Family office implanted in China's rich circle
China News Weekly reporter / Yang Qun
As the founder of Jinzhou Aohong Pharmaceutical, Yu Hongru has recently been in frequent contact with some investment institutions in the Brose family office to find capital investment under the influence of the new crown epidemic.
Brose Asset Management Co., Ltd., located on the 11th floor of the South Building of Beijing International Trade and Kerry Center, has fewer than 40 employees, but is in charge of more than 4 billion yuan of funds. The entire office area is more than 1,000 square meters, and the annual rent of the property is as high as more than 6 million yuan, but the facade is very simple and the decoration is low-key.
The predecessor of the Brose family office founded by Yu Hongru in 2015 was transformed from an asset management company. He founded Brose Capital in 2009 and transferred the equity of Jinzhou Aohong Pharmaceutical to Shanghai Fosun Pharmaceutical (Group) Co., Ltd. twice in 2011 and 2014, and obtained an ultra-high net worth return of 3.231 billion yuan.
The rapid development of China's economy over the past few decades has created a huge group of billionaires, a large number of super-rich people and a large amount of investable assets, which has led to the rise of family offices in the country. According to Jin Li, deputy dean of Guanghua School of Management, Peking University, "At this point in time, the accelerated development of family offices in China is a historical necessity."
Today, the family offices favored by the super-rich families are distributed in major financial centers around the world. The family offices hold huge amounts of wealth and hide behind various financial investments, becoming the top, most mysterious and complex existence in the financial industry.
The Chinese rich set up family offices and attached great importance to privacy. To the outside world, Ma Yun and Cai Chongxin ’s family office Blue Pool Capital is like a mysterious institution in charge of tens of billions of dollars; and Wang Sicong ’s own office of Pu Si Capital and his father Wang Jianlin ’s family office are not known to outsiders; and The wife of the founder and chairman of Haidilao Zhang Yong, Shu Ping, established a family office in Singapore in 2019.
The rise of global "home-run"
Family offices in the modern sense appeared in the mid-19th century. Some big entrepreneurs in Europe and the United States seizing the opportunity of the industrial revolution gathered financial experts, legal experts, and financial experts to manage and protect their family ’s wealth and business interests. research.
Thus, a single family office serving only one family was born. In 1882, John Rockefeller, the founder of American Standard Oil, took the lead in setting up a family office, and JP Morgan founder John Pierpont Morgan followed suit. According to incomplete statistics, in Europe and the United States, there are already hundreds of family offices serving more than three generations of family members.
The initial form of a single family office is to sprout from the family industry and continue to serve a family. According to the regulations of the US SEC, only a wealthy family with more than $ 100 million in investable assets in a single-family office can afford its operating expenses. The resulting joint family office serves more employers, and can even serve hundreds of families, usually serving the wealthy families with investable assets ranging from US $ 20 million to US $ 100 million.
After hundreds of years of development, the family office has derived various organizational forms. Gao Hao, director of the Global Family Business Research Center of the Wudaokou School of Finance at Tsinghua University, believes that an important function of the family office is to tailor the professional services needed according to customer needs. He defined the family office as an institution that comprehensively manages and governs a balance sheet of ultra-high net worth families. It can be divided into two categories: Single Family Office (SFO) and Multi Family Office (MFO).
From the current development situation, most family offices are single family offices. According to the "2019 Global Family Office Report" by UBS and Compton Wealth, 80% of family offices are currently SFO, most of which are independent from family business; the remaining 20% are MFO.
The single family office is obviously more popular with the family. Gao Hao said in this analysis: First, the family office manages the entire family balance sheet, while private banks only manage part of the balance sheet; second, private banks are often affiliated with large listed financial institutions, based on their own performance pressure, The conflict of interest with customers is becoming more and more serious. Third, ultra-high-net-worth families often pay great attention to privacy protection, which is not possible for private banks, and it is not fully satisfied by the joint family office.
Wealth management is the core function of the family office, and it also undertakes a variety of dazzling services. Among them, including tax, law, health, education, medical care, art, travel, charity and other services that rich families can need; some can also handle sensitive family matters, such as drafting pre-marital agreements or divorce agreements, helping heirs take office.
For a long period of time, family offices were mainly registered in European and American countries. However, as the Asia-Pacific region's economy accounts for a higher and higher proportion of the world, the situation changes. According to the statistics of Compton Wealth Company, of the approximately 7,300 family offices in the world, the Asia-Pacific region accounts for 1300, and the growth rate after 2017 is as high as 44%, which has surpassed the European and American countries.
It is foreseeable that the next growth point of the family office is in the Asia-Pacific region.
Gao Hao's analysis of China News Weekly stated that the rapid development of family offices after 2000 was mainly driven by the three major trends that have occurred during these two decades: First, globalization, technology, and financialization have created wealth creation in countries around the world. The speed is increasing, the scale of wealth has increased significantly, and changes in the economic structure have spawned more super-rich individuals. Second, the wealth management industry has undergone dramatic changes. Compared with traditional private banks and other institutions, the customization, neutrality and professionalism of family offices Sex can better meet the needs of emerging ultra-high net worth people; third, family offices are highly related to family inheritance, and the functional positioning of family offices is in line with the wave of global wealth inheritance.
Family inheritance worries
The inheritance of family wealth has always been a worldwide problem, and it is also a topic that the rich will always care about.
