By some estimates, there are 400 billionaire families in Mainland China today – now roughly the same as in the United States.

By some estimates, there are 400 billionaire families in
Mainland China today – now roughly the same as in the United States. Chinese
are buying real estate, farms, residential property and office buildings in
Australia.  By at least one report,
capital raised through IPOs in Hong Kong, Shanghai and Shenzhen during in the
first 11 months of 2010 was almost 1.5 times the amount raised in New York and
London combined. Chinese are investing in businesses in the Philippines and
Thailand.  Chinese tourists are
packing the hotel-casinos of Singapore. Everywhere one looks in Asia, Chinese
wealth is flourishing. 

What does all of this prosperity mean for wealth holders
worldwide and for the private wealth management industry? For the industry, it
signals a tremendous growth opportunity by fulfilling the accelerating demand
for single-family offices throughout Asia. For wealthy Chinese families, the
emergence of single-family offices in Asia will improve the way families handle
investment strategy, educate children, manage philanthropic initiatives and
plan for intergenerational wealth transfer. 

More Similarities Than Differences

To understand wealth that originated from the Chinese
mainland, it’s important to note just how similar the needs of wealthy Chinese
families are to those of other families around the world. In fact, Chinese
families have much in common with the wealthy of Europe, South America, Asia
and the United States despite differences in language, customs and history.

Two recent conversations, which took place worlds apart, are
indicative of the commonalities. 
At a recent family office conference in Switzerland, a European asked me
what was the “best long-term investment for a family.” I replied that it was
farmland in a country that has a tradition of common law and a solid system of
recording conveyances.  In a recent
conversation in Singapore, I learned that a Beijing wealth creator
independently came to the same conclusion: The best long-term investment for
his family, he confided, is farmland in the US, Australia or Canada. 

As their fortunes grow, Chinese wealth creators share
another common goal with wealthy families worldwide: the importance of
education, particularly a Western education.  Chinese increasingly understand that wealth today is global.
That requires a global education for children, along with a global network.

Some Chinese are even moving to the US for several years to
ensure that their children are educated by America’s higher standards.  Recently, I learned of a Chinese wealth
holder temporarily residing in the US saying, “Here are the best ten colleges
in the US I want my child in one of them.”

When it comes to philanthropy, the Chinese are just like
wealthy families the world over. They open their hearts and invest in community
with a sense of what was once called “noblesse oblige.”  However, the Chinese will tell you
openly they do not like the term “charity.”  A friend of mine was even more direct:  “Don’t mention philanthropy in
China.” 

Yet, this same wealth creator spends some of his fortune
supporting schools and hospitals and even building roads to fulfill his “duty”
to community.  Over and over,
Chinese wealth creators talk about the “duty” of wealthy families, but never
mention the word “philanthropy.” 
Whatever the vernacular used, investing back in the community is a vital
objective for many Chinese families. 
For Chinese as for all other wealth holders, strategic investment in
community is a need that must be carefully planned and executed.

The Curse of Vestigial Thinking

Surprisingly, despite the cross-cultural opportunities for
families and industry professionals, the world’s members in the community of
private wealth are not generally embracing their Chinese counterparts. With
rare exception, new wealth from China remains largely outside the established
community of private wealth. That has thwarted the traditional relationships in
which wealthy families invest together, share common ideas and evolve their
wealth.  As one European family
office executive put it: “We do not find the Mainland Chinese trustworthy,” yet
he is very open to partnering with a Hong Kong family.

The reluctance to work together is due to a number of
factors – all of which need to be acknowledged so they can be overcome. First,
significant modern wealth from Mainland China is relatively new, so there has
been less time to make connections with more established family fortunes. China
has been a relatively closed society, so that adds a measure of caution for
both Chinese and Western families. And, unlike like newly wealthy Indians,
whose British ties have given them entry to European families, wealthy Chinese
have not had the same access.

The lack of democratic institutions in China and convoluted
ownership laws of the country have also dampened enthusiasm for mutually
beneficial relationships.  “Chinese
families are too new to all this – their values are different from ours,” said
one investment expert in a recent conversation with a European family
office.   He alluded to the
usual belief that Chinese investors are “gamblers” willing to take very high
risks throughout their portfolio. 
Paradoxically, those who work with the wealthy Chinese (wherever they
are located) will tell you that most built a relatively small part of their
portfolio around high-risk wagers and the bulk around a disciplined and sound
philosophy of long-term patience in investments.

In spite of the misgivings, the time is right to integrate
wealthy Chinese families into the broader community of private wealth.  The wealth management industry must do
more to understand the cultural differences and view those differences as
opportunities.  Providers need to
open conversations about how to introduce Chinese wealth holders to the old
wealth of Europe and the U. and the new wealth of South America, the Middle
East, and Eastern Europe.  Non-Hong
Kong Chinese need to be encouraged to participate in forums and networking
opportunities hosted by the Institute for Private Investors, Family Office
Exchange, Campden, Family Office Channel, Terrapinn or Marcus Evans.

We stand at an opportune moment to bring newly wealthy
Chinese families into the global community of private wealth. It is up to all
of us figure out how to engage Chinese families so that we can learn from them
and build with them.

Charles Lowenhaupt is chairman, chief executive officer and
president of Lowenhaupt Global Advisors.