1、 0 China Family Office ReportChina Family Office Report (2022)(2022)September 2022 Introduction 1 INTRODUCTION As China is expected to see a rapid economic recovery with its effective pandemic response,it will continue to power ahead as a key player of the worlds economic growth.In terms of wealth c

2、reation,according to Forbes Worlds Billionaires 2021,the number of wealthy individuals with a net worth of USD1 billion in China reached 745,overtaking the US and ranking first in the world for the first time.Driven by the consistent growth of the new economy and the comprehensive registration syste

3、m reform,40%of newcomers on the list were from Mainland China.Among them,next-generation high-tech new economy industries,such as new energy,big health,and digital technology,have become important drivers for wealth creation.The growth of Chinas national wealth is the natural result of its high-qual

4、ity economic development,while also promoting the booming development of the domestic wealth management industry.According to the“China Private Banking Development Report(2021)”published by the China Banking Association and Tsinghua University PBC School of Finance(Tsinghua PBCSF),the assets under m

5、anagement(AUM)of private banks in China increased from RMB14.1 trillion in 2019 to RMB17.3 trillion in 2020,representing a growth rate of 22.1%;the number of private banking customers increased from 1.03 million in 2019 to 1.25 million in 2020,with a growth rate of 21.5%.In parallel with the rapid g

6、rowth of the wealth management industry,high-quality development on the supply side has seen stronger demand.It is difficult for traditional financial institutions to fully meet the heterogeneous needs of ultra-high-net-worth（UHNW）entrepreneurial groups in terms of both financial and non-financial s

7、ervices.FOs are also gaining significance,which is conducive to the vibrant development of the wealth management industry.As the“jewel in the crown”of the global wealth management industry,FO is a commonly adopted wealth management option adopted by the CEOs of Fortune Global 500 companies and high-

8、tech entrepreneurs.FOs are essentially backed up by entrepreneur groups that are the most innovative,creative,and capable of generating wealth especially company founders from the new economy and high-tech industry.The companies they founded have high market value,along with a high corresponding net

9、 worth of shareholders.From a macro perspective,money follows the person,and the level of competition for FOs is essentially the most competitive in the global business environment.FOs play an important role which cannot be Introduction 2 replaced by other institutional investors in terms of a count

10、rys scientific and technological innovation,industrial upgrading,and social civilisation.Such a phenomenon can be observed in the previous development stages of other economies.Meanwhile,when it comes to intergenerational succession,the first generation of private entrepreneurs are facing increasing

11、ly severe challenges.According to the New Fortune 500 Rich List 2022,entrepreneurs aged 50 and above account for 82%;60 and above account for 31%;and 70 and above account for 11%.China sees the imminent pressure of private enterprise succession in the next decade.For instance,tens of millions of pri

12、vate enterprises in China are facing the pressure of succession brought by the centralised wealth held by a generation of entrepreneurs for over four decades since the countrys reform and opening up.Such a phenomenon differs from European and American enterprises,where succession has historically oc

13、curred gradually over the long course of development.As a result,it may bring greater systemic risk to China,which must be given full attention.As an important mainstream vehicle for intergenerational succession internationally,FOs are bound to play a more critical and active role.In view of the imp

14、ortant role played by FOs in terms of technological advancement,financial development,and economic growth,countries around the world have formulated proactive policies in recent years to promote the high-quality development of the industry.For example,Singapore has accelerated its efforts in the fie

15、ld of FOs since 2017,and has also launched a strong mix of multi-pronged policies to enhance its competitiveness in this area.Monetary Authority of Singapore data shows that the number of FOs established in Singapore increased fivefold from 2017 to 2019,with a total of 700 FOs settled in Singapore b

16、y the end of 2021.As an important global region with the most dynamic economic development and technological creativity,the Greater China region has seen a substantial increase in the number of FOs and scale of assets under management in recent years.With reference to international experience,FOs of

17、ten stay low profile and pragmatic.As such,the market is exceptionally eager to gain in-depth insights,with the help of reliable data and systematic research,regarding the following important issues:What is the latest panorama of the current FO landscape in Greater China?How do Chinese businesses an

18、d the financial sector view the FO industry?What are the key factors to consider when starting an FO?How do FOs formulate strategies,structures,and processes that align with heterogeneity?How can an FO contribute to professional wealth management and robust intergenerational succession?What Introduc

19、tion 3 unique challenges do Chinese FOs face?In order to answer the above questions,the joint research team of the Financial Services Development Council(FSDC)and Tsinghua University PBC School of Finance(Tsinghua PBCSF)conducted a field survey and in-depth interviews with 30 leading Chinese FOs acr

20、oss the year of 2021.The average value of assets under management(AUM)of the FOs interviewed stood at RMB29.7 billion(approximately USD4.37 billion),and the estimated total AUM of the 30 FOs reached RMB891 billion(approximately USD131.2 billion).Over 80%of the interviewees managed a total of assets

21、worth RMB5 billion or more.In conclusion,the FO survey samples herein are extensively representative and systemically important.Such samples are able to fully reflect the overall development of FOs in Greater China.This report is a product of the collaboration between the FSDC and Tsinghua PBCSF.Thr

22、ough in-depth exploration and presenting the cutting-edge practices of FOs in Greater China,the research group conducts an analysis of the valuable experience in the establishment,operation,and development of FOs to provide up-to-date examples for entrepreneurs to design and build FOs,insights on pr

23、omoting further development of the wealth management industry and reference for policy formulation.This report has aims to contribute to the sustainable development of FOs in Greater China,as well as to facilitate the continuous growth of the national economy and innovation of technology industries,

24、in achieving the goal of common prosperity.The research group would like to express their sincere gratitude to all FOs interviewed,as their data and insights made this report possible.This report is the result of a close collaboration between FSDC and Tsinghua PBCSF.The core members of the research

25、group are shown as follows,and gratitude is hereby expressed to their colleagues for their assistance,including An Jing,Qu Yuanyu,Sun Zimou,and Xin Qi.Tsinghua PBCSF FSDC Research group leader Gao Hao Rocky Tung Core members Xu Lei Wivinia Luk,Joyce Lee Introduction 4 KEY FINDINGS The 30 leading FOs

26、 interviewed include 14 Single Family Offices(SFOs)and 16 Multi-Family Offices(MFOs).The average AUM of the interviewed FOs amounted to RMB29.7 billion(equivalent to approximately USD4.4 billion),and the estimated total AUM of the 30 FOs reached RMB891 billion(equivalent to approximately USD132.4 bi

27、llion).The average AUM of Chinese FOs for the current year represents approximately three times the average value of RMB8.810 billion,as set out in the Chinese Family Office Report 2018(Internal Edition)of the Tsinghua PBCSF Global Family Business Research Center,reflecting the significant growth in

28、 the AUM of Chinese FOs.As shown by the structural characteristics of AUM in this research,more than 80%of the interviewed FOs have an AUM of more than RMB5 billion.Among them,the average AUM of an SFO amounts to RMB24.9 billion,the average net worth of its founding family is RMB38.7 billion,and the

29、 SFO manages 64%of the familys net wealth on average;the average AUM of an MFO is RMB35 billion.For technology entrepreneurs(i.e.,the Internet,hard technology,new energy,and biopharmaceutical industries),their wealth principally consists of listed company stocks and equity in unlisted companies.The

30、major motivation for the establishment of FOs is to manage financial assets that have arisen from stock sales or equity pledges.Due to the high-risk,high-growth,and high-return nature of the technology industry,such FOs tend to pay more attention to asset diversification to resist the risks and impa

31、cts of a single technology industry due to high uncertainty.For traditional entrepreneurs(e.g.,from manufacturing,real estate,and big consumption industries),most industrial enterprises are in a mature or recession phase,with strong profitability and significant dividends.Meanwhile,as one generation

32、 of entrepreneurs gets The AUM of Chinese family offices has grown significantly,with an average value of nearly RMB30 billion,representing an increase of 200%as compared with 2018Technology industry,traditional industry,and companies held for sale are the 3 major sources of Chinese SFOsIntroduction

33、 5 older,the complexity of the family structure tends to increase accordingly.Specialised,professional,and institution-based FOs can meet more complex wealth management and inheritance needs.By contrast,such FOs prefer strategic investment projects with long investment periods,high return potential,

34、and low liquidity,while taking into account the synergies with the strategic transformation and industrial upgrading of industrial enterprises.Some first-generation entrepreneurs who cannot achieve their own transformation and upgrading,or whose successors are not qualified,will choose to sell the c

35、ontrolling equity in industrial enterprises.Since such families no longer own industrial enterprises,and instead only hold financial assets,the FO pays more attention to wealth security and asset preservation,and emphasises sound asset allocation and a complete risk control system to achieve risk-ad

36、justed investment returns.In terms of the time of establishment,FOs in Greater China remain a relatively“young”sunrise industry and is in an early stage of development.For instance,two-thirds of the interviewed FOs were established after 2013,and 90%of them were set up after 2010.In terms of cost st

37、ructure,due to the considerable amount of AUM of the interviewed FOs and the cost savings brought by making good use of outsourcing services,the operating cost of 65%of FOs account for less than 0.5%of AUM,which is significantly lower than the general 1%of annual operating cost of FOs internationall

38、y.In terms of the number of full-time employees,SFOs have an average of 24 employees,with an average of 19 employees per physical office;MFOs have an average of 42 employees,with an average of 21 employees per physical office.At the same time,a few MFOs equipped with larger teams have emerged,with m

39、ore than 100 employees.Compared with the average of 1213 employees,as set out in the Chinese Family Office Report 2018(Internal Edition)of the Tsinghua PBCSF Global Family Business Research Center,there is a significant increase.Recent years have witnessed the rapid growth of new economy industries,

40、such as the Chinese family offices remain in the early stage of development,focusing on cost control,and there has been an increase in the number of employeesNew economy entrepreneurs are the major customer groups of Chinese MFOsIntroduction 6 Internet,hard technology,new energy,and biopharmaceutica

41、ls,featuring rapid wealth creation and a huge amount of wealth.Therefore,these new economy entrepreneurs have become the major customer groups of MFOs.More than one-third of the MFOs involved in this interview principally serve business families in the new economy.Such customers are heavy users of d

42、igitalisation in their current work and life,and therefore have higher demands for the digitalisation of wealth management,thus becoming one of the major driving forces for the digital transformation and upgrading of the FO industry.This research indicates that digitalisation has become a key theme