Judging from the success rate of family business succession, the average life span of Chinese family business is less than 24 years. Less than 30% of family businesses can enter the second generation, less than 10% can enter the third generation, and only about 4 enter the fourth generation. %. The short life cycle of the family business seems to be validating a millennium saying, "We cannot be rich for three generations."
The family office seems to be doing a task that it knows can't do. "The establishment of a family office by a super rich person hopes that the inheritance of wealth can be achieved, but the degree of wealth destruction is even higher. Even if the family trust may increase the success rate of wealth inheritance by 10% to 20%, it is still difficult to change the dilemma of 'not being rich for three generations.' Hao said.
Li Qun, founder and president of the family office of Jinghua Family, revealed to China News Weekly that China is currently facing the largest window of wealth inheritance in history. "Forty years of reform and opening up, China's earth-shaking economic development has created one of the world's largest wealthy groups. Today, this batch of first- or second-generation entrepreneurs is facing three kinds of problems, namely enterprise transformation and upgrading, new Old shifts and inheritance of wealth. If so many private enterprises fail to achieve orderly inheritance, then China will face huge social problems. "
Around 2013, the family office took root and germinated in Mainland China, which was gradually recognized and accepted by ultra-high net worth families. Jin Li, deputy dean of Guanghua School of Management, Peking University, believes that, first, many wealthy families have enough wealth to support the expenditures set up by family offices; second, private banking services are increasingly difficult to meet the needs of super rich people; third, many original private banks Professionals from accounting firms and law firms jumped out after seeing mature conditions and were willing to provide professional home office services for super rich.
The single family office in China generally maintains a streamlined structure, which makes outsourcing strategy the choice of many family offices. Among them, most family offices maintain close cooperation with external private banks and investment banks. A small number of family offices do not make direct investments. They are only responsible for asset allocation and selection of investment managers. Some family offices even have risk control, tax, Lawyers, IT and other functions are outsourced to external professional institutions.
The Brose family office also adopted the strategy of internal and outsourcing. Yu Hongru revealed, "In some professional fields, we are cooperating with outsourcing companies, but we have to learn by ourselves in terms of concepts and strategies. Especially in cognitive learning, strategic planning, and second-generation training , Family charity, etc., must be done by yourself. "
Yu Hongru introduced that the operation mode of the Brose family office is a single family office, whose main function is asset allocation and home office functions, and is committed to making long-term investments.
From the perspective of inheritance, Yu Hongru believes that spiritual inheritance is more important than material inheritance. In response, the Brose Family Office has established a family charity business and is exploring forms such as charitable foundations and charitable trusts. "Kindness makes money go further, and charity is used to set off the family's concept, which is of great help to families and businesses."
Still need specification
Due to the early stage of development, it is difficult for Chinese family offices to have a significant impact on the financial system. The more practical issue is how to supervise the current mixed industry.
For now, most single-family offices in China are set up in Hong Kong and Singapore, such as Wu Yajun of Longhu Real Estate, Alibaba Ma Yun, and Zhang Yin of Nine Dragons Paper. The fastest growing model in China is the joint family office. Li Qun said with a smile, "there are more family offices than families."
Gao Hao also said that the concept of family offices has been hot in China in the past few years, and there have been a number of family offices under the banner of family offices in the market that are actually doing business in different directions. These so-called family offices are extremely detrimental to the security and stability of the financial market and the inheritance and protection of family wealth.
According to Li Qun's view, there are "three more and three less" problems in the Chinese family office, that is to say more to do less, false to be true and less to be true, and there should be more from the south to the north. Many family offices are not family offices in the traditional sense. China's family offices have diverse backgrounds and different businesses. In general, they are still in the initial stage of exploration, and they have Chinese characteristics.
Fan Xiaoman, founder of Huiyu Global Family Think Tank, believes that the development of China's family office industry has been progressing in an orderly manner for many years, but it is also subject to some of the shortcomings of the "familiarity" of most practitioners and the attributes of FO institutions. Compared with the United States, family offices derived from family investment advisers have buyer advisory licenses issued by the SEC; while many family offices in China are born out of seller agencies. The family offices of several well-known wealth management companies in the country will also encounter the need to obtain the trust of family customers with buyer's thinking and product sales, which is difficult to achieve. , Few practitioners can cross.
Zhang Yong, the founder and chairman of Deyu's family office, told China News Weekly that the biggest problem in the family office industry is to gain trust. "One is to trust the moral qualities of people and institutions, and the other is to trust the ability to solve problems, both of which are extremely difficult to achieve."
Zhang Yong also believes that Chinese rich people's willingness to pay for family office services is very low, which directly affects the profit model of family offices. The conventional consulting fees abroad are rarely paid by the domestic rich, so the two commonly used charging models are formed, one is from the investment income divided by the management fee, and the other is the fixed annual fee.
Compared with the United States, Chinese family offices still have a lot of room for development, but China has no corresponding policies. In the future, whether the threshold for setting up family offices and issuing licenses is regulated as in the United States, or whether the opening of family offices is established as in Singapore is still unknown.
However, in the context of a large number of private enterprises that need to be passed on and more and more rich people move overseas, the family office policy is clear as soon as possible, which is obviously more beneficial to the development of the industry.
"China News Weekly" No.16, 2020
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