A multi-family office (MFO) serves as a shared independent adviser to multiple families whose wealth may not be substantial enough to sustain a single-family office (SFO), or to families who are interested in co-investing with other wealthy families.

A boom in their popularity is derived from the strong demand for the tailored, holistic approach MFOs can offer for family succession planning without any cross-selling rationale behind their investment advice – something that traditional private banks struggle with.

Family offices of all shapes and sizes are much sought after by jurisdictions across APAC. Hong Kong is seeking to boost the number of family offices by hosting a ‘wealth for good’ event in late March 2023. It is eyeing its main rival Singapore and wants to boost the number of family offices (both single and multi) there to around 200 by the end of 2025.

A greater level of customisation is indeed one element behind the popularity of the MFO, but another factor is that clients do not trust any single private bank with the entirety of their assets. In this way the role of the MFO is to act as an aggregator, giving clients a consolidated view of their assets, both bankable and non-bankable.

A third attraction of the MFO model is cost. With an MFO a client gets customisation and a consolidated view, but without the cost that a SFO would incur. A rough guideline is that US$500 million is the threshold for a SFO. Below that level and it becomes nonsensical from both a cost and effort viewpoint. A MFO model meanwhile is more affordable and also confers an economy of scale - the infrastructure, the orchestration and the technology in delivering that is better. There is also an economy of scale in terms of the investment managers, access to third-party specialists for other areas such as succession planning, philanthropy, taxation and legal matters and the like.

In Asia, the popularity of the SFO and MFO models is a catch-up play. In the US they have been around for 100 years or more and in Europe the concept is also well-established and embedded. In Asia however, wealth creation came later on and accordingly, the SFO and MFO are at an earlier stage of development - even as recently as 25 years ago there were not many multi-millionaires.

The investment capabilities of the family office (FO) have also developed. The increased number of wealthy and their increasing sophistication now gives rise to the need for diversification of assets. Historically, investments tended to be in local equities and that then extended to the US and was added to with fixed income and emerging markets. Today people take a global view of their investments and business owners in the region seek to diversify by investing outside of it. The popularity of private markets is particularly remarkable, with around 70% of assets going to public markets and between 20% and 30% going to private markets. It is a sizeable demand but there is the need to stress that investment in private markets is for the long-term. The illiquidity premium is nearly always amply compensated for by returns over the long-term, however.

ESG is something that is also in demand, accelerated by Covid-19, generational awareness of sustainability issues, and greater expectations around how companies behave. Interest dipped slightly after markets tanked last year but the direction of travel is clear. Companies that behave badly will be shunned by investors and, as entities, will do less well performance-wise than those that behave well. This is due to them generally having smarter and more progressive management at the top and that is more likely to lead to innovation and success.

This is something that will only grow in importance as the next generation of investors comes onboard. I would also expect to see impact investing take off as well.

Next generation
Clearly for the next generation, MFOs need to adapt to stay relevant and the whole ESG and impact investment is one area that will see greater emphasis going forward. The other major trend is for wealthy next-generation individuals to be much less interested in the day-to-day management of money, particularly when it comes to public markets. The expectation is of an uptick in discretionary management with client focus on the more exciting stuff like private markets and impact investing.

To do all this requires the correct technology to be in place for service delivery. A recent move to a new platform that provides significant internal efficiencies has been successful. It has portfolio management, CRM, AML monitoring, and a document repository.

Something else absolutely crucial is having the right feeds in place to make sure the system can take in portfolio data from various places and then use it to create a consolidated view that is easy to consume for our clients on a daily basis. The means to offer connections to broader family governance-type experts such as lawyers and accountants, is also apparent.

Indeed, connectivity is important – the MFO is the orchestrator – the client basically wants the MFO to carry the ball for them and give them the comfort of not having to do that themselves. At the same time, they want to be able to see how things are going but the demand to have interaction when it comes to viewing assets is not high. This is because over half of mandates are discretionary and that number is expected to grow. Accordingly, the decision is to have a front-end that is pretty basic and not interactive – it is view only.

In terms of communication, there is much less of a need for face-to-face meetings because video calls have become the norm – again this is something that came as a result of Covid- 19-related acceleration. It suits clients - they are busy people and do not have the time to travel. They are very often international and so the means to connect with the relationship managers virtually, at a time of their choosing, is important.

Going forward the expectation is that the MFO model will continue to be successful. Picking the right tools to support the provision of a customised and aggregated service that gives clients a robust handle on their assets as a whole is the play. To achieve this, the technology infrastructure needs to meet internal needs in terms of being able to properly provide the service in an efficient and timely manner. It also needs to meet client needs, be that in terms of communication or other digital tooling they might want going forward.

This article is from The Wealth Mosaic’s APAC WealthTech Landscape Report 2023. Access the full report here.