This publication secured an exclusive interview with Yan Lau, the head of family services in Asia-Pacific for UBS Wealth Management, and Munish Dhall, executive director, global family office for Southeast Asia.

(Note: This article was first published on 23 May and is republished today.)

This publication secured an exclusive interview with Yan Lau, the head of family services in Asia-Pacific for UBS Wealth Management, and Munish Dhall, executive director, global family office for Southeast Asia, at the same firm. With so much happening in the family office space, and given the potential for this segment of the industry to grow in Asia, it makes plenty of sense for a top-bracket player such as UBS to be in the field.

Meanwhile, set in the sumptuous and secluded surroundings of the Norman Foster designed Capella Hotel the UBS Family Office Summit in Asia kicked off yesterday. The summit brings together leading global family office practitioners to attend two days of Global Macroeconomic viewpoints.

Among the 42 speakers are the UBS AG Chairman of the Board of Directors Axel Weber and the renowned contrarian Marc Faber.

Can you spell out some of the trends among Asian family businesses in terms of what kind of advice they are seeking?

Yan Lau (YL):

We see an increased interest for family office setups from entrepreneurial families across the region, especially from Mainland China and Taiwan. The centres of choice for family office setups in Asia are predominantly Singapore or Hong Kong.

In China, we are seeing increasing interest from wealthy families to understand the Western and Asian- based family office concept to create their own models which fit their cultural and regulatory framework.

Overall, the trend is towards professionalisation through increased risk management and better governance for investments (e.g. through proper investment guidelines; risk management policies, consolidated reporting, hiring of professional investment specialists). However, many family offices in the region are very much principal/family-driven [entities] with less clear separation of business assets and private wealth.

We estimate that there are at least 200 family offices in Asia. Asian families are relatively earlier on in their wealth creation cycle versus Europe and US, and wealth is still very much tied to their businesses – usually the first and second generations are still very much in control of the business and wealth, with some third generations starting to be involved. As such, there is more family member involvement in the family office in Asian families compared to other regions.

What do such business heads want? What kind of problems/challenges are they referring to?

YL:

Until recently, succession planning was often focused on putting in place an asset holding structure such as a trust to achieve asset protection and pass on wealth to the next generation for the purposes of a transition between two generations.

However, we have seen a shift in this mindset over the last years. UBS understands that for our clients these days, succession is more than passing on wealth. Bringing up the next generations with a deep understanding and pride in their family heritage and family values, harmony between family members, motivating the next generations to build on the success of the pioneer generations is even more crucial. We work with clients to establish clear legacy strategies for successful transitions across their family, business and wealth, of which the family office setup and philanthropy often plays an important role.

These strategies could involve developing a family governance and decision-making framework, putting in place ownership principles, business engagement rules, and designing impactful philanthropic arrangements, besides a family office setup. Hence, wealth managers serving these clients need to shift from a pure asset succession mindset to legacy-creation. They need to be able to understand these families, their businesses, what drives them and work closely together with them to create unique and bespoke legacy solutions.

What are family offices investing in? Can you give us examples of where they invest, and why?

Munish Dhall (MD):

The market environment is characterised by relatively high asset prices. The situation requires a more active approach to managing investments as investors cannot rely on "beta" to deliver good returns.

Indeed, we see three broad trends in the current environment among sophisticated family office investors:

a)    Investments into illiquid assets such as direct private equity and real estate, especially in sectors/geographies which are well known to specific investors. This is often a way for smart investors to take advance of market dislocations or access opportunities which are not accessible to smaller investors. Similarly, family office investors (and some institutional investors such as sovereign wealth funds) are moving in to fill the void left by banks reducing their balance sheets and reducing principal investing activities.

This trend was also highlighted by the UBS-Campden Family office survey which showed that family offices invest on an average a third of their assets in such illiquid investments.

A more active approach to investing: Using long-short strategies to invest into equity markets rather than traditional long only investments.

c) Since the financial crisis, investors have also shown a higher interest in foreign exchange as an asset class (or for hedging out FX exposures from their investments), though this has been more muted very recently with calm foreign exchange markets.

