Demystifying the "family office": the super-rich come with trillions of "new money" to feed innovation

"Family offices (hereinafter referred to as family offices) can be said to be the standard for the world's super-rich. Nearly half of the $9 trillion in assets of the world's billionaires are managed by family offices, which manage more than $4.5 trillion in assets. Luo Mengjun, chairman of the Asian Family Office Association, told the Securities Times reporter.

Family office can be simply understood as a "big housekeeper" who provides a full range of wealth management and family services for the super-rich.

For a long time, this institution at the top of the financial industry chain has been regarded as the most mysterious and complex link: huge wealth, investment trends, secret inheritance, and has attracted much attention from the outside world. So, how does this institution that has crossed the threshold of more than $1 million help the rich to maintain and increase their wealth and inherit wealth and family spirit?

It is worth mentioning that in the current fundraising winter, more and more VC/PE (venture capital/equity investment) have turned their attention to the super rich behind family offices. Lan Qi, CIO (chief information officer) of a Hong Kong family office, said that more and more new economy leaders are entering the venture capital circle as LPs (investors), and they are more inclined to choose VC/PE that has helped them to collaborate.

The Grand Governor of the Super-Rich

How the family office is built

Hong Kong and Singapore are the main home offices in the Asia-Pacific region, and in recent years, the two places have stepped up their policies to compete for the position of the Asia-Pacific family office hub.

The reason is that family offices are the source of all investment-related things, and they can manage huge wealth through various tools, so they can exert a huge multiplier effect. As Leung Wei Yan, deputy director of Sovereign Trust Family Office in Hong Kong, said, "Family office is only a form of wealth management, and the wealth management means and tools behind it are the most important." ”

According to Liang Weiyin's observation, in the past 10 years, more and more ultra-high-net-worth individuals have chosen to hold the equity of the company to be listed in the form of family trust or the establishment of a fund limited partnership structure to hold the equity of the company to be listed, the equity of the listed company, financial assets or real estate. In particular, the tool of family trust has become one of the standard structures for wealth management in family offices.

Set up a family office for as short as 2 months or as long as several years. Luo Mengjun introduced that the preparation of the family office is a difficult systematic project, before the formal preparation, the first choice must determine what services the family owner (actual controller) wants the family office to provide and the priority of specific services, as well as understand the owner's investment habits, whether it is mainly inheritance or investment income, and even including his private life and emotional history will do a detailed investigation, the family office does not have a standard template. Therefore, for the family, it is based on the flexibility and ingenuity of professional consultants to build an effective structure suitable for the family's current and future needs.

Once the owner decides to set up the family office, it will build the team and set goals. For example, in the Lee Kum Kee family in China, through the family committee, Lee Kum Kee has defined the common goal of the family, that is, the family ambition: "The Lee Kum Kee family will continue to operate, create history on behalf of the Chinese nation, and become a model of family business." ”

At the same time, Lee Kum Kee also formulated a family constitution: all resolutions will be constantly negotiated and discussed, and only when 7% of the seven family members pass it, they can enter the family constitution, which is very strict.

One thing is for sure, the management team must be someone that the owner trusts very much, due to the variety of investment asset classes of the home office, in addition to the investment manager, the family office may also need to recruit CEOs, secretaries, in-house lawyers, accountants, etc. to ensure the effective operation of the business.

"The annual expense of raising such a team is also a big expense, because everyone on the team is a group of experienced, top-of-the-line people who can make clear judgments and decisions about what is happening in the world, so the pay is not cheap. Some even have to be responsible for children's education, helping children find schools, family successor training, and even dealing with personal affairs of bosses. Liang Weiyin said.

The reporter learned that most family offices currently maintain a team of about 10 professionals, and some large family offices may have 50 or 100 people, which is completely an independent wealth management company. However, the proportion of such family offices will be relatively small, and the scale of wealth will be huge, calculated in hundreds of billions of net worth.

"If a family office wants to grow their wealth over the long term, for decades or generations, they have to manage their assets very carefully and do a good job of segregating from debt risks. I've seen a lot of single-office companies that are very active in the initial investment process, especially in alternative investments, direct trading and emerging markets, and even go long and short through hedge funds to earn returns on their investments. But after the 2008 financial crisis, their approach to investing became more strategic and tactical, they looked for opportunities globally, and their investment style tended to be robust. Luo Mengjun said.

