Upcoming Investment Trends for Single Family Offices

Written by Claudia Ting

Recent times have entailed multiple changes that Family Offices in Asia Pacific will have to face and adapt to in order to continue thriving. The recent Covid-19 pandemic has accelerated the shifts in investment focuses of the rising millennial generation, heightened focus on sustainable investing and technology, as well as a focus on philanthropic and social responsibility. The family office space evolves so rapidly that new trends evolve before “older” trends even pass but here are 3 significant trends set to shape Asia’s family offices for the coming decade.

Sustainable Investing

As the next generation of heirs come of age, investment focuses for family offices have seen a major shift towards ESG-focused investments. Being raised in the age of moral capitalism, the upcoming generation of family business leaders are increasingly aware of sustainability in business operations and the world and have more personal engagement in ESG issues. According to a survey from Hubbis, an increasing number of next-gens are Western-educated, have global professional work experiences and are interested in setting new benchmarks in Asia. Undoubtedly, this generation of business leaders would have different takes in comparison to their parents regarding investing, a stronger preference for entrepreneurship, private equity and venture capital, particularly in the technology and startup space.

The Global Sustainable Investment Alliance 2019 records that over $31 trillion assets worldwide are being invested in environmental, social and governance (ESG) businesses, an increase of 34% from 2016. A study shows that 39% of family offices intend to allocate majority of their portfolio sustainably in the next five years, and 62% of families look upon sustainable investing as crucial for their legacies and their successors.

The UBS Global Family Office Report 2020 states that 73% of all family offices have some assets invested in sustainable sectors. An increasing number of family offices are investing in private trust companies, private or family funds, and new company’s structures that have recently become available in Asia this year, such as Singapore’s variable capital company (VCC), a corporate entity that allows for onshore funds to be easily set up in Singapore and Hong Kong’s newly introduced limited partnership which took effect in August 2020. These newly introduced structures are well in line with ESG objectives and act as important vehicles in providing families and family offices with the required stewardship, professionalism and oversight to manage their wealth, while inviting more involvement and participation.

Philanthropy and Social Responsibility

There is a heightened focus on philanthropy and social responsibility placed by Asian families. This is accelerated by the fact that the next-gen successors of family offices are increasingly sensitive to social and environmental impact in comparison to their predecessors. With the increasing influence that they have over investment decisions of family offices, philanthropic activities are gaining traction as part of family office business activities.

A large number of family offices engage in philanthropy for a number of reasons, including educating their next-gen in creating an enduring legacy. Philanthropy allows these next-gen family members to be taught well and prepare for the responsibility of wealth. Aside from that, philanthropic activities are often given tax exemptions that may prove advantageous in financial management. Lastly, there is an increasing belief, especially fueled by the younger generation, in fulfilling responsibility to accelerate social change. Based on a survey by UBS, 65% of family offices globally believe that they should play a role in reducing economic inequality. This sense of responsibility is a great motivator for philanthropic engagement.

Family offices may choose to set up a philanthropy function as a part of their existing structure, which can increase donor involvement in these activities. A philanthropy function can also lower entry barriers as there is no necessity to set up a standalone infrastructure dedicated to philanthropic activities.

Increased Focus on Technology and Risk Management

The Covid-19 pandemic has led to an enhanced focus on technology and risk management. With the increase in remote work arrangements and mobile technologies, inevitably brings about an increase in cyber risks. Statistics show that an increasing number of family offices are falling victims to targeted data breaches. Based on a study from Campden Wealth and Schillings, this trend is predicted to surge over the next decade.

As a result, a heightened focus of investment in network and security is prevailing. More family offices are also beginning to embrace technology and the benefits of going virtual. This does not just apply to communication, but also to trade execution, data storage and report generation. Notable advancements in communication and connectivity and prevailing technologies like artificial intelligence, blockchain, nanotechnology and quantum computing will result in completely new methods of business operations and management. From investing in new technologies and systems to recognising new digital platforms that highlight important wealth generation opportunities, family offices will play a key role in digital transformation.

The pandemic has also led to an increase in outsourcing the middle and back office functions of family offices, due to the understanding that maintaining these operations in-house also means owning the risk. Consequently, family offices would prefer pushing this out to external parties.

At Credence, we understand the ever-evolving needs of family offices and we provide services that will help you set up and manage your family office. Please feel free to contact us at ops@the-credence.com today.

Disclaimer:
The information provided herein is for informational purposes only and should not be construed as professional or legal advice. While Credence Consulting Pte. Ltd. (Credence) believes that its sources are reliable, we make no representation or warranty as to the accuracy of the contents. You should contact your legal counsel to obtain advice with respect to any particular matter raised. The opinions expressed here or through our website are the opinions of the individual author only and are not legally binding, and may not reflect the opinions of Credence or any individual partner or director.

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