43、for the high-quality development of Chinese FOs.There are significant differences between the core demands of SFOs and MFOs in terms of digitalisation.SFOs place more emphasis on family security and control,and mainly rely on digitalisation to realise real-time and transparent functions,such as acco

44、unt information collection,investment performance improvement,risk compliance management,and employee evaluation management and control,so as to minimise the principal-agent issues within the organisation.Due to a large number of customers and outsourcers,MFOs tend to focus on strengthening trust an

45、d communication between different entities and improving operational efficiency through digitalisation.Therefore,they mainly focus on how to optimise customer interaction models by technological means,and provide high-quality,customised services at a controllable cost.The FO industry is human capita

46、l intensive.As such,talent is the first resource for the high-quality development of FOs.Our research found that talent has become the primary constraint on the growth of Chinese FOs.Nearly half of the interviewed FOs indicated that there are numerous challenges in this industry,including the adequa

47、cy of available talent,the alignment of values,and the credibility of external talent.FOs in Mainland China remain in the early stage of industry development,featuring strong exploratory and weak regulation.Due to this relatively short history,there are no specific regulatory definitions or regulati

48、ons.As a result,many institutions in the market claim A clear tendency towards the digitalisation of Chinese FOs is demonstratedTalent and supervision represent the two major challenges for the future development of Chinese FOsIntroduction 7 themselves as FOs.Mixed players of different levels have b

49、ecome an important hidden danger for the high-quality and sustainable development of the industry.This report summarises the regulatory rules of FOs in the US,Singapore,and Hong Kong,China,while also aiming to provide a mirror for Chinas financial regulators to supervise and design the FO industry i

50、n the future.Contents 8 CONTENTS Introduction.1 Key Findings.4 1.Definition and Overview of Family Offices.10 1.1.Overview of UHNW Groups in China.10 1.2.Definition of a Family Office.13 1.3.Overview of Interviewed Family Offices.16 1.3.1.Assets Under Management(AUM).16 1.3.2.Classification of Famil

51、y Office.17 1.3.3.Age,Costs,And Employees of A Family Office.20 2.Motivations for Establishing a Family Office.22 2.1.Trigger Point for Establishment:Liquidity Events for Industrial Enterprises.22 2.2.Financial Goals:Long-Term Preservation and Appreciation of Wealth.24 2.3.Non-Financial Goals:Family

52、 Governance,Succession,and Others.27 3.Establishment and Site Selection of a Family Office.29 3.1.Selecting the Proper Type of Family Office.29 3.2.How To Set Up a Single Family Office(SFO).33 3.3.How To Choose a Multi-Family Office(M).38 3.4.Site Selection of a Family Office.40 3.4.1.Considerations

53、 for the Site Selection of a Family Office.40 3.4.2.Examples of Policies in the Operation Base of FOs in the Asia-Pacific Region.44 4.Organisational Structure And Talent Of Family Offices.48 4.1.Organisational Structure Of A Family Office.48 4.2.Talent In Family Offices.50 4.3.Insourcing And Outsour

54、cing Of Functions Of Family Offices.53 5.Investment And Asset Allocation Of Family Offices.57 5.1.Investment Philosophy And Objectives.59 5.2.Asset Allocation Model.60 5.2.1.Major Theoretical Basis.61 5.2.2.Asset Allocation.64 5.2.3.Industries And Regions Of Investment.68 5.3.Investment Style And Ap

55、proach.70 Contents 9 5.3.1.Passive Investing.70 5.3.2.Active Investing.71 5.3.3.Factor Investing.72 5.4.Investment Management.73 6.Family Office And Family Succession.75 7.Digitalisation Of A Family Office.81 8.Challenges Of Family Offices.90 8.1.Talent Shortage In Family Offices.90 8.2.Regulatory C

56、hallenges Of Family Offices.92 9.Key Advantages Of Developing A Family Office In Hong Kong,China.99 Conclusion.104 1.Definition and Overview of Family Offices 10 1.DEFINITION AND OVERVIEW OF FAMILY OFFICES 1.1.Overview of UHNW Groups in China In recent years,Chinas economy has begun to transform fro

57、m high-speed development to high-quality development,and national wealth has continued to increase,coupled with rapid growth in the number of UHNW groups.According to Forbes,as of 2021,the number of wealthy individuals with a net worth of USD1 billion in China reached 745,overtaking that of the US f

58、or the first time.Source:Forbes China Figure 1-1:Number of groups with a net worth of USD1 billion in China In 2022,the threshold for the New Fortune 500 Richest Chinese List maintained its rising trend,reaching RMB9.37 billion,while the threshold in the previous three years was RMB4.5 billion,RMB6.

59、3 billion,and RMB8.9 billion,respectively.The net worth of each of the top ten richest individuals now exceeds RMB150 billion.The whole list shows that 30 individuals have a net worth of RMB100 billion,and 464 have a net worth of RMB10 billion.Looking back on the list over the years,the rich in the

60、manufacturing industry ranked first from 2003 to 2005,and seven of the top ten richest individuals in 2007 came from the real estate 233637930040050060070080020000202021中国十亿美元级净值人士数（人）Number of individuals with a net worth of over USD

61、1 billion in China(person)1.Definition and Overview of Family Offices 11 industry,occupying the top four positions on the list.As shown in the 2022 list,the rich from big consumption,new energy,and the Internet have taken up the majority of the top ten seats on the list,while those from the real est

62、ate industry have fallen below the top ten for the first time.The proportion of Internet-based wealthy individuals on the list is the highest,but it has decreased compared with the previous year,which is then followed by the pharmaceutical industry.The proportion of wealthy individuals from the adva

63、nced manufacturing industry,represented by new energy vehicles,photovoltaics,chips,etc.have experienced a significant increase,while gains in real estate saw a substantial decline.The industry changes,as indicated in the New Fortune 500 Rich List,profoundly reflect the transformation of Chinas econo

64、mic growth from factor input to scientific and technological innovation.“New wealthy individuals”from the Internet,new energy,big health,and advanced manufacturing industries are constantly emerging with an extremely fast rate of wealth creation,along with wealth appreciation as their stock prices r

65、ise.However,some first-generation entrepreneurs who are unable achieve their own transformation and upgrading,or whose successors are not qualified,will choose to sell their enterprises and blaze a new trail after closely considering a merger and acquisition strategy.FO_15:1“The speed of wealth crea

66、tion in the new economy is so high that they do not even realise it.In many cases,it happens quickly from the Series C and D rounds to the listing,and an engineer under the 996 work schedule may only learn from the news that the company has been invested.Suddenly,the finance staff would tell him tha

67、t the company started a brokerage account for him after the IPO,with shares worth in it.”1 Considering the internationally accepted privacy protection requirements of the family office industry,and in order to encourage interviewees to voice out their thoughts freely,this report presents the develop

68、ment and interview content of the 30 interviewed family offices in coded form,so as to remove their identifiable information.The specific coding sequence is FO_01,FO_02,FO_30.1.Definition and Overview of Family Offices 12 Table 1-1:Top 10 on the New Fortune 500 Rich List 2022 2022 Ranking 2021 Ranki

69、ng Wealth of RMB 100 million Name Principal company Headquarter Major industry Gender Age 1 1 5043.1 Zhong Shanshan Nongfu Spring/Wantai Biological Hangzhou,Zhejiang/Beijing Beverages,bio-pharmaceutical Male 67 2 11 3348.2 Zeng Yuqun CATL Ningde,Fujian Power battery Male 54 3 3 3010.8 Ma Huateng Ten

70、cent Holdings Shenzhen,Guangdong Internet Male 51 4 16 2916 Zhang Yiming Toutiao Beijing Recommendation engine,short video Male 39 5 2 1972 Huang Zheng Pinduoduo Shanghai E-commerce Male 42 6 12 1937.2 Ding Lei NetEase Hangzhou,Zhejiang Internet Male 51 7 5 1890.1 He Xiangjian Family Midea Foshan,Gu

71、angdong Home appliances Male 79 8 6 1860.3 Wang Wei S.F.Holding Shenzhen,Guangdong Logistics Male 51 9 41 1535 Huang Shilin CATL Ningde,Fujian Power battery Male 55 10 19 1512.7 Qin Yinglin/Qian Ying Muyuan Foods Nanyang,Henan Livestock and poultry breeding Male/Female 57/56 Source:New Fortune Figur

72、e 1-2:Top 10 on the New Fortune 500 Richest Chinese List in 2007 2007 Ranking Wealth of RMB 100 million Name Principal company Headquarter Major industry Gender Age 1 455.1 Yang Huiyan CG Holdings Shunde,Guangdong Real estate Female 25 2 304.0 Xu Rongmao Shimao Group Shanghai Real estate Male 58 3 1

73、80.7 Li Silian R&F Group Guangzhou,Guangdong Real estate Male 50 4 180.2 Zhang Li R&F Group Guangzhou,Guangdong Real estate Male 44 5 176.6 Shi Zhengrong Wuxi Suntech Wuxi,Jiangsu Photovoltaic power Male 40 6 173.6 Chen Zhuolins family Agile Group Zhongshan,Guangdong Real estate Male 49 7 161.4 Zhon

74、g Shengjian Yanlord Shanghai Real estate Male 48 8 151.7 Zhu Mengyi Family Hopson Development Guangzhou,Guangdong Real estate Male 48 9 148.4 Zhang Qian Nine Dragons Paper Dongguan,Guangdong Manufacture of paper Female 50 10 109.0 Zhang Jindong Suning Appliance Nanjing,Jiangsu Retails of home applia

75、nce Male 44 Source:New Fortune 1.Definition and Overview of Family Offices 13 1.2.Definition of a Family Office For the UHNW group,whether from a traditional industry where they accumulate wealth mainly through dividends,or a new economy where they achieve rapid growth in equity value,or who have a

76、large amount of cash available from selling their companies,the need for or the pressure of wealth management and intergenerational transition has led them to increasingly focus on the family office a professional tool widely adopted by an internationally comparable group.FO_14:“The establishment of

77、 a family office aims to organise family investments and businesses,as well as properly manage and increase wealth,so as to better realise the family concept.”FO_08:“After the disposal of the company,with more than ten years of exploration,a single-family office has been established for the major pu

