As a global investment hub with attractive policies and infrastructure for foreign investment, Singapore is witnessing an influx of Family Offices (FOs) from China setting up in the city-state. Singapore has experienced significant growth in its family office sector, with 182 new offices opening in 2023, building upon the strong growth observed in the previous two years, and with a notable presence of offices set up by Singapore residents and those from China, Malaysia, and Hong Kong.
These FOs have unique characteristics, needs, and cultural nuances that require a deep understanding for financial professionals to effectively serve them. Gaining insight into these differences will help FO advisors build strong relationships and acquire new opportunities in this dynamic market.
We speak to Tony Gao, who serves as the Director of the Global Family Business Research Centre at Tsinghua University, PBC School of Finance, to understand and debunk the common misconceptions about the Chinese FOs to provide a better understanding of this booming segment.
It is a common misconception to think that all family offices from China are the same. However, the truth is that these offices are distinct from one another. In fact, there are three primary economic development regions in Mainland China, each with its own unique features.
Gao highlights the unique characteristics of these regions. The first is the Pearl River Delta, Guangdong, and Fujian in the South, followed by the Yangtze River Delta in the central region, and finally, the Beijing-Tianjin-Hebei region in the North.
Starting from the South, Gao explains that entrepreneurs in this region did not necessarily receive extensive education, but instead, they achieved success through taking risks and working hard.
He says, “The complexity of wealth inheritance in this region is relatively high because they have many children, and how to balance the interests and abilities of different family members is very important in family governance.”
In the central region of Mainland China, Gao explained that many enterprises in this region are typical family businesses in manufacturing, and they are export-oriented. According to Gao, the focus of family offices in this region is on transforming and upgrading industries instead.
In the North, there are two types of companies. The first type is comprised of entrepreneurs from all over the country who gather in Beijing after reaching a certain stage of development. The second type is high-tech enterprises located in Zhongguancun and the Haidian district.
Gao explains, “Entrepreneurs in the new economy are more interested in the future because they don't have the need for family governance while traditional industries from all over the country that gather in Beijing, are more focused on their industry transformation and upgrading.”
“Different regions do have their own characteristics, but there are still many common needs that we all need to grasp,” he adds.
Although amassing wealth is undoubtedly a priority for FOs, there is a common misconception that Chinese FOs are solely focused on generating money for their current generation. This misconception has given rise to the notorious Chinese saying “wealth does not last beyond three generations”.
However, quite the contrary, according to Gao, who also co-authored the book ‘Succession Beyond Three Generations: A Study on the Chinese Family Business Succession’, the inheritance of bloodlines and continuity of generations is of utmost importance in Chinese culture. I
in fact, most Chinese FOs aspire for intergenerational inheritance, seeking to preserve their wealth for their children and future generations. As a result, many Chinese FOs pursue more sustainable investment goals not only to generate wealth for themselves but to pass down to their descendants.
In the wealth management field, it is often assumed that high investment returns directly translate to client satisfaction. While investment returns are undoubtedly a crucial aspect of wealth management, it is important to note that there is more to it than simply generating profits.
Gao emphasises that taking on low risk and expecting very high returns is impossible. Therefore, FOs must personalise their wealth management approach and consider factors such as risks, terms, and liquidity.
Rather than solely focusing on investment returns, family office advisors should aim to strike a balance between return, risk, term, and liquidity for Greater China clients. This shift in approach can help clients avoid potential consequences that may arise from solely pursuing the goal of generating profits.
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The final misconception is that family offices from Greater China invest only in tangible assets. In reality, intangible wealth is also a crucial consideration.
Gao says, "Intangible wealth is the fundamental reason for a family to thrive and pass on for generations."
Noting a memorable meeting he had with the fifth-generation head of the Hermès family a decade ago, he recalls being greatly inspired by the advice he received from the head of the family, "Hermès was not inherited from my parents, it was borrowed from my children. If wealth was inherited from my parents, then the enterprise and wealth are mine. I can do well with it, or not. If I lose it all and go bankrupt, it doesn't matter. But if it was borrowed from my children, it means that one day I have to return the enterprise and wealth to the next generation."
The philosophy of intergenerational wealth preservation and succession planning underscores the importance of considering both tangible and intangible assets in a family office's wealth management function. To provide effective solutions, it is crucial to understand and respect a family's values and culture as these factors can significantly influence their investment decisions.
Working with family offices from Greater China requires a deep understanding of their unique characteristics, investment philosophy, and wealth management approach. This includes recognising the importance of intergenerational wealth preservation and succession planning. Advisors need to consider not only tangible assets but also intangible ones, such as the family's values and culture, which can have a significant impact on investment decisions.
Misconceptions about Chinese family offices can hinder effective communication and lead to counterproductive results. It is crucial to move past these misconceptions and understand the nuances and differences to better serve clients. By doing so, financial advisors can develop a more accurate understanding of family offices from Greater China and build stronger relationships with their clients, leading to more effective wealth management and investment strategies.
WMI's Certificate for Family Office Advisors for Greater China Markets helps professionals understand the unique needs of Chinese FOs and provides tailored solutions. The programme is based on extensive global research and aims to dispel misconceptions surrounding FOs. By completing the programme, advisors can provide personalized and holistic wealth management solutions to help clients achieve their intergenerational wealth preservation goals.
Learn more about Certificate for Family Office Advisors for Greater China Markets
Gao stresses the importance of recognising the stage of wealth that a FO is in and implementing divergent strategies to meet their unique goals. He explains that FOs go through five stages of wealth management, namely:
Entrepreneurs in the wealth development stage constitute the first type of FOs that Gao discussed. They aim to diversify their wealth, lower risk and volatility, and allocate assets to different industries, regions, and asset classes. Their focus is not only on financial goals but also strategic ones.
The second type of FOs are entrepreneurial families who have sold their businesses and are focused on intergenerational inheritance. They seek to achieve wealth through asset allocation and investment portfolios that generate investment returns after risk adjustment and real investment returns.
Lastly, Gao highlights enterprises that have either not generated profits or have reinvested them in their own companies. These FOs are more focused on how to operate the shares of the listed or unlisted companies they hold.
Understanding the stage of wealth that a Chinese FO is in is critical for developing a tailored strategy that meets their specific needs. By doing so, advisors can create a more effective wealth management plan that accounts for risks, terms, liquidity, and investment goals.