Having said this, the fixed income carry trade is alive and well in the form of leveraged bond portfolios. Overall, we are seeing more investors using the barbell approach for their portfolios with a near-cash or FI investments on one side and illiquid, specialized, concentrated investments on the other side.

Are family offices more/less concerned about risk and volatility than they were immediately after the financial crisis?



MD:

Family office investors tend to manage their portfolios with longer term perspective and want to take advantage of temporary market dislocations.  As mentioned above, they allocate a significant share to illiquid assets and / or to concentrated investments which may not be diversified by traditional measures. They therefore tend to define risk not purely in terms of volatility but as risk of permanent loss of capital. They take a much more comprehensive view of risk vs retail or HNW investors, looking into the sources of risk, such as market risk, liquidity risk, geopolitical risk, illiquidity risk, etc.

Also, a longer term perspective in managing wealth does not mean a "fire and forget" strategy for investments. Rather these investors revisit their assumptions and portfolio composition frequently and are ready to make large changes in response to market conditions

Finally what would you say is unique about the services UBS offers to family offices in Asia-Pacific, and why?
UBS has recognised global family offices as a strategically important client segment and has engineered the organization to deliver the services and advisory required by family offices.

This is most clearly demonstrated in the set up of the Global Family office unit, a 50:50 joint venture between UBS Wealth Management and its investment bank. This is meant to serve a small number of family offices and business families globally. UBS launched the Global Family Office (GFO) globally in 2010 to focus primarily on our 250 largest institutional-like or professional family office prospects and clients, who represent around 2 percent of our total ultra high net worth client base around the world.

UBS also matches experienced and highly competent senior client advisors with family offices. This is perhaps the most important element in UBS offering for family offices – senior relationship managers who can deliver the best of UBS Group, across geographies and divisions, to clients and develop bespoke solutions for clients.

It can systematically deliver the institutional offering of the investment bank and asset management arm to family office clients through GFO and Institutional Solutions Group. This includes not only investment opportunities but also supporting the growth objectives of business families through corporate finance advisory, capital raising and M&A.

UBS can support key relationships with the UBS balance sheet.

YL:
Our family services unit provides expertise on philanthropy, family legacy building, wealth and business succession planning and other non-financial services. In response to client feedback and demand, we are also holding the UBS Asia Pacific Family Legacy and Philanthropy Forum, in Shanghai, on July 10-11, 2014.

The forum brings together the thought leaders among international philanthropists, social entrepreneurs and multi-generational families with successful family legacies to share their stories and best practices, and we expect over 100 ultra-high net worth guests to attend, representing leading families in Asia with strong interest in philanthropy and family legacy.

Last year we celebrated the 10th anniversary of UBS’ next generation programmes in Asia Pacific, a testament to UBS’ commitment to help our clients with succession management - preparing their younger generation for responsible ownership and management of family wealth.

The UBS next generation programs were introduced in Asia to meet the needs of UBS Wealth Management clients whose primary concerns are about wealth protection and value succession over multiple generations. The programmes have sought to prepare the younger generation for responsible ownership and management of family wealth. They have also acted as platforms through which the participants may learn from their peers and establish ties with families from different countries and cultures. Over the years, more than 500 young successors have participated in our programs in Asia.

The programmes exclusively tailored for the younger generation range from career talks and university choices to longer courses covering finance, leadership and personal development.

In 2013, UBS Optimus Foundation, an expert grant-making foundation established by UBS in 1999, opened a regional office in Hong Kong to strengthen its footprint in the Asia-Pacific region and help clients meet their philanthropic goals. The Foundation works to break down barriers that prevent children from reaching their potential by funding leading organizations to improve the health, education and protection of children.

The UBS Optimus Foundation supports projects in places where children face adversity. UBS covers all the Foundation's administrative costs so that 100 percent of all donations go directly to the projects. Since its establishment, the Foundation has supported more than 300 projects with more than $200 million and currently finances more than 40 projects throughout Asia-Pacific.