Chinese tycoon and prospect of family offices in china

Capturing Chinese Wealth & Prospects of Family Office in China

Eva Law

2014-10-28

Content

• The Status of Private Wealth & Family Office Markets

• Profile of Chinese Magnates

• Challenges Facing the Wealth Owners

• What Magnets really want?

• Prospect of Family Offices in Greater China

• What AFO & APB do to Foster Collaboration

• Bring Everyone On the Road to Success

The Status of Private Wealth & Family Office Markets

The Status of Private Wealth & Family Office Markets

• Global Snapshot of Private Wealth Markets

• China : AUM and no. of wealth are going up, reveals promising outlook

• Wealth management in Asia gains in stature, maturity

• Seasonal Trend in Family Office Market : Shifting focus to direct investment

• Constant Change in Family Office : Investment Behavior Evolves In New Generation

• Asia FOs gain momentum and Chinese family offices start to emerge

Top 25 HNWI Population Ranking

• China : Rank the 4th

• HNWI Population : Grow from

643,000 in 2012 to 758,000 in

2014. Annual Growth Rate : 17.8%

• HNWI Wealth: US$ 3.8 trillion.

Wealth also grew strongly by

20.5%

Wealth Management in Asia Gains Stature

• access to a broader array of products and services

• stronger regulatory frameworks and market structures

• local wealth management firms began investing in talent &

capabilities

• two primary service models operating in Asia: a bank led model verse

an international private wealth model

Seasonal Trend in Family Office Market : Shifting focus to direct investment

• Lift up allocation % to direct investment , see opportunities in other business and real estate

• FOs investing in PE are predominantly SFO & MFO with in-house investment management capabilities that seek a capital growth over a medium to long-term horizon.

• Allocate more in Asia, Western Europe, US, UK. Most of the FO investors are considering co-investments alongside FOs and PE firms.

Source : BCG Source : Investec

Constant Change in Family Office : Investment Behavior Evolves In New Generation

Profile of Chinese Magnates

Profile of Chinese Magnets

Latest Trend

• Not just embracing family office concept, we see offices creation,

both SFO and MFO

• 2nd and 3rd generations step-in though some Chinese new generations

reject to continues the parent’s business

• Co-investment is common

Profile of Chinese Magnets

Investment Profile

• Allocate More In Direct Investment

• More real estate and private equity

• Less in capital market

• Seek For Diversification

• Still biased on Asia Pacific

• Fond of several developed markets : North America, Australia, UK & Germany

Interesting Fact about Wealthy Chinese & Asian

17,500 UHNWI in Asia having net investible assets of US $30 million. China

has 4,900 of these well-heeled people

Top Tier FOs in Asia : Average size of US$480 million in

assets under management & managing >US$20 billion private wealth

77% of family offices in Asia

reporting some form of philanthropic

1/3 family offices with

endowments of at least US$15 million, focusing on mainly education and healthcare

The Chinese wealthy entrepreneurs & owners of listed

companies aged between

50 to 70

Many of the wealthy families

in China have 1++ passports

Challenges Facing the Wealth Owners

Challenges the Magnets Facing

Shrink in Wealth

Some indicative

Stories

Fall of Business

Threat to Family Wealth

$ ¥ £

Fall of Business

• The life cycle of Chinese firms is less than 20 years

• Not many have the luck to pass on the business to 2nd Generation

• When business passed on or the founder passed away, most of the

public firms experienced significant fall in share price

Threats to Family Wealth

• Tax (US inheritance tax at 50%, China : expect to come, probably

high rate)

• Dissipation to multiple family members

• The failure of family business, its continuity and evolution

• Predators (e.g. bad advisors)

• Catastrophe (e.g. war, economic crisis, political incidents)

Some indicative stories

• From the wealthiest to the bankrupted person, Solar King in China –

Story of Mr. Shi Zhengrong

• Fighting of Kam’s Family, Fall of the Famous Roasted Goose

Restaurant

• A Golfer, refusing to be the successor of a family corporation, Son of

Zhu Xinli, Huiyuan Group

What Magnets really want?

