Asia’s Wealthiest Avoid Banks, Opt For Family Offices

Jakarta Globe, Netty Ismail, September 26, 2011

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Singapore. Stephen Diggle, co-founder of a hedge fund that made $2.7 billion for investors in 2007 and 2008, set up a family office in Singapore to manage the millions in fees he earned instead of entrusting his wealth to private bankers.

“It was fairly demonstrably clear that there was a very significant problem of alignment of interests by private banks and their customers,” said the 47-year-old founder of Vulpes Investment Management, whose Singapore-based family office has invested in hotels in Japan and farms in Uruguay. “They ceased to be custodians of people’s money and they became salesmen.”

Asia’s wealthiest investors, whose ranks are swelling as the region’s economic growth outperforms the rest of the world, are turning to family offices to maintain control of their money after the collapse of Lehman Brothers Holdings in 2008 made them more risk averse.

“Private banks try to sell you everything and not necessarily what’s best for your family office or for yourself,” said Clinton Ang, managing director of Singapore- based wine and spirits distributor Hock Tong Bee, who also prefers to manage his family’s wealth himself. “If sophisticated investors haven’t already learned the lessons of the past crisis, with the impending crisis that is on the horizon, they’d better.”

The MSCI World Index has tumbled 17 percent from this year’s high in May and is trading close to a one-year low after Standard & Poor’s stripped the United States of its AAA credit rating and Europe’s debt crisis deepened.

About 90 percent of Ang’s investable assets are in cash after he sold from October through March its investments in stocks, bonds and most property assets, said the 38-year-old, who describes himself a follower of Templeton Asset Management’s Mark Mobius.

Family offices are typically tailored to the families’ personal needs, and often include estate planning, philanthropy and lifestyle management such as maintaining homes and yachts. Private wealth managers at global investment banks rely on fees and commissions from managing their clients’ money.

Most family offices in Asia are more defensive in their investment strategy and tend to hire a “generalist” to manage their wealth, rather than specialists such as former hedge fund managers, said William Chan, chief executive officer of Singapore-based Stamford Privee, which manages his family’s wealth and that of two others. Such managers may cost between $300,000 and $400,000 a year, while specialists would be more expensive, Chan said.

Wealthy families tend to choose investment professionals they had previous dealings with, such as a private banker, as their office manager, said Chan. Others may select an ex-investment banker who advised them on transactions such as an initial public offering of their company.

“Being the trusted adviser is key,” Chan said.

Wealth in Asia, excluding Japan, is expected to rise at about double the global rate of almost 6 percent through the next five years, the Boston Consulting Group said in a May report. Singapore will be the world’s top wealth management center by 2013, overtaking Switzerland and London, a PricewaterhouseCoopers study published in June shows.

Asia is also attracting overseas family offices. “Anecdotally, we are seeing more European family offices inquire about setting up their Asian headquarters to participate in the Asian growth,” said Amy Lo, head of ultra-high net worth in Asia-Pacific at UBS AG’s wealth management business.

About 62 percent of US-based family offices surveyed this year said they were considering increasing allocations to Asian markets outside Japan, according to Family Office Exchange.

Some family offices cater to more than one family to gain economies of scale. It costs at least $1.5 million a year to run a family office that includes an investment team, and a family will need a minimum of $100 million to justify the expenses, said Chan of Stamford Privee.

Blue Ocean Capital Partners, a unit of Singapore-based private-equity firm Tembusu Partners, plans to set up an office with a UK-based family firm this year, said director Daniel Lin.

Lin, 28, said he and his 54-year-old father, who founded Tembusu Partners, will start by managing their family wealth with a chief executive officer. At least two other families have agreed to partner with them later, he said.

“For private banks, because they have certain targets, they need to find something that will give them a financial return pretty quickly,” Lin said. “For us, we’re not in a hurry to make money out of this; we have time to build on the intangibles such as family values and governance.”

Bloomberg

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