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Asia Pacific Family Offices evolve to embrace new opportunities

Increased sophistication and higher expectations mean Family Offices should
consider outsourcing services providers.

Family offices have been present in Asia for decades, helping high-net-worth families manage their assets more effectively. As private wealth management firms, family offices can address the needs of a single family (single family office) or a group of (related) families (multi-family offices). They can offer a broad range of financial and investment services, including asset management, estate planning, tax planning, philanthropy, and family governance.

While Asian family offices have traditionally been discrete, mostly family-run businesses, this has changed in recent years. Such firms are becoming increasingly sophisticated to address the evolving expectations of their families, particularly as the baton passes to successive generations as part of an unprecedented transfer of wealth.

Several factors are driving this evolution. Many countries in Asia have experienced rapid economic expansion and rising income, with wealth managers in the region expected to nearly double AUM between 2021 and 2025. Family offices are benefiting from this boom and the corresponding demand for greater specialization and sophistication. They want to leverage increasingly complex investment strategies and financial technologies while expanding their service offerings to include a broader range of financial and non-financial services.

Meanwhile, the financial landscape in the region has also become more complicated and dynamic, as financial markets become more sophisticated and interconnected. This has resulted in the need for family offices to manage a wider range of assets and liabilities while navigating a more complex regulatory environment when investing across jurisdictions.

To meet these challenges, many family offices have focused on institutionalizing, from investing in infrastructure and capabilities to developing increasingly advanced risk management systems and hiring more specialized and experienced staff. This has enabled firms to provide a higher level of service to their families and better manage the risks and opportunities associated with their investments.

All this change also implies challenges and risks. A major challenge has been the volatility and opaqueness of financial markets in the region, which has led to uncertainty and risk. Another key risk has been the potential for fraud and misconduct as family offices move away from direct family control, which has led to increased regulatory scrutiny and the need for strong risk management practices.

Why do outsourcing services make sense for Family Offices in Asia Pacific? Three key reasons: cost, expertise, and focus

Increasingly, leadership teams at family offices in Asia are turning to service providers as a way of outsourcing non-core operational processes. These include outsourced services vendors who specialize in helping their clients in one or more key areas where the vendor has the advantage of expertise, size, sophistication, technology, or a combination of these. Such providers have often focused on hedge funds and private equity firms, giving them institutional framework advantages when servicing the increasingly sophisticated needs of family offices in Asia.

There are several good reasons for family offices to consider outsourcing some functions. The first is cost savings. Outsourcing reduces in-house staffing costs while providing cost certainty and mitigating against key person risk. Firms can also save money by avoiding the need to invest in specialized technology systems and infrastructure, which typically incur high upfront implementation costs and require sizeable operational and maintenance budgets. Outsourcing can unlock these resources to support other business areas, such as investment research, or simply increase the family’s bottom line.

Access to specialized expertise is another reason for family offices to explore outsourcing. Experienced providers such as Linedata offer access to a robust system of people, processes, and technology. This in turn, opens the door to a broader range of investment strategies and asset classes, as well as economies of scale in terms of operations and technology, all of which can improve efficiency and performance.

A third reason for family offices to utilize outsourcing is the ability to focus on core competencies. By outsourcing non-core activities such as middle office, risk management, compliance, and even trading, family offices can free up time and resources to focus on core competencies, such as investment decision-making and portfolio management. This can help drive better business performance and generate stronger returns for the family.

Explore our front, middle, and back office outsourcing solutions for
Asia Pacific Asset Managers.

 

The importance of choosing a trustworthy outsourcing services provider for your Family Office

There are of course some potential challenges and risks around outsourcing. One key risk is the potential for mistakes or errors by the external partners. To mitigate this risk, it is important to carefully vet potential service providers to ensure they understand your unique requirements.

Data protection and security is another key challenge. As many financial statements have the family’s name on them, it can be difficult to ensure discretion and privacy. It is important to build a strong, trust-based relationship with your service provider, based in part on their ability to demonstrate secure, reliable procedures and technology that guarantee your privacy.

Finally, unlike other asset management firms where the outsourced service provider works alongside other institutional service providers, most family offices in the Asia region do not have an institutional setup. This means outsourced services providers need to have an institutional framework in place and the ability to meet deliverables on their own without a second opinion such as that provided by a fund administrator.

Overall, the growth and increasing sophistication of family offices in the Asia Pacific region is leading to a shift in their requirements and the need to consider outsourcing. At Linedata, we have the people, processes, and technology to address your requirements, and we would welcome a conversation to discuss how we can help you achieve your objectives and vision.

About the author, Matthew Jarvis

Matthew Jarvis manages the sales and marketing function for Linedata Global Services in Hong Kong. He has a solid understanding and extensive relationships throughout the hedge fund industry in Asia-Pacific, working with hedge funds, hedge fund investors, and other hedge fund service providers.

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