by Asset Management and the Investment Bank. The bank focuses on businesses that have a strong competitive position in their targeted markets, are capital efficient, and have an attractive long-term structural growth or profitability outlook.Headquartered in Zurich, Switzerland, UBS has offices in 50 regions and locations, including all major financial centers, and employs approximately 67,000 people. UBS Group AG is the holding company of the UBS Group. Under Swiss company law, UBS Group AG is organized as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.

Global Wealth Management

As the world’s largest wealth manager*, UBS Global Wealth Management provides comprehensive advice, solutions and services to wealthy families and individuals around the world. Clients who work with UBS benefit from a fully integrated set of wealth management capabilities and expertise, including wealth planning, investment management, capital markets, banking, lending and institutional and corporate financial advice.

AVIC Trust Co., Ltd. is a non-bank financial institution approved by The China Banking and Insurance Regulatory Commission. Since re-registering for business in December 2009, AVIC Trust has developed into a modern financial enterprise with management assets of nearly RMB 700 billion and net assets of more than RMB 10 billion, ranking at the forefront of the Chinese trust industry. The company provides diversified financial products and services, including investment banking, asset management and wealth management. By the end of July 2019, AVIC Trust has set up 32 business branches and 24 wealth management centers in 22 cities.

AVIC Trust’s controlling shareholder is AVIC Capital Co., Ltd., which is a Shanghai exchange listed company and controlled by China Aviation Industry Corporation Limited, a wholly-state-owned company. OCBC Bank is its second largest shareholder and strategic foreign investor.

AVIC Trust leads the industry in the areas of green trust and family trust, and has substantial experience in the fields of aviation, inclusive finance, and medicine & health. With the spirit of continuous innovation and the sense of responsibility

About UBS

Global Family Office Group

A joint venture between UBS’s Investment Bank and Wealth Management divisions, the Global Family Office Group focuses on servicing our most sophisticated clientele with institutional-like profiles and requirements. It offers holistic advisory services, direct access to UBS cross-divisional expertise across the globe, institutional business opportunities and an extensive peer network with dedicated teams in New York, London, Zurich, Geneva, Munich, Milan, Hong Kong and Singapore.

Ultra high net worth

Building on a deep understanding of our clients’ mind-set, motivations and core values, we create bespoke solutions which are bold, innovative and tailored precisely to their individual needs. The four dimensions of ultra high net worth – business, investments, family, and purpose – form the basis on which we open a dialogue and begin a partnership with our clients across generations for generations, so that great wealth endures.

*Scorpio Partnership’s “Global Private Banking Benchmark 2018” rank of global wealth managers by assets under management.

to promote the industry’s development, AVIC Trust serves as the chairman of the 4th General Assembly of China Trustee Association.

For several years, AVIC Trust’s main operating indicators have ranked in the top tier of the industry. The company was awarded the highest rating of ‘class A’ by the China Trustee Association and the ‘AAA’ credit rating by the largest Chinese rating company, for the last four years. AVIC Trust has also won numerous honorary titles, including “China Excellent Trust Company”, “Most Competitive Trust Company” and “Annual Best Wealth Management Trust Company”.

Adhering to the aviation culture, AVIC Trust actively advocates the concept of green development, commits to its customers, employees, partners and society, and is dedicated to becoming a highly trusted and widely respected financial service provider.

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This document has been prepared by Campden Wealth Limited and FOTT and is for personal use only. A number of sources were utilised to research and profile the characteristics of family offices. These were blended into a mosaic analytical framework from which Campden Wealth Limited conducted modelling and analysis. This information and data is part of Campden Wealth Limited and FOTT’s proprietary data and analytics structures and are non-commercial in nature and specifically non-attributable regarding the identity of any underlying family offices and individuals.

