Building family offices to last

This article was published in The Business Times on May 6, 2023.

The exponential growth of the burgeoning family office space in Singapore has captured global attention. Data from Singapore's Economic Development Board showed that family offices in the country grew fivefold between 2017 and 2019. In 2020, the number of family offices in Singapore was around 400, and the latest figures indicate that more than 800 family offices were established in the Republic by end-2022. With the world's billionaire population expected to grow at a global average of close to 34 per cent and a third of them from Asia-Pacific, this pace is likely to continue.

Against this exciting backdrop of rapid growth and wealth influx, it is easy to rest on our laurels and celebrate Singapore's success as the jurisdiction of choice for family offices. In truth, setting up a family office is just the first step of a long journey for one that is being built to last.

Investment decisions are often made randomly without a family-aligned investment policy statement. There is no agreed investment overview process, there are no set parameters in terms of asset or geographical allocation, currency or leverage exposure. This is counter-intuitive to what one would expect in terms of managing shared family wealth with an intergenerational legacy agenda.

Family values as a guiding compass

A family office should take on the posture of a steward of patient capital – capital that not only aspires to be enduring across generations but also nurturing, with a view towards supporting family members and the family at large to thrive. It should seek not only to preserve, sustain and grow family wealth, but to embrace the complexity of needs of a family group. With that in mind, the first step in a proper governance framework is a family dialogue on their common values, unified vision and mission.

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It is important for a family to discuss their perspectives and agree upon issues in an open and safe space. These include considerations such as the extent to which family members will be provided for, who should be included in the definition of “family", and their views regarding social impact and sustainability. In doing so, they gain clarity in terms of their family goals and liquidity needs over the short, medium and long term, and that gives direction to their family office.

What is their mission today towards realising the family goals? How should they invest to meet the family's liquidity and lifestyle needs? The value system that a family embraces influences their investment philosophy and steers their aspirations in terms of the social capital that they intend to build. What values power their decisions as to what to invest and how they invest? How would they wish for their family to be perceived as a result of the investment choices that they make?

Laying the cornerstones for success

The next step in building a more structured governance framework for the family office is to work on their protocol for decision-making. What would their investment process look like? Is there an overseeing investment committee? What are the parameters within which they need to operate? How often do they conduct portfolio reviews? What is the frequency of reporting that the family expects?

Aligning a family in relation to matters such as their target return, asset mix, risk tolerance and attitude towards leverage helps to manage expectations and avoid disputes. Setting an agreed approach to decision-making and a clear communication flow promotes fair process, which in turn builds trust and respect.

Read also: China's reopening good news for wealth management sector.

Strategic goal setting

On the point of goals, a distinction has to be drawn between a family's essential goals and aspirational goals. A family office needs to ensure that it is able to meet with a high level of probability the family's essential goals, which could include providing for the educational and healthcare needs of all family members, placing down payments for principal homes or even funding business ventures of next-generation family members. Then there are aspirational goals which could include philanthropic giving, funding family holidays or purchasing a yacht. The measure of success of a family office is the extent to which it can effectively support the various goals of the family over the course of time. This requires a goals-based approach to investing, particularly in times of rapid macro-environmental shifts.

It is necessary that a family recognises that individual family members may be at different stages of their respective life journeys, and their wealth outlook may be shaped by essential and aspirational goals that diverge from the larger family group. As a steward of shared family wealth, a family office has to be cognisant of the differing goals and navigate this complexity in order for individual family members and the family as a whole to flourish.

Learn more about Lombard Odier's goal-based approach.

Recognising that the journey to “build to last" cannot be walked alone, Singapore has over the years steadfastly invested in creating an ecosystem of multidisciplinary expertise to support these family offices. With such wind in their sails, there is little doubt that family offices here can persist and thrive across generations.