The extraordinary economic growth in China over the past four decades has led to a sharp rise in the number of ultra-high net worth individuals in the country, and in turn has spurred the emergence of family offices, which have seen strong growth in recent years.
“The Chinese family office arena has been growing and maturing, rapidly,” said a new report from UBS. “In the last 15 years or so, Chinese families have been accumulating investment experience and, in turn, now want greater control over their wealth and more personalized services.”
In the previous 12 months, Chinese family offices earned an average return of 11%, led by private equity investments, which was the top performing asset class. Fixed income is the largest asset class, and accounts for approximately 22% of family office portfolios in China, followed by equities and real estate, which have an average weighting of 17% and 13%, respectively. The remainder includes an average allocation of 20% to private equity, which includes allocations of 11% and 9.2% to direct and fund-based investments, respectively.
The report, which surveyed 76 family members, senior family office executives, and family wealth managers in China, said that despite the large allocation to fixed income, some family offices allocate half of their portfolios to private equity direct deals, funds, or some combination of the two. It also said that many Chinese family offices were established specifically to make private equity investments. Several respondents indicated that they have recently boosted their allocations to private equity and real estate, prompted by relatively attractive returns and diversification benefits.
The average net wealth of the families represented in the report is RMB6.5 billion ($932 million), and the average amount of assets under management of the family offices is RMB4.2 billion ($59 million). Additionally, the average age of the generation currently in charge of family wealth is 55 years.
Approximately 29% of survey respondents reported that their family wealth originated from the real estate industry, which UBS said is twice the global average. Real estate was followed by consumer discretionary (16%) and industrials (13%). In terms of where family wealth lies, 45% is in the operating business, 27% is in financial instruments, and 21% is in real estate, with the remaining amount in collectibles or other hard assets, such as art, cars, and wine.
Some 30% said the primary wealth management vehicle is a single family office, while it was a commercial multi-family office for 16%, and a private multi-family office and a hybrid family office accounted for 9.2% each. The maintenance of family wealth is the main motivation for establishing or joining a family office, survey respondents said.
“Overall, Chinese families of wealth have stressed how varied the family offices—and, indeed, the families themselves—are,” the report said. “Still, the character of the family office space is clearly and thoroughly shaped by the fact that the entrepreneurs/wealth creators are still around, still energetic, and very hands-on.”