78、rposes of family governance and inheritance arrangements.”FOs exist in various forms or date back hundreds of years.For example,after the Crusades,European banking families such as the Medici family and Rothschild family began to manage their own and other families wealth in the“analogous family off

79、ice”form.In 1868,Thomas Mellon,founder of Mellon Bank,established the first regulated family office,providing investment,accounting,legal,and education and concierge services through a professional team.The Rockefeller family in the US established the Rockefeller Family Office(the famous“5600 Room”)

80、in 1934 to systematically manage family wealth,provide living security funds to family members,and support family charities.Since the 1980s,as the number of UHNW families across the world have seen rapid growth,the number of FOs in Europe and the US have significantly increased.FOs have been adopted

81、 to manage family wealth and family affairs by the successive three richest individuals in the world Bill Gates(founder of Microsoft),Jeff Bezos(founder of Amazon)and Elon Musk(CEO of Tesla),the Arnault Family(LVMH,the worlds largest luxury group),the Agnelli Family(the largest industrial group in I

82、taly),the Quante Family(the controlling shareholder of BMW in Germany),and the Mulliez Family(Auchan Group,a retail giant in France).The Economist estimates that there are approximately 5,00010,000 FOs in the world,1.Definition and Overview of Family Offices 14 with Europe and the US accounting for

83、the highest proportion.As of the end of 2018,the worldwide assets under management of FOs had surpassed that of hedge funds,amounting to approximately USD4 trillion.FOs are important players in the global financial market,and continue to maintain rapid growth.The Securities and Exchange Commission o

84、f the United States(SEC)defines the family office as an entity established by a wealthy family to provide wealth management and other services to family members.2 The Family Office Exchange(FOX),a family office industry association of the US,believes that a family office can be regarded as a unique

85、family business,providing the family with customised and integrated wealth management solutions,while promoting and preserving family identity and values.A family office may be established to meet the financial needs of the family as a whole after the disposal of the family business or a liquidity e

86、vent such as a listing.An FO can provide family members with a spectrum of services,including asset allocation,portfolio management,tax planning,heritage planning,charity planning,family education,intergenerational inheritance,and life services.Scholars,including Gao Hao,one of the authors of this r

87、eport,have successively put forward two relatively concise definitions of an FO.Gao Hao and Liu Zhongxing(2013)pointed out that an FO is an institution that systematically manages and governs the balance sheet of an UHNW family.Based on the major trend changes in external environment and internal ma

88、nagement,Gao Hao(2021)further refined the definition of an FO,and proposed that it is an institution that manages and governs major strategic matters of families.Major strategic matters include not only financial functions such as asset allocation,investment portfolio,and wealth distribution,but als

89、o increasingly important non-financial functions such as risk management,family governance,succession planning,and public charity.Different from traditional wealth management institutions,such as private banks and trust companies,FOs do not provide services for a large number of high-net-worth indiv

90、iduals,and instead only focus on the customised needs of one or several UHNW families.One of the economic principles for the independent existence of FOs is their ability to align with the long-term goals and interests of the family clients they serve,thereby resolving the conflicts of interest that

91、 are widespread in the current wealth management industry.Meanwhile,FOs also 2 Family Offices,Investment Advisers Act Release No.3098(Oct.12,2010)75 FR 63753(Oct.18,2010)(“Proposing Release”).1.Definition and Overview of Family Offices 15 have dominant advantages such as high integration,high custom

92、isability,strong professionalism,and strong privacy.Figure 1-2:Main Functions of Family Offices Subject to the number of families served,family off1ices can be defined as Single Family Offices(SFO,serving only one family)and Multi-Family Offices(MFO,serving multiple families).An SFO features high co

93、sts,but strong privacy and customisability.An MFO has a relatively low barrier to entry,and is widely recognised.There are three main types of MFOs:one is established by licensed financial institutions(such as banks,trusts,securities,etc.)to serve top clients;the other is an independent institution

94、founded by experienced professionals;the third is an evolution of an SFO after absorbing other family clients.We generally further subdivide FOs based on ownership and right of management.In the dimension of ownership,FOs can be divided into two types:family-owned and professionally-owned.The type o

95、f shareholders determines the strategic goals and governance structure of the FO to a large extent.Regarding management rights,FOs can be divided into two types:Design of family governanceManagement of family affairsFamily succession planningEducaiton and cultivation of next generaitionFamily charit

96、yManage and supervision of donation programmesConnection and cooperation with external partnersDevelopment of asset allocation strategiesEstablishment and implementation of investment goalsMonitoring of investment performanceSelection of investment team membersSelection of external managersEstablish

97、ment of wealth management goalsCollection of financial statement informationFamily Asset Liability ManagementFamily business related servicesWealth PlanningInvestment and Asset AllocationFamily Governance and SuccessionCharity Planning1.Definition and Overview of Family Offices 16 family-managed(FM)

98、and professionally-managed.The distribution of management rights also has an impact on the operation management and investments of FOs to a considerable extent.1.3.Overview of Interviewed Family Offices 1.3.1.Assets Under Management(AUM)Despite the short history of FOs in China,they have achieved im

99、pressive,high-speed growth.In 2018,the Tsinghua PBCSF Global Family Business Research Center conducted research and interviews on 20 leading FOs in Greater China,and finalised their Chinese Family Office Report 2018(Internal Edition).In this report,the average AUM of the interviewed FOs reached RMB8

100、.810 billion.Our research data of 30 Chinese FOs indicates that the average AUM of the involved FOs amounted to RMB29.7 billion,representing approximately three times of that in 2018.This clearly shows that a significant increase has been achieved.The average value of an SFO was RMB24.9 billion,and

101、RMB35.0 billion for an MFO.We have analysed the potential reasons for the significant increase in the AUM of FOs.On the one hand,we found that the national wealth of China has achieved substantial growth during such period;on the other hand,the credibility necessary for the development of FOs has be

102、en increasing over time,and specific family clients have invested more wealth to be managed by FOs.Wealthy families generally invest a relatively small proportion of their wealth in the early stages of an FOs development,which is mainly for the purpose of experimental exploration and trial.As an FO

103、becomes more institutionalised,specialised,and professional,family clients gradually increase their investment to a higher proportion of wealth.Therefore,according to the forecast of the laws of international development,the AUM of Chinas FO industry will maintain its momentum in the future.This wil

104、l be driven by an increase in the number of customers brought by the improved penetration rate of the FO market,as well as an increase in assets per customer as a result of greater trust.1.Definition and Overview of Family Offices 17 Unit:RMB100 million Figure 1-3:Family Net Worth and AUM of Family

105、Offices(N=25)1.3.2.Classification of a Family Office The 30 interviewed FOs include 14 Single Family Offices(SFOs)and 16 Multi-Family Offices(MFOs).Among them,21 FOs are principally engaged in the provision of services for customers in Mainland China,and 9 are target customers both in Mainland China

106、 and Hong Kong.Among the MFOs,14 are independent agencies founded by professionals,and 2 are MFOs formed by the opening of SFOs to other family clients.Figure 1-4:Types of Family Office and Source of Clients(N=30)1.Definition and Overview of Family Offices 18 The type distribution of the 30 FOs is a

107、s shown in Figure 1-5 by the three dimensions of ownership,rights of management,and customers:Family-owned/Family-managed/Single Family Offices(total of 5):set up and managed by family members by organising a professional team to comprehensively manage family affairs and serve single family clients.

108、Family-owned/Professional-managed/Single Family Offices(total of 9):invested and controlled by the family through the engagement of professionals for professional management and taking full responsibility for family affairs,which is complementary with industrial enterprises.Family-owned/Family-manag

109、ed/Multi-family Offices(total of 2):initially set up by a certain family,and gradually open to other families in subsequent periods,whose clients are families in relevant industries or with similar backgrounds.Professionally-owned/Professional-managed/Multi-family Offices(total of 11):a model in whi

110、ch family services are provided by professionals or financial institutions,with a relatively low threshold of customers.1.Definition and Overview of Family Offices 19 Figure 1-5:Three-dimensional Distribution of Family Offices(N=30)1.Definition and Overview of Family Offices 20 1.3.3.Age,Costs,and E

111、mployees of a Family Office In terms of the time of establishment,FOs in Greater China remain a relatively“young”sunrise industry and is in an early stage of development.For instance,two-thirds of the FOs interviewed were established after 2013,and 90%of them were established after 2010.In terms of

112、cost structure,due to the considerable amount of AUM of the interviewed FOs and the cost savings brought by making good use of outsourcing services,the operating cost of 65%of FOs account for less than 0.5%of AUM,which is significantly lower than the general 1%of annual operating costs for internati

113、onal FOs.Regarding the number of full-time employees,SFOs have an average of 24 employees,with an average of 19 employees per physical office;MFOs have an average of 42 employees,with an average of 21 employees per physical office.Some of the larger MFOs have more than 100 employees.As compared with

114、 the average of 1213 employees,as set out in the Chinese Family Office Report 2018(Internal Edition)of Tsinghua PBCSF Global Family Business Research Center,there is a significant increase.Figure 1-6:Time of Establishment of Family Offices(N=27)15%26%26%22%11%After 2019(inclusive)2016(inclusive)-201

115、9(exclusive)2013(inclusive)-2016(exclusive)2010(inclusive)-2013(exclusive)Before 2010(exclusive)1.Definition and Overview of Family Offices 21 Figure 1-7:Proportion of AUM of Operating Costs of Family Offices(N=17)Figure 1-8:Number of Full-time Employees of Family Offices(N=29)65%23%6%6%less than 0.

