High PE exposure drives Asia family office performance - study

The Global Family Office Report 2015, released by Campden Wealth Research in partnership with UBS, found that Asia Pacific family offices generated an average return of 6.3% last year in dollar terms, down from 7.6% in 2013. Europe performed best, returning 6.4%, while the global average came to 6.1%, compared to 8.5% the previous year.

The study covered 224 family offices based in 37 countries, representing well over $200 billion in private wealth. A total of 35 Asia Pacific family offices participated, with average assets under management of $431 million.

Family offices in the region hold 45% of their portfolios in illiquid assets, such as private equity and real estate. This is similar to the global average but significantly higher than normally seen in the portfolios of high net worth individuals (HNWIs). Asia Pacific family offices' allocations to private equity specifically are relatively high - the global average is 22% while in Hong Kong it rises to 27% (although Hong Kong family offices achieved lower than average overall returns of 6% for the year).

These percentage allocations include venture capital and co-investment, and the study found that family offices usually take an active management role for private equity. Office-to-office deals typically constitute one tenth of a family office's private equity allocation.

This is consistent with one principal from an Asia Pacific single family office, who stressed the need for control over PE investments. "We would rather take bets on ventures that we are involved with, because that's a variable we can control. We can control the management, we can control what we build, we can control the quality, we can control the client service," the principal said.

It also tallies with anecdotal evidence that direct investment accounts for the bulk of family office PE activity in Asia. This is in part explained by the entrepreneurial nature of many wealthy families - they have often engaged with PE more as a means of supporting the founder's operating business. The counterpoint is that as family offices become more institutionalized they may be more open to fund investing, although GPs will need to find ways of satisfying appetites for co-investment.

At the same time, the study found that Asia Pacific family offices appear to be more cautious in their investment strategies than their global peers. They expect the growth allocation in their portfolios to fall to 27% in 2015 from 33% last year, with more capital directed towards preservation-oriented and balanced strategies.

"Asia Pacific family offices bucked the multi-year trend that has been seen globally towards more risk taking in investment strategies, and are taking a more cautious approach. This very much reflects the volatility seen in the market, and the economic uncertainties that prevail," said Dominic Samuelson, CEO of Campden Wealth, in a statement.

Asia is also burdened with the highest costs - total operating costs are 115 basis points compared to the global average of 99 basis points. In Hong Kong alone, costs are said to be 121 basis points. Rising expenses could be driven by anything from the recruitment of additional staff to compliance costs tied to more complicated tax and regulatory compliance requirements.

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• Topics
• LPs
• Performance
• Fundraising
• Asia
• LPs
• Family office
• Co-investment
• Direct investment
• Performance
• Fundraising