Asia’s family offices have been betting big on risk — but that could be changing

Asia’s family offices used to have a far bigger appetite for risks compared to their global counterparts — but that could be changing, according to a recent survey.

A Citi Private Bank global survey in the third quarter of the year showed there has been a shift out of cash and into risk assets by family offices around the world — but with one notable exception, Asia.

A family office is a private wealth management advisory firm that caters to high net worth individuals. Citi’s survey was conducted on its family office clients, who collectively had a total net worth of $565 billion, and hailed from across the globe — with two-thirds coming from outside North America.

What sets family offices apart from traditional wealth managers is that they solely offer services to an affluent individual or family.

Asian family offices allocated far more funds into risky assets than low-risk assets in the first half of the year, Hannes Hofmann of Citi Private Bank told CNBC’s Squawk Box Asia in late November.

As such, “it’s harder for them to add to risk at this point,” he added.

About 44% of assets held by Asian family offices were private and public equity, compared to 30% to 33% in cash and fixed income, according to Citi’s Hofmann.

That’s a much bigger differential than family offices in the U.S., Europe, or in Latin America.

There are several reasons for the comparatively huge risk appetite of Asian family offices, including a historically low interest rate environment and bets on China’s post-Covid recovery, which has since lost ground.

Citi also noted that the potential slowdown in China and disruption of supply chains had a strong impact on the portfolio allocation of Asian family offices.

Another factor is that equity markets in Asia have fallen so far this year, compared with the U.S. or Europe.

Hong Kong’s Hang Seng index has slumped about 15% year-to-date, while mainland China’s CSI 300 has fallen more than 13% during the same period. Both were the worst performing major Asian stocks gauges so far this year.

On the other hand, Wall Street’s benchmark S&P 500 index has rallied 23% this year, while Europe’s Stoxx 600 has gained more than 12%.

On a global scale, 9% of the world’s family offices are located in Asia, according to KPMG Private Enterprise and family office consultancy Agreus.

In Asia, Singapore ranks first as a hub for family offices around the world, with about 59% of them based in the city-state so far in 2023, the report showed.

About 14% were based in Hong Kong, 13% in India and the rest were located in Malaysia, Thailand and Pakistan, Agreus said.

Singapore’s proactive regulatory stance and attractive tax rates have made it a top pick among the wealthy. The island nation also acts as a strategic base to access other investment opportunities in Asia in order to diversify investment portfolios.

“I think in Singapore, the MAS as a regulator is very proactive. Which is a great thing,” said Tayyab Mohamed, co-founder of Agreus, referring to the Monetary Authority of Singapore, the country’s central bank and financial regulator.

“So they’ve gone out there and really marketed Singapore and to bring family offices from all over the world to set up there,” he told CNBC.