APAC Family offices to transfer $5.8tn in wealth by 2030 – McKinsey

September 12, 2024 (Preqin News) – The number of single-family offices in Hong Kong (SAR) and Singapore has quadrupled since 2020 to about 4,000, with the segment likely to undergo significant change as families prepare for a $5.8tn intergenerational wealth transfer by 2030, according to a new report by consultancy McKinsey & Co.

Hong Kong (SAR) and Singapore are attractive economic hubs for wealthy families from Asian countries, including Mainland China, India, and Indonesia, as they provide tax benefits and clear regulatory frameworks for investors. Last year, the two financial centers managed around $2.4tn of offshore assets, compared to Switzerland’s $2.5tn.

Ultra-high-net-worth families show a rising interest in private markets, with an average allocation of 30% to alternative assets. Family offices in Asia tend to focus on particular strategies and deal types, including pre-IPO investments, start-ups, private credit vehicles, and evergreen funds. However, allocations to alternatives still lag Europe-based family offices, which have an average 50% allocation towards private markets.

Family offices in APAC also differ from their Western counterparts in geographic allocation preference. Families in Europe and North America prefer domestic or regional allocations and are slowly increasing their exposure to APAC, which McKinsey said they increasingly view as the ‘third safe haven (in addition to Europe and North America) for portfolio diversification’. In contrast, APAC family offices prefer non-domestic investments, particularly in North America and Europe.

Wealth in APAC grew by 4.4% in 2023, with Taiwan SAR – China standing out with an expected 47% increase in USD millionaire count by 2028. An increase in private wealth is likely to accelerate growth in alternatives AUM, which reached $15.6tn at the end of 2023, according to Preqin data.

Many family offices are in ‘major growth mode’, according to KKR’s annual survey of global family offices. The illiquidity premium offered by alternative asset managers will increase allocations to private debt, private equity, and infrastructure.

McKinsey identified four types of APAC single-family offices in its report.

‘Visionary entrepreneur family offices’ are established by entrepreneurs who exited ventures in the tech sector, and often use industry connections to access high-risk, high-reward direct investments in start-ups.

‘Traditional business owner family offices’ are typically first generation and favor low-risk investment strategies, relying heavily on banks, multi-family offices, and word-of-mouth advice, rather than their formalized investment thesis.

‘Embedded family offices’ integrate into a wealthy individual’s established business operations, focusing on direct investments into businesses complementary to the core operating business. Investments are managed by the operating company and deployed in line with the investment opportunities.

‘Professionalized family offices’ follow a clear, in-house, investment thesis, and aim for wealth preservation with conservative returns, or growth-oriented strategies seeking higher returns (around 15%).

Weak governance, rising operational costs, and limited access to bespoke private market investment solutions are issues facing single-family offices in APAC. McKinsey says that to remain viable, single-family offices need at least $100mn in AUM, considering expenses and an average risk-adjusted return of 5%. Therefore, more consolidation of single-family offices into multi-family offices is expected in the near term.

Personnel costs are typically the largest expense category for a family office, accounting for 45–65% of operational costs. Competition for people is intense in Hong Kong (SAR) and Singapore, with top talent often drawn towards hedge funds, asset managers, and large investment banks.

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