By Divya Doshi, Managing Director, Sales, Asia and Middle East
Fuelled by unprecedented intergenerational wealth transfer – estimated at US$5.8 trillion by 2030 – single- and multi-family offices are proliferating across Asia today. In Singapore alone, there are now more than 2,000 single-family offices (SFOs), a 10-fold increase on the number in 2019.
As the number of family offices in Asia rises, two key trends are emerging: a strong move toward alternative investments and significant demand for outsourced services. Here’s a look at what’s driving these trends and how their convergence is reshaping the way firms in the region operate.
Alternative investments are now a core allocation among family offices
Alternative investments represent a core allocation for most Asian-based family offices today. According to BNP Paribas’ 2024 Asia-Pacific Family Office Report, these assets now make up just over 50% of portfolios on average, meaning they’re a major yield-driver.
As for what’s behind this allocation, one factor is the quest for increased diversification – a priority for around a third of firms across Asia according to BNP. Alternative assets such as private equity, private debt, hedge funds and real estate tend to have a low correlation with traditional asset classes such as equities and bonds. Therefore, they can help family offices create portfolios that are more balanced, resilient and better positioned to achieve long-term, risk-adjusted returns. Note that in Asia, real estate remains a favoured asset class for wealth preservation, whereas hedge funds and private credit are popular as yield-enhancing diversifiers.
Increased sophistication is another factor behind the shift into alternatives. As family offices in Asia mature, they’re becoming more institutional in their approach to investing. No longer are they simply looking to the equity and fixed income markets for opportunities; instead, they’re aiming to capitalise on unique opportunities that aren’t available in the public markets.
It’s worth pointing out that with their long-term investment horizons and patient, unconstrained capital, Asian family offices are well-positioned to engage in direct investments, co-investments and private deals. This gives them access to a pipeline of exclusive opportunities in areas such as technology, infrastructure and sustainability. Younger generations are also more open to these kinds of opportunities as these investors like to align their long-term investments with their personal values.
Looking ahead, alternatives are expected to see further inflows from Asian family offices. According to BNP’s survey, 44% of family offices in the region plan to increase their allocations to alternative assets in the near term, while 40% plan to increase their exposure to private markets. Expect to see plenty of interest in private credit investments – it’s popular with family offices because it offers a combination of high yields, floating interest rates, and diversification from traditional fixed income markets as interest rates head lower. Infrastructure is also likely to be popular due to its perceived resilience and ability to generate stable cash flows.
Why family offices are outsourcing critical functions
Turning to the outsourcing trend, one major driver here is the interest in alternative investments. As firms move to increase their exposure to asset classes such as private equity, private credit and infrastructure, they’re realising that they have gaps in their expertise and capabilities – whether those gaps are in relation to deal-sourcing, reporting, analytics, risk management, compliance or other areas. By outsourcing certain functions, family offices can tap into the expertise of external service providers with experience in these specific asset classes. This allows them to benefit from the specialised skills and insights of these providers, enhancing efficiency and reducing risk.
Another reason outsourcing is in demand is cross-border activity. Today, many family offices are establishing cross-border entities, pooling capital into feeder funds and alternative investment vehicles across Asia, the Middle East, Europe and North America. Here, firms are relying on a network of outsourced advisors and legal experts to navigate the complexity associated with such entities. Rather than building expensive in-house teams for every jurisdiction, it’s far more efficient to outsource these functions to expert third-party providers.
Of course, cost management is also driving the move to outsourced services. Whilst having full operational control over the management of a family’s wealth is appealing, the costs of doing so can be significant. For example, single family offices can expect annual expenses equivalent to 1% to 2% percent of total assets under management (AUM). For smaller SFOs with less than $100 million in AUM, the cost ratio can be even higher.
One major expense that family offices need to be aware of is personnel costs. These are often a firm’s biggest expense, accounting for 45-65% of total operating costs, according to McKinsey. Note that in several financial hubs in Asia such as Singapore and Hong Kong, there’s a ‘talent war’ underway, meaning that family offices often have to pay a premium to attract and retain efficient chief investment officers (CIOs), analysts, accountants, lawyers and administrative staff.
Technology and infrastructure costs can also be significant. To build out a secure technology platform capable of handling multiple asset classes and providing real-time data analysis and reporting, firms can be looking at substantial outlays. By outsourcing critical functions to service providers, family offices can potentially reduce their costs significantly.
As family offices in the region continue to institutionalise, we can expect to see more of them working with service providers that can cater to their evolving needs. One recent survey of 31 family offices in Asia – collectively responsible for more than $15.3 billion in AUM – showed that around 90% of respondents expect outsourcing to increase in the next three years, with 42% predicting a dramatic increase.
Expect Singapore to play a fundamental role in this outsourcing activity. Today, it dominates the Asian family office ecosystem, offering access to a wide range of asset managers, fund administrators and legal advisors, meaning it can help family offices access expertise in relation to investments, operational and technology challenges, and compliance.
The future family office in Asia
In terms of what the future family office in Asia looks like, it will be lean and agile, allowing for quicker decision-making and a more dynamic investment approach. It’ll also be digitally enabled, leveraging technology to streamline operations and enhance data analysis. It will be alternative-focused, relying on specialised talent to navigate these non-traditional asset classes. Finally, there will be a strong emphasis on governance to ensure transparency, accountability and the long-term sustainability of family wealth across generations.
Key takeaways
- The Asian family office is evolving into a more sophisticated and professional entity
- For families managing generational wealth and facing complex challenges, the message is clear: alternative investments have become a strategic necessity, and outsourcing is now essential
- Singapore, as a mature and nimble jurisdiction, continues to lead the region by offering not just regulatory stability but a complete service ecosystem.
How we can help
At IQ-EQ, we hold extensive alternative assets expertise and provide customised family office solutions designed to help firms navigate operations, reporting, risk management and compliance across multiple jurisdictions and the full spectrum of alternative asset classes. With deep expertise and global reach, we can help you build a robust, scalable and fully compliant family office that is positioned for long-term success.
To learn more about how IQ-EQ can help family offices on their outsourcing journey, please get in touch.
