Legacy and Innovation

Summary:

This white paper is a part of report series launched by Deloitte Private in collaboration with UBS to explore the trends and outlook of family offices, with topics ranging from family succession, family governance, and the roles of next generation to sustainable investing etc.

For centuries, succession and next generation development has always been at the top of the agenda for family enterprises. Both family businesses and the next generation of successors are constantly looking for ways to transform in order to find their place in a rapidly evolving world. In a world of relatively low fixed income yields, many family offices are looking at growth assets with attractive returns, including private market investments. Some family offices across the Asia Pacific have already initiated their journeys in private equity investments to embrace vigorous growth opportunities at home, while building up credentials and discovering their roles in their family business along the way.

We have summarized a few key takeaways from the white paper for your reference and considerations. For more information, please refer to the white paper.

Key Takeaways:

1. Growing interests in private market investments from large family offices in the Asia Pacific
   In light of concerns over high valuations in equity markets and a relatively low yield environment, large family offices show heightened appetite for private market investments, particularly those family offices with an AUM over US$500 million.
2. Family offices embrace vibrant growth opportunities at home
   Family offices in Asia Pacific are now increasing their portfolio allocation at home.  The robustness and resilience of Asian economies, especially China’s compelling growth story, continues to lure Asian family offices to long home investments. Being in home markets also allows family offices to play to their strengths in local investment circles, which they were otherwise not able to leverage in passive investments in traditional asset classes.
3. Accompanying growing appetites towards direct investments is the need for professionalized investment functions
   Many wealthy families and family offices can learn from the best practices of private equities and venture capital, and professionalize investment management and advisory functions around family wealth. Using those as a starting point, they can then customize according to their own investment objectives and deploy a flexible combination of investment models.
4. Knowledge of underlying markets and access to investment opportunities are key success factors
   When it comes to exploring new investment areas, mainland Chinese families are more inclined to bring in trusted investment managers in-house, while family offices in Hong Kong and Southeast Asia are more likely to partner with other investors or advisors to obtain expertise in the target investment market and access to funds and opportunities. Some of the next generation seize the opportunity to become an investment principal themselves.
   
5. Next generations forge new career paths through investing while helping to rejuvenate their family business
   Younger generations usually have different areas of interests from their predecessors and are more open-minded in terms of embracing innovation and disruptive technologies. Getting involved in the investment process gives the next generation extensive exposure in learning about business, industries and operations.
6. Next generation act as the intrapreneurial change agent' and a driving force of innovation
   In developing regions such as Asia Pacific where most family enterprises are within three generations and the founding generation is still active and possess a strong entrepreneurial drive, new ideas are often encouraged by family leaders, making the next generation a driving force of innovation.
7. Family offices across the Asia Pacific need to institutionalize investment activities and find their own path tailored to local market
   Replicating the best practices from mature markets will not be sufficient for wealthy families in the developing markets. Apart from dealing with intensifying competition and lingering uncertainties about the pandemic in rapidly evolving economies, they are also challenged to find unique paths and sustainable investment models customized for the local market.