116、5%0.5%-1%1%-1.5%Over 1.5%2.Motivations for Establishing a Family Office 22 2.MOTIVATIONS FOR ESTABLISHING A FAMILY OFFICE 2.1.Trigger Point for Establishment:Liquidity Events for Industrial Enterprises Generally,the establishment of an FO is closely related to the liquidity events of industrial ente

117、rprises.Such liquidity events may be either the realisation of part of the equity upon the listing of its enterprise,or a large amount of dividends received by the family from such an enterprise,or a great amount of consideration received by the family upon the disposal of such an enterprise.Regardi

118、ng the 14 SFOs involved in our research,among the current or past holding companies of single-family clients,57%are listed companies,36%have been unlisted,and 7%have been privatised and delisted after listing.The proportion of listed companies with a market value of less than RMB20 billion,RMB2050 b

119、illion,RMB50200 billion,and more than RMB200 billion is 33%,25%,17%,and 25%,respectively.Despite the establishment of an SFO,71%of the interviewed families have maintained their equity control over and involvement in the management of their industrial enterprises,while the remaining 39%had formed an

120、 SFO after the disposal of their businesses.Figure 2-1:Listing Features of Industrial Enterprises of SFO Family Listed Unlisted Delisted RMB20 billion,25%RMB20-50 billion,12%RMB50-200 billion,25%Listing of Family Business N=14 Market Value of Family Business N=8 Unit:RMB More than RMB200 billion,38%

121、2.Motivations for Establishing a Family Office 23 Figure 2-2:Industry Distribution of Industrial Enterprises of SFO Family(N=14)Liquidity events have not only brought abundant financial assets to business families,but also impose new challenges on wealth management,which requires professional expert

122、ise and extensive experience.In addition to returns,business families must fully consider several factors such as risk,maturity,and liquidity based on their own conditions,and achieve strategic synergy or risk hedging with industrial enterprises.Moreover,due to differences in fundamental interests,v

123、arious financial institutions such as banks,trusts,securities,etc.inevitably have conflicts of interest with family businesses to some extent.This is also the reason that drives entrepreneurs to set up their own FO or choose to join an FO that already exists.FO_05:“After the withdrawal from the foun

124、ding business,the family would quickly sell all the shares in the secondary market in exchange for a large amount of cash.At that time,many private banks from Hong Kong,Singapore,and Switzerland contacted me,but we were unsatisfied with them.In order to better manage liquid wealth,I set up a family

125、office,while being engaged in impact investment and equity investment.”For a business family that has sold its industrial enterprise,founding an FO is more like a“second entrepreneurship”.The family will inevitably lose a competent management team when it disposes of its industrial enterprise after

126、a significant amount of consideration.As the industrial enterprise generally adopts the refined family culture and values,its disposal may cause the family to lose its identity,social status,and development goals.In which case,the FO will become a vehicle for various family members to unite and figh

127、t for it again,which is more like a new“family business”.2.Motivations for Establishing a Family Office 24 FO_07:“The family office is essentially the second entrepreneurship(of the founder),since he is young enough to start new attempts and explorations after withdrawing the company.At that time,we

128、 went to study in many European countries and America,and produced a lot of new thinking.”In terms of motivation for the establishment,among the 14 interviewed SFOs,13 of them were established for the systematic management of family wealth,and 3 were set up for the management of family affairs and p

129、romotion of intergenerational inheritance.Additionally,3 offices represent a second business startup after the disposal of industrial enterprises,and 2 offices were established to support the transformation and upgrading of industrial enterprises.3 Figure 2-3:Motivations for the Establishment of Sin

130、gle Family Offices(N=14)2.2.Financial Goals:Long-term Preservation and Appreciation of Wealth The primary goal of FOs,especially for Chinese FOs,is generally to pursue the long-term preservation and appreciation of family wealth.In this survey,the net worth of families who have established single FO

131、s ranges from billions to hundreds of billions in RMB.The net worth 3 This report only includes the motivations for the establishment of the SFOs,as they can more directly reflect the family concept.Since FOs are generally set up for diverse purposes,the sum of the percentages may be greater than 10

132、0%.23314Systematic Management of Family WealthManagement of Family Affairs and Promotion of Intergenerational InheritanceSecond Business Startup after the Disposal of Industrial EnterprisesAssisting the Transformation and Upgrading of Industrial Enterprises2.Motivations for Establishing a

133、 Family Office 25 of 43%of them is less than RMB10 billion,29%is between RMB1030 billion,7%is between RMB3060 billion,and 21%is more than RMB60 billion.From the perspective of international experience,FOs represent an important tool for professional wealth management,and value preservation and appre

134、ciation.Unit:RMB Figure 2-4:Wealth of SFO Family(N=14)FOs can provide professional,transparent,and customised asset allocation and investment management services to meet the heterogeneous needs of family clients and help families achieve long-term and even intergenerational wealth management goals.F

135、or entrepreneurs in the technology industry,such as FO_02 and FO_06,whose wealth is mainly composed of stocks of listed companies or equity in unlisted companies,the establishment of an FO principally aims to manage financial assets generated by shareholding reduction or equity pledge.Since the dist

136、ribution of dividends is not common practice for growing technology companies,wealth appreciation mainly comes from an increase in stock prices rather than dividend accumulation.Tech entrepreneurs tend to pay more attention to the diversification of their asset allocation to withstand the shocks tha

137、t a high-growth,high-risk single tech industry may be subject to.43%29%7%21%Less than RMB10 billionRMB1030 billion(exclusive)RMB3060 billion(exclusive)2.Motivations for Establishing a Family Office 26 For entrepreneurs in traditional industries,such as FO_04,FO_07,FO_10,FO_11,FO_13,and FO_14,whose w

138、ealth mainly comes from mature industries such as real estate,retail,and big consumption,which annually generate a large amount of cash flow,payment of dividends has become the major source of the growth of family wealth.At the same time,as one generation of entrepreneurs get older,the family struct

139、ure becomes more complex.The professional management of an FO can better meet the needs of family governance,wealth management,and intergenerational inheritance.As traditional entrepreneurs have relatively stable sources of wealth and strong risk tolerance,they prefer asset classes and direct invest

140、ment projects featuring high-risk,high-growth,and high-uncertainty for particular investments in high-tech industries.Additionally,such financial investments of an FO are always combined with the strategic development needs of industrial enterprises.For entrepreneurs who have sold their businesses,s

141、ince they no longer own any industrial enterprise and cannot create new wealth through the enterprise,they attach the most importance to wealth safety and asset preservation,thus emphasising a sound asset allocation model and a complete risk management system.FO_01:“Our investment philosophy is safe

142、ty and stability,long-term distribution,and value investing.We have a large amount of cash at hand after we sell our industrial companies,but have no engine for wealth creation.Therefore,the stability and controllability of returns is of top importance,and we do not deliberately pursue the high retu

143、rn of a certain type of assets.”The primary task of an FO is to establish a regular financial information reporting system(e.g.,a balance sheet)to collect and conduct the systematic management of key information including assets,liabilities,income,risk,maturity,and liquidity of clients wealth.It is

144、worth noting that a few wealthy families may have diversified their investments many times in the past,which would generally cause complex and less transparent asset structures.Some entrepreneurs have never even systematically sorted out their own assets and liabilities,let alone an overall planning

145、.By setting up a family-wide asset and liability management system,the FO realises the collection and management of financial and non-financial assets that are widely scattered in different financial institutions,asset types,and geographical regions,and make further optimisation and adjustments on t

146、his basis.FO_08:“Some of my entrepreneur friends do not even know what they have invested in.2.Motivations for Establishing a Family Office 27 On a case-by-case basis,each of the investments seems to be good.However,it is clear that the risk exposure is too significant on an aggregated basis,as thes

147、e investments are highly concentrated in one industry.Even he was surprised when the financial staff presented him the statistical table of investment projects one day.”FO_03:“We started investing as early as the 1990s.At that time,my parents were investing in many successful projects.Later,as the n

148、umber of projects and the size of the fund increased,a small office was established.Some professionals were appointed to conduct project sorting and post-investment management this was a prototype of an FO.By around 2010,it should be regarded as a real FO.”FO_15:“Today,many UHNW individuals in the n

149、ew economy industry maintain full positions in stocks,especially in their own industries,which are definitely overweight.This is very worrying,especially as recently the stock prices of industries such as the Internet experienced a sharp decrease.However,it is difficult for FO clients to shift from

150、full positions in high-risk,high-yield equity assets to a more balanced asset allocation model.In particular,it is hard to accomplish such a shift for those who have made a large proportion of allocation to fixed-income assets for a long term.”2.3.Non-financial Goals:Family Governance,Succession,and

151、 Others As family affairs are becoming increasingly complex with the increase in the number of family members and the complexity of their relationships,the importance of family governance is highlighted.Various non-financial needs of family members,such as trusts,wills,taxation,law,and insurance are

152、 increasingly apparent.As such,it is more necessary to carry out top-level design and coordinated development.Additionally,an FO often has to carry out strategic planning and capital operation of industrial enterprises at the level of controlling shareholders.Therefore,it is closely integrated with

153、the needs of industrial enterprises such as cash management,mergers and acquisitions,split and reorganisation,transformation and upgrading.FO_12:“In terms of intergenerational inheritance,our family office had already made a trust and will in 2018,and all the preparations had been set up.This is bec

154、ause my parents remained focused on the management of the listed companies previously,and were concerned that the rights and interests of siblings of the same generation might not be guaranteed.2.Motivations for Establishing a Family Office 28 Subsequently,we established a clear and complete trust a

155、nd will arrangement through the FO.You are welcome to review for more information.Our FO is very transparent to family members.”FO_13:“Family office shall study how to make strategic layouts based on the status quo of the company,rather than only considering financial investment.Investment researche

156、rs of the FO will help our real estate company conduct upstream and downstream industry research.In the future,we also hope the FO will help in health management.The medical fund we have previously invested in has already played a role,such as providing resources for family members in medical demand

157、s.”FO_08:“Asset allocation and liquidity plans are made by our FO by focusing on the investment needs of family charitable funds,so we have a strong sense of purpose for the investment period.”3.Establishment and Site Selection of a Family Office 29 3.ESTABLISHMENT AND SITE SELECTION OF A FAMILY OFF

158、ICE 3.1.Selecting the Proper Type of Family Office For UHNW individuals intending to seek FO services,the first question is whether to find their own SFO or join an existing MFO.Such a decision can be made by fulling understanding the type of FO and allowing a comprehensive consideration of its own

159、circumstances.Single Family Office An SFO provides greater control,privacy,and customisation.UHNW individuals who choose to set up their own SFO often pay more attention to the organisational structure,investment strategy,and governance model of an FO,or expect deep involvement in the“second entrepr

160、eneurship”beyond the industrial enterprises.Different from the business models of large wealth management institutions,such as investment consultation,sales commissions,and credit spreads,SFOs are born with“family clients”,and therefore are free from pressures of client resources and industry compet

161、ition.As a result,an SFO is conducive to greatly reducing principal-agent issues and conflicts of interest between owners and wealth managers,thereby achieving alignment of family values and wealth goals with the long-term vision.At the same time,it is easier to establish trust and trustworthiness b