Hear the Guru’ says?

Key Agenda Set up Firewall between Corporate & Family Assets

Continuity and Evolution of Family Business

Succession

Growth of Wealth

Individualized / Family Goals

And What do the Magnets Need• Going Out : International / Regional Footprint

• Corporate Financing Solution

• Business Renovation

• Going Public / Privatization

• Philanthropy

• Prep the Future

Generation

• Family Enjoyment

• Passion Investment

Growing / Transforming their Business

Succession Management

Self Actualization

Life Style Pursuance

Wealth Management

• Wealth Transfer & Protection

• 2nd Generation Take-over

• Fire Wall between corporate &

family wealth

• Real Asset

• Financial Asset

• Lux Concept

• 2nd Home

Diversified Needs

Business Life Cycle

Business

Family

Prospect of Family Office in Greater China

Growth of Asia Wealth

Potential of Family Offices in China

Investable assets of UHNWI : RMB 88 Trillion in 2013

Hitting threshold of listing Forbes Billionaires : close to 500 known magnets

Advent of capital market & wave of wealth succession, high demand of FO services

1000 – 2000 FOs emerge in China in next decade

Asia FOs gain momentum & Chinese FOs start to emerge

• Foreign Asset Managers set up offices in China

• Local wealthy clients consider setting up family offices to manage

their huge capital and wealth transfer to next generations

• We see local family offices will be found in China while still many

families want to establish their FOs in offshore wealth management

hub in Hong Kong or Singapore

Operational Challenges of Family Offices

• Controlling Costs While Improving Efficiency

• Facing Staff Shortages to Build a Team with the Required Level of Expertise

• Growing Cross-Border Transaction Leading to Complexity in Managing Operations

• Demand for Transparency, International Investments and Growing number of

Asset Classes Increase the Complexity of IT Systems

Controlling Cost While Improving Efficiency

• Staff Costs + Administrative Costs + IT Costs

• SFO : Not Cost Efficient

• MFO : Scale Required

• Action : Analyze Cost Structure, Streamline its Operation

• Lean FO model good for SFO and MFO

Finding Right People

• The typical composition of FO : CEO, CFO, CIO, analysts, lawyers, accountants, controllers administrative staffs.

• Few family members work in FO but hard to trust people outside

• Competition from investment banks, private banks, hedge funds and investment boutique.

• Hard to find staff with the required level of expertise

• China – we need more• Need of going aboard• Becoming sophisticated• In adequate all-rounded Front Office Managers

High Complexity in Operation

• Families are becoming more internationally located

• Family offices are increasingly managing investments in foreign countries

• Manage operations outside their home country

• Deal with complex taxation and legal systems involved in international

investments and cross-border transactions.

• Hire local talent to provide country-region-specific investment advice

• Require advanced IT systems for managing the complexity in operation

Good Progress So Far

• The existing family offices founded in the past 2 decades run in good shape

• They have made significant progress in

• creating sustainable wealth management structures

• fostering important relationships

• The offices manage significant wealth, their average size of asset under

management is USD 480 million

What AFO and APB do to Foster Collaboration

Engage with Solution Providers & Professional

1. Real Asset• Property (Residential, Commercial, Agricultural, Land Development)

• Private Equity, Club Deal & Resources Mining

• Physical Commodities

2. Entrepreneur Solution• Listing, Offshore Incorporation, Investment Banking Services

• Financing, Accounting, Tax Advisory

• Due Diligence, Legal Services, Asset Valuation

• Business Consulting, BPO, Corporate Trust, Corporate Coach

3. Passionate Life• Jet, Yacht, Charter Services, Club

• Lift Style, Lux, Concierge, Ivy League, Education, Immigration

4. Private Wealth Management• Private Trust, Estate Planning, Wills, Succession Mgt

• PWM Education (Not offering financial products)

