Asia–Pacific’s family office boom: Opportunity knocks

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Asia–Pacific’s family office boom: Opportunity knocks

By Bernhard Kotanko et al., | McKinsey & Company | September 9, 2024

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According to McKinsey analysis, between 2023 and 2030, ultra-high-net-worth (UHNW) and high-net-worth (HNW) families in the Asia–Pacific region are set to experience an intergenerational wealth transfer estimated at $5.8 trillion. UHNW families are expected to account for about 60 percent of the total wealth transfer, and many are setting up family offices to facilitate the process. Accordingly, the number of single-family offices in Hong Kong and Singapore, the hubs for such entities in Asia–Pacific, has quadrupled since 2020 to about 4,000 across both jurisdictions.

The growth trend presents a substantial opportunity for banks, insurers, multi-family offices (MFOs), asset managers, and WealthTechs (technology-enabled wealth fintechs that offer low-cost, personalized, automated advice), all of which can offer differentiated services to new and established family offices.

When thinking about the Asia–Pacific region’s family offices, two key jurisdictions play an outsize role. Although they are relatively small in population, Hong Kong and Singapore punch far above their economic weight as financial hubs, and that distinction extends to family offices. According to McKinsey analysis, the two cities together are home to approximately 15 percent of the world’s single-family offices, with authorities there having made it a point to attract more of them—including by providing tax benefits and clear regulations. Other attractive attributes of these two jurisdictions include mature financial ecosystems with access to traditional and nontraditional investment avenues, paths to residency for investors who meet certain criteria, and access to talent. In 2023, Hong Kong and Singapore each managed roughly $1.3 trillion in offshore assets—trailing only Switzerland’s $2.5 trillion total—affirming their importance in the global financial ecosystem.

Wealth flowing into Hong Kong and Singapore is primarily coming from within the Asia–Pacific region (led by mainland China, India, and Indonesia, followed by other countries in Southeast Asia). However, it is expected that increased wealth flows from Europe and North America as many global investors see Asia–Pacific as a third safe haven (in addition to Europe and North America) for portfolio diversification. This will affect service providers’ operating models and geographical presence as they serve family offices across multiple jurisdictions.

The region’s single-family offices fall into four main archetypes, all of which have different needs and preferences They are the following:  visionary entrepreneur family offices, traditional business owner family offices, embedded family offices, and professionalized family offices.

Interviews with representatives of family offices revealed five common challenges: weak governance, rising operational costs, limited access to bespoke alternative solutions for portfolio diversification, limited understanding of insurance products and adjacent value-added services, and out-of-date technology.

Five broad types of providers have emerged to cater to the varying needs of family offices and of wealthy families that choose not to set up their own family offices. While banks dominate the landscape, new provider types are entering the family office space, including insurers, MFOs, and WealthTechs.

With these building blocks and the key enablers detailed above, service providers can create a solid strategy for achieving success with family office clients. Here are four key questions that service providers can use to jump-start their discussions of how to best serve Asia–Pacific’s family offices: Scalability. How can we adopt a pricing model that aligns with the performance goals of family offices while ensuring mutual benefits?  Solutions. How can we tap our existing partnerships to offer a broader range of bespoke investment opportunities to family offices?  Service. How can we utilize data and AI to gain deeper insights into the investment behaviors and needs of family offices?  Security. What measures can we put in place to ensure the highest level of data security and privacy for our family office clients?

3 key takeaways from the article

1. According to McKinsey analysis, between 2023 and 2030, ultra-high-net-worth and high-net-worth families in the Asia–Pacific region are set to experience an intergenerational wealth transfer estimated at $5.8 trillion. When thinking about the Asia–Pacific region’s family offices, two key jurisdictions play an outsize role: Hong Kong and Singapore.  The hubs for such entities in Asia–Pacific, has quadrupled since 2020 to about 4,000 across both jurisdictions.
2. Five common challenges these family businesses face are: weak governance, rising operational costs, limited access to bespoke alternative solutions for portfolio diversification, limited understanding of insurance products and adjacent value-added services, and out-of-date technology. 
3. The growth trend presents a substantial opportunity for banks, insurers, multi-family offices, asset managers, and WealthTechs (technology-enabled wealth fintechs that offer low-cost, personalized, automated advice), all of which can offer differentiated services to new and established family offices.  Four key questions that service providers can use to jump-start their discussions of how to best serve Asia–Pacific’s family offices are related to scalability. service, security and solutions.

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Topics:  Family-businesses, Wealth, Succession Planning, South Pacific, Singapore, Hong Kong