162、etween family clients and an SFO,which represents the most important cornerstone of the wealth management industry.Despite several advantages,an SFO possesses some disadvantages in terms of“selection,cultivation,engagement,and retaining”of top talents due to differences with large financial institut

163、ions in institutional reputation,AUM scale,and career development.Furthermore,the operating cost of an SFO is relatively high.According to the Family Office Guide,jointly issued by UBS and the Cambridge Institute for Family Enterprise(CIFE),the annual costs of SFOs may exceed 1.2%of AUM,and such a p

164、roportion would be higher for small FOs equipped with complete internal functions.3.Establishment and Site Selection of a Family Office 30 Source:Boris Canessa,Jens Escher,Alexander Koeberle-Schmid,Peter Preller,Christoph Weber.The Family Office:A Practical Guide to Strategically and Operationally M

165、anaging Family Wealth,Palgrave Macmillan,2018 Figure 3-1:SWOT Analysis of Single Family Office Multi-family Office(MFO)An MFO serves several families.According to the Family Office Exchange(FOX),a family office industry association of the US,an MFO has an average of 83 clients and a median AUM of US

166、D200 million.Chinese FOs are still in an early stage of development,with the number of clients lower than the international average.The survey shows that half of the interviewed MFOs have no more than 10 clients,but nearly 20%of them have more than 100 clients,indicating that large Chinese MFOs have

167、 started to take shape.AdvantagesRight of controlCustomisationConfidentialityConvergence of interestsLong-term patient capitalDisadvantagesSelection,cultivation,engagement,and retaining talentEconomies of scaleOperational efficiencyStandardised levelOpportunitiesJoint investmentHigh-level serviceExc

168、hanges and learning among peersChallengesCost controlFamily conflictInheritance planningMaintaing family involvement3.Establishment and Site Selection of a Family Office 31 Figure 3-2:Number of Clients of MFOs(N=16)For UHNW individuals who have no sufficient economies of scale or time devotion to se

169、t up an SFO,or have not yet determined the necessity of an FO,an MFO is a compromise or a way to make the first stride.An MFO generally charges management fees based on a certain percentage of AUM,or charges based on specific service items,which helps customers to control costs and improve cost perf

170、ormance.As compared with SFOs,despite the loss of certain customisation and privacy,MFOs have many advantages,such as cost sharing,more external experts,and larger internal teams.Having served a large number of clients,MFOs are often more experienced in handling client needs,and able to help clients

171、 build learning curves,thus facilitating communication and collaboration with other client families.MFOs tend to put more emphasis on external resource expansion,and are therefore more likely to be innovative.For example,this current research found that MFOs have a higher level of digitalisation tha

172、n SFOs.Nevertheless,it should also be noted that most MFOs are profitable commercial organisations,featuring strong profit-driven outcomes.As a higher degree of standardisation is required for MFOs to serve many customers,customer service is often less customised and real-time than SFOs.In light of

173、multiple considerations such as price-performance analysis and standardised operations,product and service offerings of MFOs are at a lower level in terms of depth.At the same time,compared with SFOs,in essence,its customers bear the additional costs of MFOs business expansion and marketing.1-1056%1

174、1-306%31-10019%100 or above19%3.Establishment and Site Selection of a Family Office 32 FO_17:“One of the challenges we face is that it grows too fast.As many businesses remain in the early stage of exploration,we still have blind spots in knowledge and experience.We are crossing the river by feeling

175、 the stones.The realisation of comprehensive business operations has excreted high requirement on our capabilities.For example,how to match the speed of business development with the quality of customer service is a challenge we must confront.”Source:Boris Canessa,Jens Escher,Alexander Koeberle-Schm

176、id,Peter Preller,Christoph Weber.The Family Office:A Practical Guide to Strategically and Operationally Managing Family Wealth,Palgrave Macmillan,2018 Figure 3-3:SWOT Analysis of Multi-family Office The UBS-CIFE Family Office Guide points out industry benchmarks such as wealth,cost structure,and fam

177、ily size for a Single Family Office(SFO),Multi-family Office(MFO)and Virtual Family Office(VFO),providing guidance for families to choose the appropriate type of FO.The Family Office Guide states that clients with a net worth greater than USD500 million are more suitable for SFO services.The most ma

178、ture SFO can provide comprehensive services for over100 family members with more than three generations.Clients with a net AdvantagesEconomies of scaleFull serviceEfficiency advantageExtensive resourcesAttracting top talentsCentralised data managementDisadvantagesProcedure-based serviceLess frequent

179、 serviceLess customisedOpportunitiesReduction in costsIncrease in service offeringsLearning curveService innovationChallengesGrowing too fastToo large quantity of customersMaintaining close contact with customersOvercommitmentHigh turnover rate3.Establishment and Site Selection of a Family Office 33

180、 worth of less than USD50 million are more suitable for VFO services.VFO is a family office that outsources most or all of its business activities and only engages full-time staff and uses products and services as and when necessary.In such an event,it usually requires one to two full-time staff.Tab

181、le 3-1:Characteristics of Different Types of Family Offices Less than USD50 million Family Wealth More than USD500 million 1.2%Low Confidentiality High Limited services Service scope Extensive services Non-customisable Customisation Fully customisable Resource sharing Exclusive service Exclusive No

182、Soft service Yes 100 persons+3 generations Limited knowledge Family overview Comprehensive insight No resource/expertise Special projects Capable Low High VFO Commercial MFO SFO Source:UBS-CIFE Family Office Guide 3.2.How to Set up a Single Family Office As a more sophisticated professional tool,an

183、SFO is designed to help achieve the long-term strategic goals of the family as a whole and the personal development goals of family members.How should the SFO be integrated into the overall development strategy and management structure of the family?Before setting up an SFO,the family must arrange t

184、op-level planning to design the family office structure and maintain iterative upgrades,which includes the following aspects:Strategic goals of the family:To clarify the long-term financial and non-financial goals that the family expects to achieve,covering family governance,corporate governance,equ

185、ity governance,wealth management,etc.,and involving financial wealth,industrial 3.Establishment and Site Selection of a Family Office 34 enterprises,risk taking,public welfare and social influence,development goals of family members,family culture and values,and the ways in which different family me

186、mbers participate in the FO;Asset integration:As families generally hold various types of assets before establishing an SFO,including industrial enterprises,financial assets,direct investments,physical assets,etc.,the SFO must set up a series of financial management information systems,such as a com

187、plete family balance sheet,and comprehensively consider key elements such as income,risk,term and liquidity;Physical location and structure:The family chooses one or more operation bases of the SFO as well as legal structures tailored to local conditions in accordance with its FO strategic goals,com

188、bined with the office location or listing place of the industrial enterprise,the residence and identity of family members,the development strategy of the industrial enterprise and locations of family assets,etc.,after taking comprehensive considerations of the legal and tax requirements of different

189、 jurisdictions;Management and operation scheme:Based on family needs and budget constraints,the family determines the internal functions and outsourced functions that should be covered by the SFO;designs the management methods and governance models of the SFO,including senior management composition,

190、organisational structure,decision-making mechanism,key processes,incentives and constraints,information system,etc.;Implementation:On-site registration,team formation,and formal operations are carried out according to the design plan;Review and optimisation:The family will regularly review and asses

191、s the operation of the SFO,give feedback to family shareholders and maintain communication with them,and make adjustments and optimisations in a timely manner to ensure the realisation of long-term goals.This report finds that,although the founding process of each SFO is different,it generally follo

192、ws the four stages below:concept introduction stage,learning and thinking stage,design and formation stage,and development and improvement stage.The concept introduction stage is generally initiated by private bankers,corporate senior 3.Establishment and Site Selection of a Family Office 35 manageme

193、nt,or family members of the second generation.After a generation of founders or their spouses are exposed to the core concepts of the FO and of the view that it fits the needs of the family,they are usually more devoted to in-depth study and thinking by deepening their understanding through particip

194、ating in private banking forums,college training courses,or visiting FOs at home and abroad.Furthermore,after taking preliminary consideration of the family situation,they depict the prototype of the SFO concept and move forward to the design and formation stage in a timely manner.Upon completing th

195、e top-level design,the family starts to recruit the senior management and teams of the SFO.Practically,as talent in the early stage of the SFO require strong mutual acquaintance and trust,the founding team members are usually provided by social networks such as existing kinship relationships(such as

196、 second generation),learning relationships(such as classmates),or working relationships(such as corporate senior managers,former colleagues,or professionals).After the SFO forms a solid foundation,more external professionals will be invited to join.Figure 3-4:Stages of Establishment of an SFO 3.Esta

197、blishment and Site Selection of a Family Office 36 The founder of FO_07 quit the management of the listed company in 2009 and began to explore a new direction in life.In 2011,the founder hired the former senior management of the family business(who subsequently served as the CEO of the family office

198、),and established an investment company in Mainland China.In the learning and thinking stage for one or two years,they gained more knowledge of FOs by participating in an FO special training programme organised by private banks.In 2013,they transformed the investment company into an FO,and embarked

199、on a study tour of advanced foreign FOs.They personally visited the Dell family and Walton family in the US,and well-known local families in Brazil.“We decided to identify generalities for the first step,and then to seek for individualities from generalities.”Upon completing the concept introduction

200、 and the learning and thinking stages,they officially registered and established an FO in Hong Kong.This was decided after taking into account the legally favourable environment of Hong Kong,China,abundant talent available,and because the family members are Hong Kong residents and the industrial ent

201、erprises are also listed there.In 2014,the founder and CEO jointly determined the top-level design of the FO,and began to promote the development of the SFO in an institution-based manner,forming functions including financial accounting,treasury management,tax planning,IT system,and asset management

202、.In terms of personnel structure,at the beginning of its establishment,they chose to recruit employees who were well acquainted with in the past.Later,as the investment expanded,they began to hire professional talent from world-class universities,well-known asset management institutions,and internat

203、ional law firms.As the number of investment projects increased,the FO set up a US office and further upgraded its management structure in combination of globalisation with localisation.The US office is able to trade during the closure for trading in Asia.Building a local team and social networks wil

204、l also help capture investment opportunities.Case 3-1:Founding History of FO_073.Establishment and Site Selection of a Family Office 37 The founder of FO_01 gained a large amount of cash after they fully sold their startup in 2014.The former head of the corporate strategy department introduced the c