• Fund Set Up, Manager Selection, Portfolio Advisory

Solution Portal

Online Platform

Structured Interaction

Offline Events

Strengthen the ties among the prestige circle

Industry Contribution

Industry Research and Survey

CFOS & Extension Courses MFO Founder Prep Course

Networking Event & Knowledge Foster Functions

Member Service

Club Deal Facilitation (Regular Private Party)

Platform Solution that support co-working

Customized Consulting Services using guru in the circle

Supporting Family OfficesChallenge Faced by FOs Initiatives by APB & AFO

Controlling Costs While Improving Efficiency - Consulting Service For Out-scouring- Business Model & Process Review by Bureau Members

or Connected Industry Guru

Build a Team with the Required Level of Expertise - CFOS Program- MFO Founder Program & Start Up Consultation- Customized Training & Industry Exchange Program- Diversified Events For Knowledge Boost- Maintain a large talent pool in specialty bureau &

technical committees

Growing Cross-Border Transaction & Operation Complexity

- Cross Disciplinary Services by Platform Providers and Bureau & Technical Committee Members

- Cover : M&A, Financing, Legal, Tax, Compliance, Due Diligence, Valuation, Various Sector Specialists

Complexity of IT Systems - Technology Consulting Service by APB Platform Providers and Bureau & Technical Committee Members

- Cover : Data Aggregation, Accounting, Valuation, Global Trading, Company Management, ERM

Strategies that Bring Everyone On the Road to Success

Strategies that Bring Everyone to the Road of Success

Back Client’s Business

One Stop Shop?

No indifferent Customers

Reach out the plugged in connectors with Chinese Expertise

Back Client’s Business

• Mantra : Back business, not investment

• Who is the customer ? The key man in family business, the

entrepreneurs

• Conversation all link to family business

• To gain trust, work on bottom line or the main thing the entrepreneur

desire first

One Stop Shop?

To successfully develop decent solution that is contingent to

the unique and all-encompassing requirements of client,

One-size-fits-all approach doesn’t work

No Indifferent Customers

• Within a family, there is founder and future bosses

• Their needs and requirements evolve

• Heterogeneous format of family offices

• Develop solution that is contingent to the unique requirements of

clients

Reach out the plugged in connectors

• Target the trusted investment bankers, attorneys, accountants and

other plugged-in advisors who can help get you connected.

• APB – gather practitioners, offer solution and support

• AFO – gather SFO, MFO, VFO, society, facilitate co-investment

• Leverage AFO & APB for local insights & relationship

Final Words

• A business build on long term client relationships

• Demand understanding and responding to clients’ need

• Quality : unbiased advice, transparent, reliable and prudent

• Duty : Help client contain risk bearing in chasing return, Support client’s business and goal pursuance

• Chinese value flexibility and relationship much more than the western world

• Adapt to this culture, partner with local players or hire local staff to bring you advantages

• To reach out the discreet SFOs, you need to leverage trusted bankers,

attorneys, accountants and other plugged-in advisors

• AFO & APB connects elites and ultra-affluence, we manage a platform that

accessed by industry practitioners and wealth owners for confronting new

relations & opportunities emerge around the world

• Members of APB link you to wealth owners.

• Members of AFO are SFOs and MFOs

Eva Law

• Profile : hk.linkedin.com/in/evalaw/• Email : [email protected]• Email : [email protected]• WeChat : APB-AFO

Association of Private Bankers in Greater China RegionAssociation of Family Offices in Asia

• HK Phone # : + 852 3499 3851• PRC Phone # : + 86 147 1433 4066• Correspondence : GPO Box 11666, Hong Kong Post Office• Email : [email protected] (APB)• Email : [email protected] (AFO)• URL : www.private-bankers.net (APB)• URL : www.familyoffices-asia.org (AFO)