The Asian family office space is set for explosive growth within the next decade, with numbers to grow at least 100 per cent, predicts the newly-instated head of key clients at LGT Group in Hong Kong.

The looming wave of wealth about to transfer from Asia’s first generation entrepreneurs to their offspring will result in a mushrooming of the sector, forecasts Vicky Wong, head of key clients solutions and executive board member at the Liechtenstein-based wealth manager’s Asian business, in an exclusive interview with sister publication WealthBriefingAsia.

Wong joined LGT in July after a ten-year stint at Goldman Sachs Asia, where she was an executive director and the head of its strategic wealth advisory team. Based in Hong Kong, she was responsible for advising private clients of Goldman Sachs on the areas of cross-border tax planning, pre-IPO structuring, succession planning and philanthropy.

She has also worked as an attorney in Hong Kong and Los Angeles, focused on US and international tax, succession, corporate and charitable planning for ultra high net worth Asian and American families.

Cultural divide

Wong says working in the US and in Asia has been invaluable in her broad spectrum of experience. Although wealthy families in the West and East have similarities, there are significant differences, she said. Knowledge of these differences could make or break foreign entrants to the market.

“By and large many parts of Asia are still a patriarchal society. Males in the family tend to speak up more than females. They may also be more involved with family businesses, tend to inherit more and are usually wealthier,” she explained.

“The other cultural difference is that Asia’s younger generations are highly migratory. You may have the founding family member still running the business in Taiwan, while the children and grandchildren are spread out across Canada, China, the UK, and the US,” said Wong. This can make asset structuring more complex.

The concept of the family office - managing and investing a family's wealth to protect and grow its assets for future generations - was born in the US. In 1882 the first family office was founded by oil magnate John D Rockefeller, and the country has a legacy of managing assets in this way. Asia will soon begin to take on the US-born concept more widely, said Wong, although there are many differentiators.

A wave of wealth

Wong believes that Asia is teetering on the edge of a major generational transfer as families in Asia transfer wealth from first- and second-generation entrepreneurs to the third. This is almost unprecedented in many parts of Asia as throughout the last century families and their wealth has been broken up time and time again through forces such as colonialism, communism and natural disasters.

“The family office sphere in Asia will explode – it has to, to cater to all of these newly wealthy families,” she said. At the moment the number of family offices are tiny compared to the market. This year the number of high net worth individuals in Asia hit 3.3 million – overtaking that in Europe for the first time according to a Merrill Lynch and Capgemini report. The report said that Asia’s population of ultra high net worth individuals, defined as those with $30 million or more of investable assets, increased 15 percent in 2010, faster than millionaires with at least $1 million of investable assets. Wealth in Asia-Pacific is expected to rise at about double the global rate of almost 6 per cent through the next five years, the Boston Consulting Group said in a study this year.

Although it is difficult to put a figure on the current number of family offices servicing Asia, industry sources believe there are only around 500 at the moment. Wong says this will at least double over the next ten years.

“Now you are seeing families realize that it may be possible to protect their assets through proper management and structuring. The sector is very young in Asia. Over the next decade family office numbers could at least double,” she said.

New blood

Where will the new blood come from? It will be a mixture of foreign firms setting up in Asia and local individuals launching practices. Domestic players will have the advantage of trust, she says. 

“My advice to a family office setting up here would be to consider carefully the alignment of interest with the client. This is important everywhere but as wealth structuring is still in such a nascent stage in Asia, trust is much harder to earn. While in the US, families may use a headhunter to find a family officer manager, in Asia a long relationship built on trust is often essential. It is frequently old employees or family members or family friends that they will turn to, in order to manage their family affairs,” she added.

What is clear is that without more family offices, disasters will take place. She pointed to a recent example of a wealthy entrepreneur with multiple heirs and heiresses, whose failure to write a will has led to serious rifts between his children and grandchildren. It is human nature to avoid topics of mortality like succession planning, but they must be addressed, says Wong.

"There is a woeful lack of dialogue about wealth transfer. No-one wants to talk about mortality but a failure to address succession planning can be catastrophic."