205、oncept of an FO to the founder.The founder considered it and concluded that it was highly consistent with the family goals,and has been exploring it since then.From 20152016,the founder consulted various domestic and foreign FOs with a systematic study of relevant courses,while learning practices fr

206、om cooperation with private banks.The founders niece joined in the FO at the very beginning of its inception,and was responsible for investment management.In 2017,the FO business gradually matured and began to assume functions such as asset allocation,financial investment,and family governance.It al

207、so opened overseas offices and hired a large-scale professional investment and research team.The founding family of FO_11 began to manage family investments as early as 20072008 through the internal department of the industrial enterprise(which in fact assumed the function of a built-in FO).In 2012,

208、the current CEO of the FO worked as an external investment advisor and introduced the FO concept to the family.With the continuous growth of investment scale,the family showed interest in establishing an FO in 2016.The current CEO and a generation of founders jointly selected the person in charge of

209、 the FO,and interviewed many veterans from the private banking industry in Hong Kong,who were not chosen in consideration of trust.Instead,they jointly determined to empower the current CEO to plan and form the FO.The current CEO visited overseas FOs in the US,Switzerland,and various other countries

210、,and gained a profound understanding of this industry.The FO started with only three full-time employees.In 2020,with the expansion in investment scale,the number of employees Case 3-2:Founding History of FO_01Case 3-3:Founding History of FO_113.Establishment and Site Selection of a Family Office 38

211、 increased to seven,and they were responsible for functions including operation management,fund investment,and family governance.3.3.How to Choose a Multi-Family Office Different from SFOs,which are mainly family-led,most MFOs are founded by financial institutions or professionals.Of the 16 MFOs inv

212、olved in this report,8 were founded by former private bankers,3 were founded by families and managed by professionals,2 were co-founded and managed by multiple families,and 1 was founded by the former CEO of a certain SFO.The remaining 2 were established by senior professionals from insurance compan

213、ies and law firms.Considering the diversity of MFOs,families should conduct sufficient research before choosing to join one,which should also confirm the alignment of services provided by the MFO with the familys needs.Since the regulatory stewardship of MFOs are not specified in China,and MFOs are

214、of uneven quality,families should uphold the principle of prudence before joining.Below is a typical due diligence list for selecting an MFO.3.Establishment and Site Selection of a Family Office 39 Table 3-2:List of Questions for Due Diligence of an MFO Institution background Date of reasons for est

215、ablishment Purposes and original intention Annual plans,and medium and long-term goals for 3-5 years Shareholding structure,including the shareholding percentage of family(if any family equityparticipation)and shareholding percentage of professionals Organisational structure Key processesService cap

216、abilities Professional capabilities in fields including inheritance planning,financial planning,investmentplanning,investment management,taxation planning,charity planning Core competitiveness and service advantages Plans for services to be adjusted and improved,and types of services to be added Coo

217、peration with external consultants and service outsourcingCustomer relations Number and size of family customers served Distribution of types of existing family customers Standards for selction of customers and expansion in the compensation structure foremployees of customers Respective number of cu

218、stomers who joined/left in the previous 1/3/5 years and reasonsthereofEmployees Number and position distribution of full-time employees(senior management/partners,accountmanagers,investment managers,tax accountants,charity planning,IT experts,operationsmanagement employees,administrative support emp

219、loyees Number of family accounts managed by each account manager Composition and assignment of responsibilities of the customer relationship team Dimission rate and turnover in the past 3 yearsCustomer interaction and customer education Ways and the frequency of customer interaction Ways and the fre

220、quency of customer report Whether seminars are held regularly/text version of research briefs are providedPricing of charges Charging model Is there a service level agreement(SLA),including schedule of charges Minimum fee standards and minimum account size requirements Whether the charging structure

221、 is subject to adjustment(depending on different customersituations)Ways to determine the pricing of charges if other members of the same family join the MFO3.Establishment and Site Selection of a Family Office 40 3.4.Site Selection of a Family Office As the family office is at the intersection of f

222、amily,wealth,and enterprise,the above three factors should be comprehensively considered in terms of the selection of its physical location.Due to the increasing convenience brought by digital technology and means of transportation,site selection for an FO is no longer limited to the family residenc

223、e,but should be decided after closely considering various factors such as business environment,talent quality,liveability,and enterprise development.3.4.1.Considerations for the Site Selection of a Family Office In this survey,the primary consideration for the site selection of an FO is the business

224、 environment,including factors related to institutional environment,regulatory environment,and talent supply.Among them,the most important subdivision factors are the legal environment,talent supply,and tax environment.A stable legal environment provides the basic conditions for the long-term develo

225、pment of an FO.Standardised supervision will also reduce various risks faced by FOs and improve the professionalism of their own operations and external financial institutions.FO_03:“The government should have a supportive policy in place,while also maintaining long-term stability.We previously put

226、funds overseas,but there is no particularly specific legal structure to deal with this issue.I think the most important thing is the clarity and continuity of the legal structure,especially the legal environment.”As human capital is the cornerstone for the development of an FO,the quality of talent

227、is particularly important.Most FOs not only need to be distributed geographically,but also connected to major global investment destinations and professionals from different countries.Therefore,the openness of the financial market will determine the availability of FO talent to a large extent.Effici

228、ent visa and residence policies can meet the employment needs of FO talent.For FOs that make global investment allocations,market openness and access to investment projects are also highly significant.FO_01:“An FO prefers regions with a developed financial industry and abundant talent and outsourcer

229、s.Hong Kong is a very popular destination for FOs,as it is one of the top three financial centres in the world,and enjoys a very mature financial industry and world-leading 3.Establishment and Site Selection of a Family Office 41 talent supply.”When selecting the operation base for an FO,the importa

230、nce of family-related factors is second only to the business environment.An FO prefers areas with expansive family networks and high co-investment density to improve the efficiency and security of investment.The place where the FO is established and where family members reside is often highly overla

231、pped.If the FO is geographically closer to the place of residence,it is more convenient for the interaction between family members and the FO.It is also easier to understand the operation and management of the FO,along with the ability to control the development direction and monitor workplace perfo

232、rmance.Therefore,when selecting the operation base of an FO,certain factors are often taken into account,including residency policy,medical environment,pension environment,education level,and liveability.Time difference and Chinese language and culture will also be considered when selecting an appro

233、priate location.FO_04:“Many of our family members are from Hong Kong and mainly live there,so it is natural to set up a family office in Hong Kong.”FO_13:“Families are more willing to choose areas with the same culture,liveability,and closer proximity to establish a family office.”In addition to bus

234、iness environment and family factors,the industrial enterprise is also an important consideration,such as the location of its headquarters,listing place,strategic development destination(such as the location of R&D centres or M&A targets),financing environment,etc.However,compared with the previousl

235、y mentioned two types of considerations,corporate factors are lowly weighted in the final decision-making for the site selection.The family will first consider whether the operation base of the FO is consistent with the place where the business is located or listed.Such consistency enables the FO to

236、 better support the development of industrial enterprises at the strategic level.Meanwhile,any dividend distribution to shareholders by the enterprise and any equity reduction by shareholders will generate cash flow,and investment in the same currency where the cash flow is dominated will also provi

237、de favourable conditions for the efficient operation of an FO to some extent.FO_06:“Our industrial enterprises are listed in Hong Kong,and proceeds from the dividend distribution and equity reduction are dominated in HKD.Therefore,we have 3.Establishment and Site Selection of a Family Office 42 esta

238、blished a family office in Hong Kong,which facilitates the use of funds and is also conducive to global allocation.”In light of the above three factors,Hong Kong,Beijing,Shanghai,and Singapore are the top four popular locations for operation bases in this research.Among them,the number of FOs that c

239、hose Hong Kong as the location of their offices is the largest,reaching 22.At the same time,most of the interviewed FOs have multiple physical office locations in order to meet the needs of multiple targets and global allocations.Figure 3-5:Geographical Distribution of Family Offices4(N=30)4 Some FO

240、s have offices around the world,so the total number of physically located offices is greater than 30.3.Establishment and Site Selection of a Family Office 43 Figure 3-6:Considerations for the Site Selection of a Family Office(N=30)3.Establishment and Site Selection of a Family Office 44 3.4.2.Exampl

241、es of Policies in the Operation Base of FOs in the Asia-Pacific Region Recent years have seen fierce global competition in the field of wealth management.As the“jewel in the crown”of the global wealth management industry,and the highest level of competition in the business environment,FOs have becom

242、e one of the most critical and widely concerned core areas for global wealth management centres.Both Hong Kong and Singapore are the global financial centres and most popular operation bases of FOs in the Asia-Pacific region.As efforts to enhance respective competitiveness,these two locations have l

243、aunched a“combination”of policies to vigorously attract FOs from all over the world.Hong Kong launched its Limited Partnership Fund(LPF)regime in August 2020.The LPF implements the partnership system,under which the GP manages the fund,and the LP assumes limited liability within the limit of the cap

244、ital contribution,and is entitled to enjoy corresponding income distribution.At the tax level,Hong Kong does not levy any profit tax,and no stamp duty will be imposed on the contribution to,transfer and withdrawal of LPF equity.Subject to the satisfaction of certain conditions,an LPF can enjoy exemp

245、tion from profits tax under the unified fund exemption regime.An LPF is applicable to venture capital funds,private equity funds,buyout funds,real estate funds,infrastructure and project funds,special opportunity funds,hybrid funds,distressed asset funds,credit funds,digital asset funds(e.g.,cryptoc

246、urrencies,digital assets),etc.Against the international background of the deepening implementation of CRS and the“Cayman Islands Economic Substance Law”,an LPF provides a new institutional option for the global asset allocation of UHNW families.In terms of tax incentives,Hong Kong Financial Services

247、 and the Treasury Bureau issued a public consultation paper titled“Proposed Tax Concession for Family Offices”to industry professional groups on 8 March 2022.A relevant proposal was submitted to the Panel of the Financial Affairs of the Legislative Council in April of the same year,to provide tax ex

248、emptions for Family-owned Investment Holding Vehicles(FIHVs)with operations in Hong Kong,which would be in effect from the assessment year 2022/23.FIHVs managed by SFOs that meet certain conditions can be subject to a tax exemption on Hong Kong profits tax corresponding to profits from qualified tra

249、nsactions and incidental transactions thereto.Tax exemptions are available to FIHVs that satisfy the following conditions:3.Establishment and Site Selection of a Family Office 45 -the total assets under management under the SFO shall not be less than HKD240 million;-core income-generating activities

