The average assets under management of family offices interviewed in a study by the Financial Services Development Council and the Global Family Business Research Center at Tsinghua University PBC School of Finance increased threefold last year to Rmb29.7bn ($4.4bn) compared with 2018.
The two entities carried out the research, entitled “China Family Office Report 2022”, by interviewing 30 family offices (FOs) in China, including 14 single family offices (SFOs) and 16 multi-family offices (MFOs).
The average AUM for a SFO was RMB24.9bn compared with Rmb35bn for a MFO.
“On the one hand, we found that the national wealth of China has achieved substantial growth during such period; on the other hand, the credibility necessary for the development of FOs has been increasing over time and specific family clients have invested more wealth to be managed by FOs,” the report said.
As FOs in China become more institutionalised, specialised and professional, the report believes that family clients will gradually increase the amount they invest with them.
The operating cost of 65% of the FOs surveyed accounted for less than 0.5% of AUM, which is significantly lower than the international average of 1%.
Sources of Chinese FOs
The study also showed that there were three major types of wealthy families setting up FOs.
The first type are technology entrepreneurs, such as those involved in the internet, hard technology, new energy and biopharmaceutical industries.
The major motivation for them to set up FOs is to manage financial assets that have arisen from stock sales or equity pledges and their wealth principally consists of listed company stocks and equity in unlisted companies.
Due to the high-risk, high-growth and high-return nature of the industry, these FOs usually focus more on asset diversification.
The second type of wealthy families that set up FOs are traditional entrepreneurs and families that are from manufacturing, real estate and consumption industries.
The research found these FOs prefer strategic investment projects with long investment periods, high return potential and low liquidity.
As most of these families’ companies are established, they also require more specialised FOs to meet their complex wealth management and inheritance needs.
The third type of families are those that chose to sell the controlling equity in their companies as they did not find a successor to their business.
“Since such families only hold financial assets, the FO pays more attention to wealth security and asset preservation and emphasises sound asset allocation and a complete risk control system to achieve risk-adjusted investment returns,” the report said.
Chinese FOs development challenges
As the industry is still in its early stage of development, the report also identified talent and supervision as the two major challenges for the future.
Nearly half of the interviewed FOs indicated that there was a lack of available talent in the industry, especially senior staff who are committed for the long-term with solid experience and who are trustworthy.
Another challenge faced by the FO industry is the lack of a proper regulatory system.
The study noted that some institutions that claim to be FOs are in fact not operating as normal FO businesses. As a result, their behaviour has damaged the industry’s image.
