How does a family office serve wealthy families?

　　China-Singapore Jingwei, January 3 (Luo Kun, Xi student, Xiao Liqun) As the standard configuration of wealthy families, the development of family offices has attracted the attention of many people in recent years, and institutions with the name of "family office" have sprung up. What should a real family office look like? In the current investment environment, how has the investment focus of family offices changed? Recently, China-Singapore Jingwei had a dialogue with Luo Mengjun, Chairman of the Asian Family Office Association.

　　Lo has been immersed in the financial sector for many years and founded the Asian Family Office Association in 2013. The organization aims to provide a series of advisory services to family leaders, wealth owners and independent offices, including the establishment of family offices, family governance, philanthropic advisory, succession management, etc., and has developed more than 60 core members of single family offices.

The following is a transcript of the conversation (slightly abridged):

China-Singapore Jingwei: At present, the threshold for registering a family office is low, and some people joke that there may be more family offices in China than family businesses. Some agencies, under the guise of family offices, are actually selling insurance. In your opinion, what does a real family office look like?

　　Luo Mengjun: Generally speaking, a true single-family office doesn't have much energy to serve other people. For most family offices, financial business is only one part of the story. The focus of the family office is on the family itself, not on the family business, and there is a theoretical firewall between the two.

　　Family offices mainly serve the largest shareholder, that is, the owner (actual controller). In terms of investment, including the equity in their company, the money in his private pocket, how to invest and how to exit are all things that the family office should pay attention to. In addition, the education and training of children and the inheritance of children in the future are all matters that family offices have to worry about.

　　To put one of the children in the leadership of a family business, it is not enough to have equity alone, unless the shareholder structure is very simple. When other shareholders also have a say, you are going to let a certain child take over, and you have to win the support of these people. It's not a matter of a day or two, but it takes a long time to run in.

　　In addition, the family office is also responsible for holding family meetings and gathering family centripetal forces, including many daily trivial matters, such as how to manage security guards, what gold to buy, how to escort gold, etc., just like a "big manager".

　　Therefore, the family office is not so simple, it is not a simple financial manager, it needs to provide a large number of external professional services to the family, which requires the family office to have a very large network.

Sino-Singapore Jingwei: What is the difference between serving the founding generation and their successors?

　　Luo Mengjun: In different generations, the focus of attention and development needs of family offices are different, and it depends largely on the situation of the family itself.

　　The founder's generation is still focused on business development, but in the second generation, they will focus on other agendas, such as whether he will be the successor in the future. There are some families, because of the relationship between the industry cycle, they may sunset, and they want to find new ways to develop, or they may not like the industry anymore, and they have to do other things, or even sell their assets directly, how to invest the money after the sale, (within the family) everyone has different ideas, and the family office should consider how to make them reach a consensus.

Zhongxin Jingwei: When several children want to be the successor, how will the family office deal with it?

　　Luo Mengjun: In this case, the family office cannot have its own position.

　　In a more optimistic situation, if the actual controller is still there, in order to balance the power structure, a CEO will be hired from the outside to enter the family office and build a good governance structure to make decisions. If you don't have a good governance structure, you're usually more amiable on the surface, but in reality no one respects anyone.

　　If there is no good governance structure, it will be a big problem whether the actual controller will still have influence and whether he can control it in the later stage. Especially when he enters his twilight years, the second generation is also ready to take over, but it will be troublesome if he does not distribute it well.

Sino-Singapore Jingwei: What are the differences in the needs of overseas family businesses for family offices?

　　Luo Mengjun: From the perspective of the West, most family offices have gone through several generations, relatively speaking, the current generation is not so passionate about business, and family offices usually deal with their wealth and welfare, and if they are properly distributed, family offices are not difficult to do. On the other hand, from the perspective of Europe and the United States, usually some people who do not have a place in the family business will be arranged into the family office. In addition, there are some family welfare funds in Europe and the United States, and children will get a sum of money after graduation, marriage and childbirth, which is an event-driven welfare distribution mechanism.

China-Singapore Jingwei: What is the difference between a single-family office and a multi-family office, and how are these two types of business developing in Hong Kong?

　　Luo Mengjun: A single family office is not an industry, but an entity that appears for the needs of the family business itself, not a profit-making institution, and the actual controller will not have the expectation of making a profit for this family office, because the single family office is completely to serve their specific needs. But a joint family office (MFO) is different, it is a business in itself, a company that wants to make money.

　　How do they make money? Many joint family offices in Hong Kong are actually EAM (external asset managers). Strictly speaking, EAM and MFO are still different, EAM is equivalent to using the bank's product platform and technology platform to serve customers, simply put, it is a portfolio manager, but MFO also has other business capabilities, and these business capabilities are his own.

　　Nowadays, many family offices are called trusts, and we help you do asset management, you only need to see whether these businesses are provided by him himself, or cooperate with other external parties, to know whether it is a real family office.

　　I have also seen some people who sell insurance, saying that they are family offices, but in fact there is no entity, and there is no supervision in Hong Kong at present, as long as you do not make serious problems, the supervision will not take care of you, so they all call themselves family offices.

Sino-Singapore Jingwei: From a regulatory point of view, what do you recommend?

　　Luo Mengjun: From the perspective of a single family office, I definitely hope that there will be a more relaxed atmosphere in the policy. The most important point is to improve the overall level of practitioners. Even insurance practitioners can also engage in some family business, and the key is that the process of this business is compliant.

Zhongxin Jingwei: In the current investment environment, how do you think the investment strategy of family offices has been adjusted and changed?

　　Luo Mengjun: The economy is slowly recovering, but there are still some uncertain factors, so many family offices are still relatively conservative now, and there are no projects that must be invested, and everyone will still choose to wait and see.

　　Now everyone, especially the second generation, is more interested in investing in ESG, and a lot of data shows that the number of ESG-related funds and transaction volume have increased significantly in the past two years, which means that hot money is pouring into this field.

　　After the customs clearance between Hong Kong and the mainland, I feel that there are still many opportunities, and to grasp them, I have to travel frequently. In addition, I have flown to the Middle East five times this year. Investors in the Middle East also value human relationships and common ideas, so they must communicate more, unlike Europe and the United States, which will go back and forth on the rules.

China-Singapore Jingwei: What is the attitude of sovereign wealth funds in the Middle East towards Chinese assets, and which sectors are they more interested in?

　　Luo Mengjun: They are particularly interested in Chinese assets, and they are very concerned about big health, technology and other fields, because they also know that technology is an important means to change the future, so they are willing to invest in AI and other technologies.

　　They also know that they are an oil-producing country, but the oil will run out one day, so they must open up new business opportunities to diversify their asset risk and have a diversified return.

　　On the other hand, after they invest in some Chinese unicorn companies, they will also attract these companies to go overseas to the Middle East, and these companies will be more likely to open up the market with the endorsement of local sovereign wealth funds, and they will also avoid the problem of industrial hollowing, so this is a mutually beneficial and win-win opportunity. In this regard, Hong Kong can play the role of an intermediary, taking advantage of Hong Kong's legal, tax, capital flow and other aspects of convenience or advantages to facilitate more cooperation.

　　(For more reporting clues, please contact the author of this article, Luo Kun: [email protected]) (Sino-Singapore Jingwei APP)

(The views in the article are for reference only and do not constitute investment advice, investment is risky, and you need to be cautious when entering the market.) )

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Editor in charge: Chang Tao and Li Zhongyuan