250、 in relation to asset management must be carried out in Hong Kong;-each FIHV shall engage at least two full-time eligible employees in Hong Kong and carry out core income-generating activities;-operating expenses related to core income-generating activities conducted by each FIHV on an annual basis

251、in Hong Kong shall not be less than HKD2 million.In 2019,Singapore launched the Fund Tax Exemption Scheme(13R and 13X)to provide concessions for the establishment of FOs.The structure of the fund tax exemption plan includes two companies:fund company,which holds various family assets;fund management

252、 company,namely an FO.The fund management company provides fund management services to the fund company.Any fund company that meets certain conditions is applicable to the tax exemption scheme under the 1947 Income Tax Act of Singapore,namely the 13R Scheme and 13X Scheme.On 11 April 2022,the Moneta

253、ry Authority of Singapore issued new regulations for the Fund Tax Exemption Scheme,to raise the applicable threshold of the above Scheme and make adjustments in terms of fund size,local investment ratio,business expenses,and number of employees.The new Fund Tax Exemption Scheme,also known as 13O(the

254、 original 13R)Scheme and 13U(the original 13X)scheme,was officially implemented on April 18 of the same year.The following is the summarised 13O and 13U,as well as the comparison with 13R and 13X:3.Establishment and Site Selection of a Family Office 46 Table 3-3:Comparison of the 13O Scheme and 13R

255、Scheme 13O Scheme 13R Scheme AUM No less than SGD10 million(equivalent to approximately RMB48 million)at the time of establishment,and undertake to increase to SGD20 million(equivalent to approximately RMB96 million)within 2 years after its establishment No AUM requirement Investment professional En

256、gaging at least 2 investment professionals,and in the event of failure to do so at the time of application,engaging the second professional within 1 year after the establishment Engaging at least 1 investment professional Business expenses if the AUM is less than SGD50 million(equivalent to approxim

257、ately RMB240 million),the annual business expenses shall not be less than SGD200,000(equivalent to approximately RMB960,000);if the AUM is between SGD50 million and SGD100 million(equivalent to approximately RMB480 million),the annual business expenses shall not be less than SGD500,000(equivalent to

258、 approximately RMB2.4 million);if the AUM is more than SGD100 million,the annual business expenses shall not be less than SGD1 million(equivalent to approximately RMB4.8 million)Business expenses of not less than SGD200,000 per annum,not subject to the AUM Local investment At least 10%of AUM or SGD1

259、0 million(whichever is lower)shall be invested locally in Singapore No requirement of local investment in Singapore Table 3-4:Comparison of the 13U Scheme and 13X Scheme 3.Establishment and Site Selection of a Family Office 47 13U Scheme 13X Scheme AUM No less than SGD50 million at the time of estab

260、lishment No less than SGD50 million at the time of establishment Investment professional Engaging at least 3 investment professionals,at least 1 of whom is a non-family member.If it is unable to engage 1 non-family member as an investment professional at the time of application,such engagement shall

261、 be conducted within 1 year after the establishment No requirement to engage non-family member Business expenses If the AUM is less than or equal to SGD100 million,the annual business expenses shall not be less than SGD500,000;if the AUM is greater than SGD100 million,the annual business expenses sh

262、all not be less than SGD1 million Business expenses of no less than SGD200,000 per annum,not subject to the AUM Local investment At least 10%of AUM or SGD10 million(whichever is lower)shall be invested locally in Singapore No requirement of local investment in Singapore 4.Organisational Structure an

263、d Talent of Family Offices 48 4.ORGANISATIONAL STRUCTURE AND TALENT OF FAMILY OFFICES 4.1.Organisational Structure of a Family Office The organisational structure design of an FO is highly heterogeneous,and therefore it is difficult to be generalised.In most cases,for the early stages of development

264、,the chief executive officer(CEO),chief financial officer(CFO),and chief investment officer(CIO)are the three essential roles.As IT needs to be established,the FO may also be equipped with a chief technology officer(CTO).At the same time,MFOs usually set up the role of chief customer officer(CCO).So

265、me MFOs may adopt a partnership system.Figure 4-1:Typical Organisational Structure of a Family Office Chairman of the Board/Chief Executive Officer(CEO)In an SFO,the role of chairman of the board or CEO is usually performed by a family member.In a family where one generation of founders is getting o

266、lder and subject to intergenerational inheritance,a second-generation family member may serve as the CEO.After the family sells and exits the business,a generation of founders may also take charge of Chairman/CEOCIOInvestment TeamCOOOperation TeamCompliance TeamAdministrative teamCFOFinance TeamCTOI

267、T TeamCCO（MFO）Customer Relationship Management Team4.Organisational Structure and Talent of Family Offices 49 the family office if they are passionate and have a strong willingness to succeed.For SFOs with low family involvement,the CEO is generally an external professional.Our survey found that for

268、mer senior management of the family business,senior family advisors(e.g.,financial or legal advisors),private bankers,or investment bankers with long-term cooperation are high-frequency candidates for becoming the CEO of an SFO.They have long-term interaction and cooperation experience with families

269、,and have established deep trust and rapport with each other.In an MFO,the CEO position is usually held by the principal founder,who is the most experienced or has the most client resources,and may also perform the role of CCO.Chief Investment Officer(CIO)The CIO is responsible for investment affair

270、s,including determining investment ideas,formulating and implementing investment strategies,and designing asset allocation plans.The CIO should have extensive experience in financial investment,asset allocation and portfolio management,keen insight into macro and micro economic conditions,and strike

271、 a balance between short-term tactical investment and medium and long-term strategic investment.The role of CIO is generally held by senior investment professionals or the second generation of families who have more practical investment experience.Chief Financial Officer(CFO)The CFO is generally a f

272、inance or taxation expert with primary responsibility for financial management,including tracking investment performance and compiling reports,treasury management,preparation of budgets and financial reports,dealing with tax issues,managing trusts and insurance,etc.Chief Operating Officer(COO)and Ch

273、ief Technology Officer(CTO)The COO is responsible for the overall operation,including operation process supervision and management,compliance and risk management,contract review and management,administrative file management,family affairs management,etc.The CTO is principally responsible for the dev

274、elopment and management of IT systems,data management,and data security.4.Organisational Structure and Talent of Family Offices 50 According to our management survey of 30 interviewed FOs,26 of them have established the role of CEO,and the remaining 4 have adopted a partnership structure.The number

275、of FOs with a full-time CIO,COO,and CFO is 18,14,and 3,respectively.One FO is equipped with a dedicated CTO.Family members serve as chairman,partner,CIO,CEO,CFO,COO,and other positions based on the FO structure and their own capabilities and interests.Figure 4-2:Setting of Roles of the Family Office

276、(N=30)Figure 4-3:Roles Played by Family Members(N=12)4.2.Talent in Family Offices Talent is the most important asset of an FO.The“selection,cultivation,engagement and retaining”of top talent is crucial to the high-quality development of an FO.In other business 4.Organisational Structure and Talent o

277、f Family Offices 51 organisations,talent-related work is generally performed by the human resources department.However,since the FO tends to be a small,flat organisation,talent-related work is generally done directly by family members or executives.According to the FOX,a family office industry assoc

278、iation of the US,the following steps can effectively optimise the recruitment process of an FO:1.Specific job descriptions:As the senior management of an FO may perform multiple roles,whether recruiting chief officers or employees,job descriptions can make talent assessment methods more explicit,and

279、 enable candidates to have more definite career development expectations.2.Establishment of an interview committee:Decisions on the key roles of an FO(such as CEO,CIO,and CFO)should not be made by a single interviewer.The establishment of an interview committee consisting of several individuals is c

280、onducive to reducing risks and conducting a more comprehensive,rational,and objective assessment of talent.3.Prudent background checks or scientific assessments:Conclusions from short interviews require further background checks or scientific assessments for verification.FOs generally seek long-term

281、 business partners,and should conduct cross validation with careful and comprehensive background checks and scientific tests.FO_07:“We have strict talent entry criteria,and apply various human resources and psychological assessment models.Such assessment is not only a consideration of skills and exp

282、erience,but also a test of cognition and thinking.We have been applying such a comprehensive evaluation system for seven years,which has shown effective results.For example,the evaluation results of an employee in the initial interview show he/she is extremely open-minded it took only three years to

283、 cultivate such high-potential talent from middle to senior level.”Compared with large financial institutions,FOs can provide a more flexible and performance-oriented salary structure.The work environment and culture of an FO can also attract“chemistry-fit”talent.FO_12:“I prefer to recruit talent fr

284、om middle-class families who rarely have negative 4.Organisational Structure and Talent of Family Offices 52 emotions due to salary issues,but,more importantly,can understand the operational logic of the whole family office.”In order to retain talent,other common incentives include equity incentives

285、,spirit incentives,etc.Equity incentives refer to the provision of other means of capital gains in addition to fixed remunerations.For example,certain FOs have designed an employee co-investment mechanism,which is conducive to realising the consistency of the interests of the principal and the agent

286、,reducing the negative impact of short-termism behaviours,and improving the overall income level of employees in an objective way.FO_12:“Our FO has an employee co-investment mechanism in place.A certain share of each investment project will be given to employees to sign up,with the investment amount

287、 ranging from one or two million to tens of millions in RMB.Any cost incurred in the co-investment process will be borne by myself.This way of bundling everyones interests together shows good results.After all,the wages and benefits that the FO provides to employees are limited.So,I hope each of my

288、employees can live a decent life in this way.”FO_07:“At present,the FO has set up a co-investment mechanism,and employees can choose to co-invest or not based on their own actual situations.In the future,we will consider implementing a mandatory co-investment mechanism for the management to enhance

289、the consistency of interests.”In order to retain core talent,some FOs open equity to external talent,and establish a higher level of mutual trust through the partnership system,which is conducive to achieving deep and long-term win-win cooperation.FO_04:“The partnership system can truly reflect the

290、cooperative relationship between us(professional managers)and family shareholders.All have co-investment and joint investment mechanisms on various levels.The management team is responsible for managing and allocating the familys overall assets.We will also enjoy the return on investment.We not only

291、 share the benefits,but also jointly share the risks as we need to invest money.”FO_03:“We want to build an open platform and cooperate with the best partners in the world,to form a market-oriented incentive system.This is a new attempt we have made in the 4.Organisational Structure and Talent of Fa

