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China's ultra-rich seeking family offices
Publication Date : 20-01-2014
In the 1980s, a mainland Chinese businessman made his first pot of gold in Singapore's health-care sector, and carried it home in a wad of $10,000 notes stuffed into a leather bag.
He ploughed it back into the burgeoning China market and multiplied his fortune.
Now, the low-key billionaire, who wants to be known only as "Tony Zhu", will be moving money back to Singapore - parked with a Chinese multi-family office that just set up its headquarters in the Asian financial hub.
But he might not have come full circle back here if not for the HMCFamily Office (HMCFO).
It claims to be the first home-grown outfit geared to offer a full suite of services, from tailor-made financial products to succession planning and family projects like charity work for ultra-rich Chinese with over US$1 billion in assets.
The firm was set up in Beijing in 2011 by successful fund manager Adam Yang, 35. After two years of preparation, he registered a holding company for HMCFO in Singapore late last year.
Making fortunes last
Yang, who also runs an China's ultra-rich seeking family offices eight billion yuan ($165 million) fund which reported average returns of over 20 per cent over the past decade, won Mr Zhu's trust by helping to grow his investments even during the 2008 financial crisis.
"Now that I am diversifying my assets more broadly across the globe and considering how to pass my fortune to my children, I need a family office like Adam's that looks after my financial and family interests," Zhu, about 50 years old, told The Straits Times in a phone interview. He added that HMCFO has helped him chalk up annualised returns of 25 per cent on his overseas estate.
He is one of an estimated 4,000 Chinese with assets of over $100 million - large enough for them to consider moving from private banking services to a dedicated team managing their affairs.
Family offices derive their name from United States oil baron John Rockefeller's famous office - housed in Room 5600 of the Rockefeller Centre in New York - where his family wealth and legacy are managed.
Its success in making the current seventh generation of Rockefellers even richer than their forebears is an inspiration for rich Chinese.
Big gap in China market
Yet, while China boasts one of the world's fastest-growing populations of billionaires, there are no mature, full-fledged family offices operating here yet, said Patricia Woo, a family office solicitor with King & Wood Mallesons.
"Many local players from banks to asset management firms are offering parts of a family office such as tailor-made hedge funds or trusts," she said.
"But China and Hong Kong lack family offices... combining asset management, succession planning and tax planning."
On the mainland, state giants like Bank of China and Ping An Insurance, as well as Shanghai-based Noah Wealth Management, are reportedly setting up family offices and trusts.
Noah's subsidiary took 20 rich Chinese to the US last year to learn about family offices. The trip generated a lot of interest, but the company is currently still only testing the waters in offering a full-fledged product, said an insider who declined to be named.
Noah's investor relations manager Ou Yang said it was not able to provide details of its family office business, citing reporting rules as it is listed on the New York Stock Exchange.
She declined to comment on a report by Chinese newspaper Economic Observer last year that Noah had garnered around six family office customers. HMCFO also did not reveal the size of its client base. But an indication of the numbers may come from the "HMCFO Club" it set up early last year exclusively for its billionaire clients to mingle in posh privacy.
It has already seen one marriage take place between two members who met at a club event.
Family offices that want to be based in China face hurdles like the limited range of sophisticated financial products and exchange rate controls that hinder fund transfers out of the country.
And Beijing is mulling over whether to introduce estate taxes, which could take a big bite out of the inheritance of rich Chinese. That is partly what attracts family offices to Singapore, which has no estate taxes and is not as close to the mainland as Hong Kong.
"Singapore also has political stability and a bilingual workforce, so our clients will feel safer and also more comfortable coming here to discuss their financial and family affairs," Yang said in an interview in his office.
The suite at Beijing's swanky World Financial Centre, which houses more than 20 staff, will still be a management centre. HMCFO also plans to set up an operations base in Hong Kong, as well as an office in New York later this year, said managing director Matthew Ng Aik Ping, a Singaporean.
Other cities the firm is eyeing include Los Angeles and London, where clients want help with issues from tax planning to emigration to picking elite schools.
This comes as demand for family offices with an international reach grows among Chinese billionaires, who are fast gaining global exposure. So, to establish its credentials, HMCFO is looking to forge relationships with some of the US' top family offices.
Woo observed that "family offices have become very fashionable in China". "But not many rich Chinese know exactly what they want from one," she said.
Yang thinks he has the answer. And it is not simply how to make the next billion.
"Many of my clients started out dirt-poor. So, they understand when I tell them: Money is the last thing you leave to your heirs," he said. "Your primary concern should be the correct beliefs and values to guide the way you enhance wealth and health, preserve family harmony and pass down the right legacy."
UBS Wealth Management's head of family services, Yan Lau, echoed this: "The family office is oftentimes... a cornerstone to build a family legacy."
In response to strong interest, UBS will be organising a family legacy and philanthropy event with the focus on China clients in Shanghai in June.
This year, some of HMCFO's billionaire families will visit improverished villages in south-western Yunnan province to offer free medical care for orphans and children with disabilities - and practise using their wealth and influence for good.
"One day, the Chinese could well become the world's richest people, build the tallest buildings and buy over the biggest companies," said Yang. "But that is worth little unless they become a zheng neng liang (positive force), and family offices like us can help them achieve this."