William Chow recalls his schooldays in the UK in the 1990s as he plots the investment strategy of Raffles Family Office from the 23rd floor of The Center, one of Hong Kong’s signature skyscrapers.
The deputy group chief executive of the company, which handles the wealth of some of Asia’s richest families, befriended Frank Lampard, the former Chelsea and England international footballer, at Brentwood School in Essex.
“Frank would always take a look at how I did my maths homework,” Chow remembers fondly. “He was an astute fellow, making the calculation that as the only Chinese boy in the class, I would probably be the best mathematician. Of course, Frank was right,” he adds with a smile.
Many Asian families are making a similar calculation and backing family offices to oversee their investments, with Singapore and Hong Kong competing to attract the biggest clients and best managers. While Singapore now boasts 1,100 family offices, Hong Kong’s number has surged to more than 2,700.
Families, including some of Hong Kong’s most well-known, are also clubbing together to increase their investment clout under a multi-family office umbrella.
“The [typical] Asian family normally started off with manufacturing,” says the bespectacled Chow. But now, as many families are passing their wealth on to a fourth generation, there is “a substantive real estate or digital element to manage”.
These changes require a different operating model, he adds, with family offices looking more closely at geopolitical risk and how they manage information flows.
“Information is still king, but the data we analyse today is very different to what we are used to. We typically have a panel discussion with macro fund managers, but we have to bear in mind the world is a very different animal today in terms of geopolitics.”
For example, the impact of US sanctions means family offices are seeking to avoid “sensitive” investment sectors related to strategic technologies, including Chinese artificial intelligence. “We do believe China will see long-term growth and development. It’s just that in the short term, you need to adjust your portfolio accordingly.”
Chinese families, previously keen on local and regional investments, have also been diversifying portfolios away from Chinese tech giants Alibaba and Tencent, seeking a broader investment mix. Most local families, he adds, are looking for opportunities in south-east Asia as well as US tech.
The proliferation of family offices in Asia, however, is leading to recruitment issues, according to Christine Houston, founder of Hong Kong-based headhunters ESGI, who fears “dumbing down” of some local investment operations.
“Typically, they want an expert who has worked for a private bank or leading wealth manager to run it for them,” says Houston. “But even the effective family offices — those that have an investment team, led by a chief investment officer to determine the appropriate asset allocation — do not want to pay the going rate for experienced staff.”
Still, despite these concerns and worries about tensions between the US and China, Hong Kong remains a favoured base for family offices.
The wealth management sector, buoyed by the expansion of family offices, has remained surprisingly vibrant, says Zhiwu Chen, professor of finance at Hong Kong University Business School.
“During the past two years, many billionaires have moved their family offices to Hong Kong, so they can manage their investments globally.”
For most families, he adds, “the sense of security” of their assets remains higher in Hong Kong than the Chinese mainland.
They do not want to have their wealth “tied to the mainland economy”, Chen continues. “Many of them [families] don’t really have much confidence about the future of the Chinese economy. So they have been happy to buy real estate properties in the US, the UK, in Germany, Australia of course, Singapore in some cases and then maybe Japan, in addition to listed stocks.”
Singapore also remains an attractive destination for wealthy families because of its favourable tax regime, although a money-laundering scandal in recent months has prompted banks to step up scrutiny of customers from a range of countries including China.
Yet, like Hong Kong, the city-state’s wealth industry is still thriving as rich families increasingly invest more of their money in financial assets as opposed to tangible assets such as property and companies.
“After some years of educational efforts by people like me, in China, their acceptance level of ETF [exchange traded funds] products is much higher now. So, they now know that ETF products serve as very good proxy,” says Chen.
These families, however, are aware that sentiment has a habit of switching direction unexpectedly in Asia.
“We can see sentiment change extremely quickly and people don’t want to miss out on a potential re-rating opportunity. We’ve seen that several times during the last 15 years when momentum returns to the China market,” says Roger Bacon at Citi Wealth in Hong Kong.
“The question is: what might be the catalyst for that changing story? Things can move very quickly and significantly here and our Chinese clients are very conscious of that.”
This means rather than markedly reducing allocations, the bank’s Chinese client base is awaiting developments patiently. “They are certainly not dumping [Chinese stock] or reducing it in the way that some of the family offices in the US and Europe are doing,” says Bacon.
Chinese families — just like European footballers — appear to be playing the long game.
