The number of family offices within Asia-Pacific is set to grow over the coming years as a result of the population’s increasing wealth. The majority of the family offices within Asia-Pacific are located in the financial hubs of Singapore and Hong Kong, which provide these firms with the necessary financial infrastructure in addition to tax perks. Currently, 7% of all active hedge fund investors based in Asia-Pacific on Preqin’s Hedge Fund Investor Profiles online service are family offices, with 39% and 35% of these based in Singapore and Hong Kong respectively.
As a reflection of the sophisticated clientele they serve, family offices have a keen interest in investing in hedge funds. Of all the family offices in the Asia-Pacific region tracked by Preqin, 55% are currently invested in hedge funds and an additional 5% may do so within the next 12 months. Beijing-based multi-family office HMCFamily Office is an example of one family office looking to make its first move into hedge funds in 2014. Asia-Pacific-based family offices are also decidedly more bullish towards hedge funds compared with other institutional investors in the region; 38% of other Asia-Pacific-based investors invest in hedge funds, with a further 3% indicating that they are considering hedge fund investments.
Family offices tend to have high return targets, justifying the need for returns that are uncorrelated to those from traditional asset classes. Capital from family offices tends to be long-term in nature and hence they are less likely to be concerned with the illiquid nature of hedge fund investments. Family offices also face less regulations and accountability issues than other institutional investors such as pension funds and asset managers, allowing them greater scope to venture into alternative investments.
Preqin’s Hedge Fund Investor Profiles online service shows that macro and long/short equity are the most favoured strategies among Asia-Pacific-based family offices, with these strategies favoured by 35% and 30% of investors respectively. Seventy-four percent of these investors will invest on a global scale, with 63% indicating a specific preference for investing within Asia-Pacific. These strategic and geographical preferences are broadly similar to the preferences of other institutional investors in the region. Family offices have a greater preference for direct investments, rather than investing via funds of hedge funds, and 80% of Asia-Pacific-based family offices invest in hedge funds solely through single manager funds.
As the global economy continues to recover from the 2008 crisis, the number of UHNW (Ultra High Net Worth) individuals in Asia-Pacific is increasing at a faster rate than the more developed regions of North America and Europe. As these individuals look for private wealth management services, the regional demand for family offices looks set to grow, leading to greater institutional demand for hedge fund investment opportunities.