Therefore, with the right advice and planning, the family office can meet the majority of the family's needs, thereby helping the family break the curse of "three generations of wealth".

According to Liang Weiyin, the asset classes of family office investment are very rich, such as excellent GP (fund manager), project direct investment, stocks, art collection, fixed income products, etc. Under the diversified asset allocation model, the flexibility of the family-office investment strategy is very high. For family offices, portfolios reflect family members' preferences and passions in terms of asset allocation and risk.

Family office becomes

An important source of global venture capital

"Do you know a lot of family offices? We are planning to raise a new fund, and we hope you can help connect with it. ”

This is a phrase that journalists have heard frequently recently. In the cold winter of fundraising, family offices have become one of the important targets of GP fundraising.

Deloitte Asia Pacific Family Office Director Ying Chen said that with the increase in demand for ultra-high-net-worth families studying abroad and family businesses going overseas, family offices are expanding globally, and family offices are becoming an important source of global entrepreneurship and innovation investment.

In fact, overseas, family offices have long become LPs (investors) as mature as pension funds, university endowments, etc., and they are important investors of venture capital institutions. In China, family offices have also become a force to be reckoned with in the venture capital circle.

According to Qingke data, in 2020, wealthy families and individuals contributed more than 18000,850 RMB funds, with a total investment of more than 78 billion yuan, a year-on-year increase of about 6.<>%.

Luo Mengjun told reporters that the new generation of super-rich people are more inclined to invest in start-ups through family offices to obtain excess returns. Since New Money itself is growing catalyzed by venture capital, they are more familiar with VC (venture capital) and therefore more inclined to invest in the "high-risk, high-return" primary market.

The new rich have become LPs of venture capital institutions through family offices, and are hidden in the VC/PE (risk/equity investment) circle.

Taking Wang Xing as an example, at present, his family office's primary market investment territory covers many VCs such as Source Code Capital, XVC, and Zhongding Capital. Sunrise Capital, the actual controller of Haidilao Daniel Zhang has invested in many GPs, such as CDH Investment, Yunfeng Fund, Sequoia Capital, Zhongding Capital, etc.

In addition, Gong Hongjia, a well-known angel investor in China, has become the LP of nearly 30 first-tier institutions through its family office platform in the past few years, including Sequoia China, IDG Capital, Hillhouse Capital, Morningside Capital, Matrix Partners China, Source Code Capital, GGV Jiyuan Capital, Shunwei Capital, etc.

Not to mention the veteran Jack Ma family and Ma Huateng family. Blue Pool Capital, a family wealth fund co-founded by Jack Ma and Mr. Tsai, was founded in 2014 to manage the billions of dollars generated by its Alibaba IPO. Tencent has also invested in dozens of VC/PEs, including Sequoia China, Hillhouse Venture Capital, Gaorong Capital, Qiming Venture Capital, Zhongding Capital, Zhixin Capital, Shunwei Capital, ZhenFund, Qingsong Fund, Dragon Ball Capital and many other well-known institutions.

According to public information, Shuanghu Capital, a family fund established by Wu Yajun, can be called the first family office in the true sense of Chinese mainland, and has also invested in Sequoia Capital China Fund, Hillhouse Capital, Lanchi Venture Capital, Carlyle China Fund, Source Code Capital, Yuanhuan Capital, Honghui Capital, etc., and also initiated the establishment of a fund of funds.

"In the primary market, we invest 40% of our share in GP and 60% in direct investment. If there are companies we are interested in, we will ask the GP to introduce the founding team to us, and we will build relationships ourselves, and we have very high requirements for GPs, and will examine all aspects of GPs, such as where the partner's sense of belief comes from, whether it is consistent with our core pursuit, his sense of responsibility and mission, etc. Lanch, a CIO (chief information officer) of the Hong Kong Family Office, said.

Now, more and more new economy leaders are entering the venture capital circle as LPs, and they are more inclined to choose VC/PE who have helped them to collaborate. "In the future, we may see more and more family offices or personal wealth upstarts." Lanch said. (Securities Times reporter Roman)