This document and the information contained herein are provided solely for information purposes to specific clients / prospects, and shall not be regarded as investment research. It does not constitute an offer, recommendation or a solicitation of an offer to buy or sell any security, investment instrument, product or other specific service, or recommendation or introduction of any specific investment instrument or financial services or to effect any transactions or to conclude any legal act of any kind whatsoever. Certain services and products are subject to legal restrictions and/or license or permission requirements and cannot therefore be offered worldwide on an unrestricted basis. No offer of any interest in any product will be made in any jurisdiction in which the offer, solicitation or sale is not permitted, or to any person to whom it is unlawful to make such offer, solicitation or sale. Information contained in this document has not been tailored to the specific investment objectives, personal and financial circumstances or particular needs of any recipient. Certain investments may not be suitable for all investors. UBS Group AG and its subsidiaries (hereinafter UBS) strongly recommend to all persons considering the information in this document to obtain appropriate independent investment, legal, tax and other professional advice. Neither UBS nor any of its employees provide tax or legal advice. Nothing in this document shall constitute investment, legal or tax advice.

Although all information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, no representation or warranty, express or implied, is made as to its accuracy, sufficiency, completeness or reliability, nor is it intended to be a complete statement or summary of the developments referred to in it. All information and opinions expressed in this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or divisions of UBS, FOTT or Campden Wealth Limited. UBS, FOTT and Campden Wealth Limited are under no obligation to update or keep current the information contained herein. Any charts and scenarios are for illustrative purposes only. Historical performance is no guarantee for and is not an indication of future performance. Some charts and/or performance figures may not be based on complete 12-month periods which may reduce their comparability and significance.

This document may not be redistributed or reproduced in whole or in part without the prior written permission of Campden Wealth Limited and UBS and no liability whatsoever for the actions of third parties in this respect is accepted. To the extent permitted by law, neither UBS, Campden Wealth Limited nor any of their directors, employees or agents accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this document or for any decision based on it.

© Campden Wealth Limited 2020. All rights reserved. Campden Wealth Limited refers to the Campden Wealth Limited network and/or one or more of its member firms, each of which is a separate legal entity.

© FOTT 2020. All rights reserved. FOTT refers to the Beijing Huiyu Consulting Co., Ltd/or one or more of its member firms, each of which is a separate legal entity.

© UBS 2020. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.

In addtion, Campden Wealth and FOTT note:

The contents of this publication are protected by copyright. All rights reserved. The contents of this publication, either in whole or in part, may not be reproduced, stored in a data retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without written permission of the publisher. Action will be taken against companies or individual persons who ignore this warning.

The information set forth herein has been obtained from sources which we believe to be reliable, but this is not guaranteed. This publication is provided with the understanding that the authors and publisher shall have no liability for any errors, inaccuracies or omissions therein and, by this publication, the authors and publisher are not engaged in rendering consulting advice or other professional advice to the recipient with regard to any specific matter. In the event that consulting or other expert assistance is required with regard to any specific matter, the services of qualified professionals should be sought.

First published in 2020 by Campden Wealth Limited and FOTT

Campden Wealth Limited30 Cannon Street London EC4M 6XH United KingdomTelephone: +44 (0) 20 3763 2800 / +852 2682 0418Email: [email protected]: campdenwealth.com

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About Our Firm and Our Services:

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In providing wealth management services to clients, UBSFSI offers both investment advisory services and brokerage services. Investment advisory services and brokerage services are separate and distinct, differ in material ways, and are governed by different laws and separate arrangements. It is important that clients understand the ways in which UBSFSI conducts business and that they carefully read the agreements and disclosures that provided to them about the products or services UBSFSI offers.

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General Investment Risks of the Asset Classes and Investment

Types Noted in this Reports:

This report is not a solicitation or offer to purchase or sell any security. All investments involve the risk of loss. Past performance is no guarantee of future results. Neither diversification nor asset allocation assures a profit nor protects against loss in declining markets. The value of a portfolio may fluctuate based on the value of the underlying holdings.

