In Asia, many businesses are family-owned, but the "advising" industry seems to be in its infancy. One such field that is gaining ground is family offices. While no one format has come to the forefront, the model is becoming more widespread, and families, bankers and investment advisors are understanding the need and usefulness of the concept. Families in Business spoke with Chew-Mee Kirtland, managing director of Mornington Services, a multi-family office based in Singapore, about the trends in Asian family offices
Families in Business (FIB): What are some of the unique features of Asian family businesses that you are able to address/help?
Chew-Mee Kirtland (C-MK): Control is probably a key issue for most family business owners in Asia. Most businesses here do not have the life-span that characterises family-owned businesses in Europe or the US. More often than not, the founder is still alive and is the patriarch or figurehead of the family as well.
Management of the businesses tends to be held by the patriarch and, where there are grown children (usually male), management responsibilities are shared with their offspring. It is not uncommon for the patriarch to keep the succession of the top job (chairman or CEO) vague, and there is often some guesswork among the next generation as to who will control (ownership) and/or manage the business.
Mornington, as a family office focusing on private wealth management, generally does not participate in the management of operating businesses. However, given our track record of giving sound advice on portfolio management, we have been recruited for advice on issues at the holding company level for the family business(es).
FIB: Are there certain types or sectors of Asian businesses that seem more keen to use family offices than others?
C-MK: I don't think the sector a family business is in serves as a predictor for the family's appreciation of a family office. Families with businesses that have technical or operating complexities or risks appreciate the separation of the management of private wealth/assets from that of business wealth/assets.
Also, businesses that have a global reach tend to persuade the owners that having good strategic asset allocation is imperative to managing their private assets. These owners have a keener appreciation for complexities in the markets.
In countries where there may be a tendency for government officials to meddle, owners of family-controlled businesses may seek offshore managers or private bankers to oversee the management of their private wealth.
FIB: What are some of the challenges you encounter with Asian family businesses?
C-MK: There are certain issues that prevent business owners from setting up a separate office for managing private wealth:
- Difficulty in finding someone they can trust to take care of the assets. Trust is an issue because there is real fear that the value of the assets will be dissipated through either incompetence or fraud. While the business owners understand the issues in managing risks in their businesses, they tend to be quite perplexed by investment management and tend to worry that the minders (including family members) of their private wealth may not understand (like themselves) the risks in the capital and financial markets. That is why most members of first-generation wealth prefer to keep their private financial assets with a bank or investment firm that has a recognisable name, so that if something went wrong they may have recourse to compensation for losses.
- In cases where a business owner has given some responsibility to someone to manage his private funds, it's usually a longstanding, trusted employee – for example, an accountant who has worked in the family's business. Unfortunately, such a person, normally, does not have the qualifications or experience to manage investments and usually ends up rolling over deposits. The owner understands how deposits work and is generally satisfied with the capital preservation and is not too vexed about protection of purchasing power or long-term/growth returns.
- The need for confidentiality is also a bugbear for most Asian business owners when it comes to the management of their private wealth. This need may even extend to family members as it is often deemed inadvisable to let any child or heir know the full extent of the family's wealth.
FIB: How do you convince Asian family businesses that a family office can help them?
C-MK: It is important to demonstrate the value that can be added to the management for growth of a family's private wealth. As owners have different biases and experience, there are no common "selling points".
However, as a family's business interests or even their family structure becomes more complex with the addition of successive generations, a key member of the second generation is, normally, the best-placed person for making a case for the setting up of a family office to oversee the management of the family's wealth as a separate activity from running the operating business(es).
Costs and expenses are also a key concern. However, this concern can be allayed through a presentation of the long-term benefits, particularly those not easily quantifiable but that appeal to specific concerns such as the merry-go-round of job-hopping by private bankers and investment professionals in Asian financial centres. A family office provides consistency in the investment process regardless of who the relationship manager is at the bank or investment firm.
FIB: Do you think the Asian family office sector is growing?
C-MK: Yes. There is empirical evidence that more family offices are being set up. However, it should be noted that there are various business models for these offices and we should not presume they are all set up in a similar fashion or for assumed purposes.
Seven years ago, when we set up Mornington, even some private bankers did not know what a family office was, and today they are some of the best advertisers for family offices. The more savvy bankers and investment advisors realise that there are real benefits for them in dealing with a family office rather than with owners individually.
FIB: What does the future hold for Asian family offices and Asian family businesses?
C-MK: Asia is seeing unprecedented economic growth, and families remain in the forefront of that growth through the businesses they control. I have seen predictions that China and India may be economic "superpowers" in the not-too-distant future. While there is much hyperbole about the resurgent growth of these two countries, I do believe the 21st century will witness some significant strides made in Asia economically. The only danger to family businesses will be how much governments will want to engage as owners in businesses. China and Singapore are two examples where the government or their agencies compete actively with private individuals in the business arena.
As family fortunes pass on to a better-educated and more globally-sophisticated generation, we may see more separation of business control and management (we may start to see the professionalisation of the management of businesses) and the resulting separation of private wealth management and business management.
Also, as a family expands there are usually more family members (with good educational qualifications and business experience) who can be entrusted with the management of the family's wealth. A family office will afford these heirs with the required structure and process on which to build their own credibility as owner-managers of wealth.