Despite geopolitical instability and uncertain market conditions, Asia-Pacific (APAC) family offices (FOs) remain optimistic, with 84% expecting an increase in the family’s wealth this year and 77% expecting to see their assets under management (AUM) rise in 2024, according to a recent report.
FOs are also more likely than their global counterparts to scale up their initiatives and gain added expertise, with 48% of Asia-Pacific-based FOs looking to increase their reliance on outsourcing services, higher than the global average of 34%, finds Deloitte Private and Raffles Family Office’s Family Office Insights Series – Asia-Pacific Edition, which surveyed 89 single FOs.
Eyes on risk management
Macro-level risks underline the uncertainties Asia-Pacific FOs face, the report shares, with geopolitics (55%) and inflation (44%) being perceived as two key market risks in 2024. Meanwhile, investment risk (72%), geopolitics (44%) and regulatory and tax challenges (28%) are considered to be the top risks to FOs this year, in line with their global peers.
These concerns highlight the importance of investment oversight, the report notes, which is reflected in the strategic priorities for FOs, with investment risk management being a top priority (67%), followed by investment governance and valuation policies (53%) and succession planning (38%).
Despite recent market volatility and uncertainties, FOs in Asia-Pacific have shifted towards more growth-oriented investments (34% of respondents). However, this is coupled with an eye on risk management, with many FOs favouring a balanced investment portfolio.
In 2023, the top asset classes FOs invested in were equities (25%), private equity and private debt/lending (21%), real estate (19%) and fixed income (19%), accounting for over four-fifths of the average FO portfolio. Notably, allocations to public equities, although identical to the global average at 25%, had a greater bias toward developing markets, revealing the region’s preference for local markets, such as China and India.
The top asset classes FOs are looking to invest more in 2024 are developed (32%) and developing (24%) market equities, real estate (31%), hedge funds (24%) and cryptocurrency and digital assets (24%).
On average, Asia-Pacific-based FOs allocate 32% of their portfolio to investments outside their own region. Currently, North America and Middle East-based investments make up 21% and 1% of Asia-Pacific FOs’ average investment portfolio, respectively.
However, these proportions are expected to increase in 2024, the report points out, as 23% plan to allocate more to North America this year and 21% to the Middle East. Meanwhile, investment levels in Asia-Pacific and Europe are expected to remain consistent, with 69% and 79%, respectively, citing that they intend to keep allocations towards these regions the same in 2024.
Conversely, Asia-Pacific has become a popular investment destination for global FOs, with an average of 20% of FOs worldwide and 24% from Europe planning to expand their portfolios in the region this year.
Need to chart succession path
As a large portion of FOs in Asia-Pacific serve first- or second-generation wealth holders, the report finds, planning for succession is rapidly becoming an important topic. Over a third (35%) of Next Gens are expected to assume control of the family wealth over the coming decade.
However, a notable 37% of families are currently without plans for succession. As a result, roughly a fifth of FOs (21%) have ranked this lack of preparedness as a core risk to their office this year, while over a third (35%) are now making succession planning a top 2024 priority.
That said, the road to succession will not come without challenges, the report predicts, as 69% of respondents expect a next-generation family member to lead the FO post-succession. However, many cite concerns over Next Gens’ maturity (49%), limited qualifications (36%) and lack of interest in the activities of the FO (23%).
Due to this, a third of Next Gens (33%) are making receiving mentoring and training top priorities this year, while another 26% are focusing on succession planning. As part of doing this, Next Gens will be undertaking a variety of roles in the FO this year, including serving as a board member (36%), manager or executive (30%), or director (21%).
At present, only 22% of FO heads are non-family professionals, but this number is expected to reach 31% post-succession. Asia-Pacific is leading a broader trend towards professionalizing the FO, the report shares, with four in 10 FOs (43%) looking to shift towards more professional and non-family staff this year, substantially higher than the global average of 29%.
FOs in the region are most likely to recruit their professional staff from financial services firms (62%), accounting firms (33%) and consulting firms (23%). Only 15% would opt for professional staff from the family business.
“Beyond risk management, diversified and sustainable investing, and operational technology adoption,” says Yali Yin, Asia-Pacific Deloitte private leader for Asia-Pacific, “leaders are focused on creating robust succession planning strategies to properly equip the next generation and produce a resilient future.”
