Recently, the Hong Kong University of Science and Technology (HKUST) King Lomp Asia Family Business and Family Office Research Center (the "Center") and the Ernst & Young Greater China Family Business Practice Team ("EY") released the "2024 State of Family Office in Greater China Survey Report" (the "Report"). Combining academic research and industry experience, the report provides a comprehensive and in-depth analysis of the current state of family offices (or "family offices") in Greater China. The report points out that families in Chinese mainland are the main force driving the development of family offices in Hong Kong and are the key targets for future introduction.
Click on the bottom left corner to read the original article for the full report
1. Families in Chinese mainland are the main force in the development of single-family offices in Greater China
According to the survey results of the founders of single-family offices, the proportion of single-family office founders from Chinese mainland (42%) is significantly higher than that of Hong Kong (29%), while the number of single-family offices set up in the mainland is lower than that set up in Hong Kong, accounting for only 24% of the total number of single-family offices in Greater China, followed by 51% of Hong Kong respondents, that is, 51% of single-family office respondents have set up family offices in Hong Kong.
The survey results also show that single-family offices (29%) tend to have offices in multiple locations. The cross-regional trend of single-family offices also reflects the urgent need for families to gain access to professional services and management experience across markets and jurisdictions.
As an international financial center, Hong Kong, China is favored by many Chinese mainland families due to its unique advantages, abundant professional resources, low tax system and rich experience in family office operation. Chinese mainland families play a pivotal role in the development of single-family offices in Greater China.
For mainland families, it is very convenient to choose a family office in Hong Kong, with 78% of respondents from Chinese mainland and 40% of respondents choosing Hong Kong as their first choice for family offices. Mainland families are also a key target for Hong Kong.
2. There are both old and new wealth families in Hong Kong, and the single family office is more mature
The analysis found that the generational range of the founders or persons in charge of a single family office in Hong Kong includes the first, second, third or even fourth generations of the family, while in Chinese mainland it is usually one or two generations. This shows that there are both new and old wealth families in Hong Kong, while most of the wealth managed by mainland family offices is new wealth.
According to the survey results, 37% of the single-family offices in Hong Kong have been in operation for more than 10 years, while those in the mainland have been established in the past 10 years. The difference in the maturity of individual family offices in the two places reflects the different stages of economic development and wealth inheritance in the two places. The new wealth of the head family of the head of the Hong Kong single-family office coexists with the old wealth, and the inheritance spans multiple generations, while the intergenerational inheritance span of the single-family office in the mainland is smaller.
3. More and more non-family professionals are entering single-family offices
Single-family teams in Greater China are typically made up of family members and non-family professionals, providing a full range of services, including financial and non-financial services. About 45% of the single-family offices have a team size of more than 10 people, indicating that the single-family offices in Greater China will engage non-family professionals to participate in the operation to enhance the management and professional capabilities of the family office.
It is worth noting that nearly half (47%) of single-family offices in Greater China have set up investment committees composed of both family members and non-family members, demonstrating the importance of greater division of labor and experience sharing between family members and non-family members in the investment decision-making process.
4. Single-family offices tend to diversify risks through diversified investments across regions and asset classes
About half of the single-family offices adopt a balanced investment strategy, and most of them have a return on investment of 5%-20% in the past three years.
Individual offices not only invest locally, but also further diversify investment risks by investing in different regions and countries. Single-family offices in Greater China are more likely to allocate their assets to more familiar local markets, such as Chinese mainland and Hong Kong, with 21% of respondents choosing these two regions, followed by North America (20%) and Europe (15%).
In addition, SBOs are diversified across different asset classes, investing in a variety of other alternative investments and digital asset projects in addition to popular asset classes such as equities and fixed income, private equity, and venture capital.
5. Impact investment accounts for a relatively small proportion of the total investment scale of a single office
While the vast majority (93%) of single-family offices in Greater China have invested in impact to a greater or lesser extent, the majority of single-family offices (60%) have invested less than 10% of their total investment in impact, and only about 22% have invested more than 20% of their total investment in impact investment.
The data shows that while individual offices recognize the need for impact investing, they are still in their infancy. Despite this, their interest and engagement in impact investing is growing day by day. This shows that families are increasingly aware and responsible for using investment as a tool to address social and environmental issues.
6. Single-family family governance and non-financial functions are becoming increasingly important
The survey results show that the single family office provides comprehensive and systematic products and services for families, aiming to meet the financial investment and non-financial demands, such as family issues and family governance, ranking among the top three services provided by the single family office.
On the one hand, a single family office usually sets up an internal dedicated team to manage family-related affairs, such as family governance and family philanthropy. On the other hand, they often outsource legal, tax, regulatory advisory and compliance services to attract external experience and resources while protecting family values.
In terms of family governance, the vast majority (91%) of individual family offices in Greater China have built a governance structure, ranging from simple structures to more professional structures. Another 8% of single-family offices are considering establishing a family governance structure in the near future.
Through the family governance structure and family governance process, the single family office can improve the effectiveness of decision-making and communication, effectively resolve conflicts between family members, and maintain the inheritance of family values and family influence.
7. Family members participate in charity affairs
The vast majority (84%) of single-family offices in Greater China participate in charitable activities. About half (53%) of the individual offices participate in charity through private foundations, charitable trusts or donor-advised funds (DAFs), while the other part participate through strategic philanthropy and direct donations.
The findings suggest that philanthropic engagement is undergoing a shift: from simple direct donations to more strategic approaches such as private foundations, charitable trusts, donor-advised funds, and strategic philanthropy.
The majority of family members (69%) are actively involved in philanthropy, not just the founder. This shows that family philanthropy is a way to give back to the society externally, and it is also the glue that strengthens the cohesion of family members internally.
8. About 40% of the families of the joint family office intend to set up a single family office
According to the survey results, about 40% of the surveyed families in Greater China are interested in setting up their own single family office. This shows that families who have just entered the family office industry will use the joint family office as a test of the waters, and although they already have a joint family office, they still want to set up their own single family office.
There are significant differences in the stages of family office development in Chinese mainland and Hong Kong. Specifically, Hong Kong family offices manage both old and new wealth, while mainland family offices mainly manage new wealth. It is worth noting that many of the founders and principals of Hong Kong single-family offices are from the mainland. Families in Chinese mainland are the main force driving the development of family offices in Hong Kong, and in turn, the rich experience and professional knowledge of Hong Kong family offices in the development process are of reference significance to families in Chinese mainland.
In February 2023, the Hong Kong SAR government announced that it would invest HK$100 million (US$12.7 million) over the next three years to attract more families to set up family offices in Hong Kong. The HKSAR Government's goal for the next five years is to attract more than 200 of the world's top families to set up family offices in Hong Kong or expand the scale of existing family offices. Mainland families are the key targets for introduction.
*This article is excerpted from the "2024 State of Family Office in Greater China Survey Report", click on the bottom left corner to read the original article to get the full report
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