Danai Pathomvanich
May 15, 2015
As many Asian families attain substantial liquidity following successful listings in global capital markets, large family offices are being created.
Just six months after Alibaba’s successful US$25 billion New York Stock Exchange initial public offering (IPO), its Chief Financial Officer Joseph Tsai announced that he would be forming a multi-billion dollar family office.
The family office would be set up in Hong Kong to help Tsai diversify his wealth as IPO lock-ups expire.
Modeled after US endowments
A recent Wall Street Journal article “Alibaba’s Joseph Tsai to open multi-billion dollar family office by Mia Lamar and Rick Carew said Tsai’s family office will be modeled on the investment programs of prestigious U.S. endowments like Yale University, where Tsai studied.
They said Yale’s endowment has been a pioneer in investing in new asset classes and young managers, including providing the initial capital for the $18 billion Chinese investment firm Hillhouse Capital, which is also managed by a Yale alumnus, Zhang Lei.
In establishing a family office, Tsai is following a long-line of US internet entrepreneurs.
Facebook’s Mark Zuckerberg was an early investor in Iconiq Capital, a San Francisco based multi-family office, that also handles accounts for Facebook CEO, Sheryl Sandberg.
Google founder Sergey Brin has a Los Altos, California based family office Bayshore Global Management that manages his investments.
Vulcan, Microsoft co-founder Paul Allen’s family office employs more than 500 people that manage an in-house media company, a multi-billion dollar investment portfolio and ownership of professional sports teams such as the Portland Trail Blazers of the NBA and the NFLs Seattle Seahawks.
Family-office experience
Before joining Alibaba Tsai, a Yale law school graduate from Taiwan, previously worked for Investor AB, an investment vehicle controlled by the Wallenberg family.
Investor AB is a Swedish family office that controls major stakes in many companies drug maker AstraZeneca PLC and telecommunications giant Ericsson.
According to Bloomberg, Tsai quit his US$700,000 Investor AB annual salary position in Hong Kong handling direct investments, private-equity and venture-capital funds in 1999 to work with Jack Ma and Alibaba for $US600 per year.
New wave of Asian of multi-millionaires and billionaires
Asia booming economies have created many ultra-high net-worth families and businesses that have a growing demand for family offices to help them manage their investments and assets.
Family offices are small financial institutions created to manage ultra-high net worth portfolios.
A recent The Wealth-X report said that Asia had 52 new billionaires in 2014, of which 33 were from China.
At the same time, according to a UBS report, family offices in the Asia Pacific had an average of US$480 million assets under management in 2013 and managed more than US$20 billion in private wealth.
Family offices to double
Insead’s Michael Prahl said Asian and Middle East family offices will more than double in the next eight years.
“Driven by the region’s economic expansion, the number of wealthy individuals is expected to rise 40 percent by 2023.’
Prahl estimates that Asia currently has about 200 family offices compared to about 1,000 in Europe and 3,000 in the US.
“In the average Asian family office, just three investment professionals manage about $400 million of assets, that compares with five to six professionals managing between $300 million and $1 billion in Europe or the US.”
More than 14,600 families globally
Margaret Collins in a recent Bloomberg article “The big business of Sergey Brin” said that a Boston Consulting Group study showed that more than 14,600 families globally had assets of at least $US100 million, up 42 per cent since 2008.
Many of these families have set up family offices to help manage their investments as well as their daily lives.
Market researcher, Campden Wealth said family offices employ more than 20,000 people globally.
“The family offices serving billionaires usually has at least 50 people on staff and multiple teams include executive, administrative and investment groups.”