Equity securities fluctuate in value in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. Fixed income investments will be affected by changes in the interest rate environment (interest rate risk), as well as the credit of the issuer (credit risk). Real estate investments are affected by numerous factors, including liquidity risk, credit risk, interest rate fluctuations, and the impact of varied economic conditions.

Exchange Traded Funds are sold by prospectus, which contains important information clients should read carefully before investing. For more complete information about an Exchange Traded Fund, including the investment objectives, charges, expenses and risk factors, clients should contact their Financial Advisor for a free prospectus.

Alternative Investments (“AI”), including hedge funds, private equity, and real estate funds, are sold only to qualified investors, and only by means of a Confidential Offering Memorandum or Prospectus that includes information about risks, performance, and expenses, and which clients should read carefully before subscribing and retain. AI are long-term, speculative, involve significant risk, illiquid, and subject to transfer restrictions. AI may not be required to provide investors periodic pricing, tax, or valuation information, and are subject to high fees, including management and other fees and expenses, which reduce profits. AI performance may be volatile, and investors may lose all or a substantial amount of their investment. AI may engage in leveraging and other speculative investment practices that may increase the risk of loss. AI are not deposits or obligations of, or guaranteed or endorsed by, any bank or other depository institution, and are not federally insured by the FDIC, Federal Reserve Board, or other governmental agency.

An investment in commodities may not be suitable for all investors. Commodities may be affected by overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, and international economic and political developments, as well as the trading activity of speculators and arbitrageurs in the underlying commodities.

Investing in emerging market securities may pose different risks than investing in the securities of the U.S. or developed markets. These risks include: political instability; exposure to economic structures that are generally less diverse and mature and to political systems which may be less stable than those of more developed countries; smaller market capitalization of securities markets, which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; and possible repatriation of investment income and capital.

UBS Financial Services Inc. is not affiliated with Campden Wealth Limited, Family Office Think Tank or AVIC Trust Co.

Disclosure

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This material (and all related attachments) contained herein are for reference only and are not an offer, a solicitation of an offer, suggestion or recommendation for any securities or other financial instruments. This material is based on information that we consider reliable, but AVIC Trust does not represent its accuracy or completeness. Past performance is not indicative of future returns. No representation or warranty is made that any returns indicated will be achieved. The opinions or estimates herein are subject to change and may be amended without any notification. AVIC Trust may provide financial services to the companies, or have positions in securities or financial instruments of companies mentioned in this document. Relevant information is available on request. At different periods, AVIC Trust may release research reports which are inconsistent with the opinions, speculations and forecasts contained herein. Such reports reflect the different assumptions, views and analytical methods of the persons who prepared them, and AVIC Trust is under no obligation to ensure that such other commentary or reports are brought to the attention of any recipient of this material.

The terms described in this material (and all related attachments) are indicative terms only for discussion and are subject to AVIC Trust legal and compliance opinions and reviews.

The simulation results provided in this material are for illustrative and informational purposes only and are based on assumptions and parameters that reflect our judgments. These assumptions and parameters are not the only ones that can be reasonably selected or linked to the preparation of this sensitivity analysis. Different assumptions, parameters, market conditions, and other factors may result in different transaction estimates. AVIC Trust makes no representations or warranties to the applicability of the simulation results in the future. Although this sensitivity analysis is based on information or data that we consider reliable, no representation or warranty is made to its accuracy and completeness. This information is not intended to provide all the information you may need. In any case, you should conduct your own investigation and analysis of the transactions mentioned in this material and the data involved in them. Anyone who receives this material should make independent judgments on the transactions described in the materials and consult their own professional advisers.

AVIC Trust does not provide any legal, accounting or tax advice. No one shall use or intent to use any statement in this material to violate the local laws, accounting standards, and tax regulations. Statements in the material are written for marketing purpose only. Investors should make their own independent evaluation of the information contained in this material, consider their own individual investment objectives, financial situation and particular needs.

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