What is a family office? Why set up one and how it works

“Family office” has become a buzzword these days, with both Hong Kong and Singapore vying to be the leading hub for family offices in Asia. 

The Hong Kong government held an inaugural Wealth for Good summit in early 2023, attended by over 100 key decision makers of global family offices. Subsequently rolling out tax concessions as well as launching the Hong Kong Academy for Wealth Legacy.

In a recent study conducted by Deloitte and FamilyOfficeHK, Hong Kong is home to more than 2,700 single-family offices, with the city aiming to attract 200 more by 2025. Many more multi-family offices are not included in this count. 

But just what is a family office? And why are more wealthy families setting up one here?

What is a family office?

Wealthy families are advised to set up a family fund/trust, which puts proper and institutionalised structures in place to determine how family assets should be recorded. A family fund brings more transparency and more efficiency to the financial planning of family wealth. 

Having a family fund or trust helps to bring about smoother estate planning. This is critical, with the largest inter-generational transfer of wealth of our time to take place in the next decade or so. Credit Suisse estimated more than US$8 trillion of wealth will be transferred between generations from now until 2029. Yet, a recent whitepaper found that seven in 10 wealthy families are not prepared for intergenerational wealth transfers.

A family office is created to effectively manage the assets and needs of high-net-worth individuals and families. Family offices take many forms and structures, depending on the needs and circumstances of the family. A typical single family office structure would involve a holding company, and/or investment vehicles held directly or via a trust.

By setting up a family office, it could provide several benefits. First, instead of dispersing investments and portfolios across various private banks, it allows families to bring in-house dedicated expertise, and exert more control over the family’s wealth and how it is being built for the next generations. 

It can also be a platform for next-generation family members to build experience in deal sourcing and related due diligence, giving them a perspective on cutting business deals.

Besides financial services, some family offices also take care of other aspects and needs of the families, such as estate planning, philanthropy, concierge services, and more.

Why set up a family office in Hong Kong?

Hong Kong has historically been a key global offshore cross-border wealth hub, ranking second behind Switzerland by assets under management (AUM). The depth of Hong Kong’s capital markets, robust banking and legal infrastructure and service provider network, and availability of skilled professionals make the city an ideal base for family offices. 

As part of its effort to attract more family offices to set up in Hong Kong, the government also introduced new tax incentives in May 2023, giving single family offices (SFOs) exemptions on profits tax if they amass an aggregate asset value of HK$240 million or more in qualifying assets — including stocks, bonds, funds, and an operating expenditure of at least HK$2 million. 

Traditionally, most family offices would use single special purpose vehicles (SPVs) to "house" their investments. Given the tax concession regime given to specific family-owned investment holding vehicles (FIHV), this makes particular sense to hold investments collectively under an FIHV. 

How Endowus work with family offices

Our client base comprises family offices in the region, demonstrating the trust and confidence they place in Endowus as their independent, conflict-free wealth advisor and investment platform. 

Our mission is to bring the Yale model of "endowment-style institutional investing" to all, including affluent families. After they have been set up, family offices can leverage the expertise of the Endowus Investment Office.

Endowus Investment Office is led by our Chief Investment Officer, Samuel Rhee, who was formerly the CIO and CEO of Asia at Morgan Stanley Investment Management, and Hugh Chung, our Chief Investment Advisory Officer, who has extensive experience working in family offices. The seasoned team brings valuable portfolio construction capabilities and access to institutional-quality investment products at a low, fair cost.

At Endowus, building blocks of portfolios are unit trusts or mutual funds, each of which is carefully selected by the Endowus Investment Office.

This includes access to a growing suite of hedge funds and private markets investment funds, such as private credit, private equity, and private real estate. These asset classes, often not widely available to the general public due to limited access, high minimum investment requirements, and elevated costs, are offered by Endowus at lower costs compared to traditional private banks.

Like other investors of any scale, family offices should understand the incentives that a distributor or advisor may have in advising on particular products and if trailer commissions are involved. This is because incentives may influence what investors are pushed to buy. 

Bespoke portfolios and exclusive access

Endowus' business model and advisory framework consistently and systematically guide clients towards investment solutions for their current goals and any future changes in those goals.

We serve family offices in two distinctive ways. 

Firstly, we take on the responsibility of managing and overseeing a family's wealth in its entirety through bespoke portfolio construction. Our client advisors will start by understanding the overall wealth objectives or specific goals of a fund or a trust–whether they are perpetual or standalone goals. 

After collating these, advisors will then align them with the family fund or trust’s return expectations and risk tolerance to produce portfolio construction advice. After beginning to invest, as a continuous effort, our advisors conduct regular reviews with the stewards of a family’s wealth. 

Another way through Endowus, family offices can also access a range of best-in-class mutual funds, hedge funds, and private market vehicles exclusively at fair and transparent costs. 

This unique outsourced investment office or CIO service truly sets us apart in our dedication to serving families in their wealth-building journey.

Contact our private wealth arm at familyoffice.hk@endowus.com. We can cater to your family office needs — be it through bespoke portfolio construction to cater to various goals and life priorities or being able to exclusively access more investment products, many of which are only available to Professional Investors. 

Read more:

• Why invest through Endowus
• How alternative investments can fit into one’s portfolio
• How Endowus keep your money and assets safe and secure

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