292、mily Offices 53 past year,and we are also considering gradually opening the SFO to an MFO.”Spirit incentives.The family office is often referred to as the“last stop”of a professionals career,and the senior management of FOs often have long-term working experience in large financial institutions.Diff

293、erent from large financial institutions,a family office with a flat and loose structure may not have rigorous performance evaluation criteria.Some studies suggest that CEOs of FOs often feel“unimportant”due to a lack of communication and feedback.Therefore,empowering employees and timely communicati

294、on and feedback is an important part of retaining talent.The overall organisational goals and personal development goals are organically combined through spiritual elements such as vision concepts,cultural values,public welfare,and environmental,social,and governance(ESG).For example,FO_18 attaches

295、great importance to the shaping of team values in order to achieve a consistency of ideas and interests.4.3.Insourcing and Outsourcing of Functions of Family Offices Our research has shown that,compared with mature markets such as those in Europe and the US,Chinese FOs are still in an early stage of

296、 development,indicating that they mainly undertake financial functions such as investment management and asset allocation so as to maintain the long-term real purchasing power of wealth.Of the 30 FOs surveyed,29 have a financial investment function and 28 have an asset allocation and risk management

297、 function.Most FOs have established relationships with external private banks,investment banks,and investment funds.In addition to direct investments,FOs made good use of information and opportunity sourcing functions of various external investment platforms.A very small number of FOs only undertake

298、 asset allocation and portfolio management instead of the direct investment function.Regarding the non-financial functions,the common insourced functions of FOs include financial planning,tax planning,family governance,inheritance planning,charity,and legal services.Some FOs choose to outsource thei

299、r IT,legal,tax,and other functions to external professional organisations with which those FOs have established partnerships.4.Organisational Structure and Talent of Family Offices 54 Fig.4-4:Functions of FOs(N=30)4.Organisational Structure and Talent of Family Offices 55 For an FO,the advantages of

300、 function insourcing include powerful control,high degree of customisation,excellent privacy protection,low conflict of interest,and strong sustainability;while the disadvantages include high financial costs and a tremendous amount of time and effort.Function outsourcing,on the other hand,offers cos

301、t savings,a streamlined team,a wide range of options,and experienced specialists;while the disadvantages are slow response times and weak privacy protection.Each family office should make its decision to insource or outsource a function that is appropriate to its own characteristics.As a general rul

302、e,an FO should take into account at least the following factors when making any such decision:1.Budget and structure:Outsourcing allows an FO to obtain professional services at a lower cost,therefore it is suitable for FOs with a limited budget.FOs prefer outsourcing of function as they typically pr

303、efer to be small-sized teams;2.Frequency and importance:A family office should insource its core and high-frequency functions for independence and high-quality delivery;however,it is more economical for a family office to outsource low-frequency specialised standardised services(e.g.,tax and legal);

304、3.Complexity and privacy:If a family needs a service that involves certain specialised niche skills(e.g.,legacy planning),it may be necessary for the family to engage external experts;if a family requires a high level of confidentiality of information and data,or if the service requires close intera

305、ction with family members over time,the family is more likely to favour insourcing of functions(e.g.,family governance or next-generation development).FO_07:“To keep our organisation lean,we outsource such localised businesses we operate abroad as US-related tax services.In addition,we have also out

306、sourced the management of the hotel,for which we act as the owner,due to the complexity of managing the hotel.The decision to outsource this management is largely based on efficiency,cost effectiveness,and comparative advantage.We would still choose to outsource the management of the hotel even if w

307、e were able to insource it ourselves,provided that the cost of outsourcing is low enough.”FO_17:“We provide MFO customers with services such as certain administrative work in 4.Organisational Structure and Talent of Family Offices 56 relation to trust,education,and immigration.These solutions are ma

308、inly provided by reliable specialised service providers we select in the market.This type of work is rather fragmented and can even include geographical issues if they involve overseas parties.We will systematically categorise these service providers in the future so that customers can select a more

309、 precise segment service provider.”Table 4-1:Analysis on Common Insourced/Outsourced Functions of FOs Type of function Insourcing Outsourcing Asset allocation/portfolio Insourcing is recommended for core functions such as asset allocation and portfolio management Certain investments with great diffi

310、culty,high threshold,and demanding professional knowledge(such as PE investment)may be made on an outsourcing basis Bookkeeping/reporting Insourcing would be more appropriate if the booking/reporting involves internal data and family privacy IT systems related to bookkeeping/reporting is generally o

311、utsourced Risk management A risk management framework should be established since risk management is one of the core functions of FOs An FO may consult with external experts regarding certain specialised segments.Tax/legal Determine whether to insource the tax/legal functions on the basis of budget

312、and size of the organisation Outsourcing is a more common practice.While FOs often insource tax/legal positions,most will engage outside agencies on a project basis Wealth distribution/inheritance Insourcing is more suitable for wealth distribution as it involves family privacy/significant strategy

313、A family office may rely on an external advisor to provide advice regarding an inheritance scheme of the family and then optimise the scheme;while instrumental services such as trusts and insurance are more commonly outsourced Administration service Insourcing is more appropriate in order to ensure

314、responsiveness/customisation of the service Certain specific standardised services may be outsourced 5.Investment and Asset Allocation of Family Offices 57 5.INVESTMENT AND ASSET ALLOCATION OF FAMILY OFFICES Intergenerational succession is the essential feature that significantly distinguishes FOs f

315、rom other institutional investors.Unlike most investment institutions that set short-term investment goals such as annual,quarterly,or monthly goals,an FO may make its investment with a horizon of several decades or even several generations.At the same time,FOs face a more relaxed regulatory environ

316、ment.Thanks to these factors,FOs are able to develop specific investment strategies,select asset classes,and implement asset allocations with greater freedom and flexibility.Since FOs essentially represent the most innovative,creative,and wealth-creating group of entrepreneurs especially the founder

317、s from the new economy and high-tech fields they often have a strong passion for investing in the future and technological innovation,thus providing long-term“patient capital”that facilitates innovation and entrepreneurship.Compared with other types of institutional investors,FOs have a higher toler

318、ance for risk,are able to assume greater uncertainty and longer investment horizons,and are committed to pursuing long-term asset appreciation,which is objectively more conducive to the technological innovation of a country.Data have shown that nearly 20%of the assets of FOs go to managers with long

319、 horizons,such as private equity,venture capital,and angel investments,and those FOs have seldom turned over their assets.5 In Sweden,the largest company is the Wallenberg familys industry group that has survived five generations in business,which comprises three Fortune 500 companies(ABB,Ericsson,a

320、nd AstraZeneca)as well as a group of well-known enterprises such as,Electrolux,Saab,Scandinavian Airlines,and telecommunications company Three,all of which together accounted for 40%of the market capitalisation of all listed companies in Sweden at one time.The core decisions of the industry group ar

321、e made by the FOs of Wallenberg,i.e.,Investor AB and FAM.5 Jason Zweig.How the Rich Play the Market，Wall Street Journal.May 10,2013 Column:Technology investments of the Wallenberg family office5.Investment and Asset Allocation of Family Offices 58 As the lead investor,the Wallenberg family office ha

322、s,along with Goldman Sachs and Fidelity,invested USD5 million in Alibaba in Series A investment round as early as 1999,which has become a typical case of an FO making a high-risk,high-growth,and high-yield strategic investment.FOs provide invaluable initial investment support as“patient capital”for

323、disruptive innovations with a high degree of uncertainty.There is a true story about a Taiwanese man who gave up his annual salary of USD700,000 in 1999 to join Alibaba with a monthly salary of RMB500 the“man behind Jack Ma”is Cai Chongxin,former CFO and Vice Chairman of Alibaba.What job would have

324、paid such a high salary more than 20 years ago?Cai Chongxin had worked in Wall Street for a few years after he graduated from Yale University with a doctorate in law.He was then hired by the fifth-generation head of the Wallenberg family as the investment manager of the Wallenberg family office in C

325、hina.It was Mr.Cai,then 35 years old,who discovered the talent of Jack Ma.Despite the multiple failure in starting his own business,Mr.Cai strongly believed in Ma and advocated to invest in Alibaba,which laid the foundation for the success of Alibaba today.The logic behind this classic case is worth

326、y of analysis.The Wallenberg family arrived in Stockholm earlier than the Swedish royal family,while ABB commenced its presence in-/Shanghai as early as 1908.Its FO began investing in China,which was still a small economy at the time,more than 20 years ago.The Wallenberg family firmly believes that

327、only by continuously identifying the most innovative entrepreneurs and making bold investments can we ultimately achieve a long-lasting fortune.It was based on clear strategic logic that the Wallenberg family could hire top-notch young talent and entrust them with important tasks to systematically i

328、mplement investment strategies.At the same time,the“patient capital”underlying the intergenerational succession of FOs offers the most talented young entrepreneurs the time and space to develop their talent and make“0 to 1”ventures.This is because FOs have the risk appetite,investment horizon,techno

329、logy orientation,and entrepreneurial spirit that other types of institutional investors do not have.Similar classic investment cases have repeatedly appeared in the worlds most successful technology innovation enterprises,such as Ellisons early investment in Tesla,Li Ka-shings early investment in Fa

330、cebook,and Li Tzar Kais early investment in Tencent,all of which provided crucial support for the technology enterprises that were unknown or controversial at that time.In fact,early investments in disruptive technology companies by FOs 5.Investment and Asset Allocation of Family Offices 59 have bec

331、ome an essential part of a countrys innovation system.Source:Brunel(2006);Haynes,Daniel and Hamilton(2008)Fig.5-1 Investment methodology of FOs 5.1.Investment Philosophy and Objectives Investment philosophy is a highly condensed representation of the core elements such as investment principles,bench

332、marks,methodologies,and values.A systematic,clear,and accurate investment philosophy can lead to a systematic guide within and outside the FO,set benchmarks for investment decisions and subsequent evaluation,and provide guidelines and boundaries for the execution on part of the investment team.FO_02

333、:“Our founder has reverse thinking.He wants to do big and challenging things,and is willing to invest in areas that others are reluctant to invest in,such as food waste,stem cells,turbine engines,and so on.He prefers long term investments and is relatively open-minded about financial returns,rather than just making purely financial investments.”FO_03:“In terms of investment,we prefer innovative an