China’s wealthy families are twice as likely as global peers to have made their millions in real estate, according to a report co-authored by UBS Group AG, which found an increasing focus on wealth preservation and succession.
Almost 30% of participants surveyed said their family wealth came from property, followed by consumer discretionary and industrials. The swelling ranks of China’s super rich are also increasingly turning to family offices as they focus on wealth maintenance and succession planning, according to the study.
The concept of a family office is relatively new in China compared to Europe, the US and other parts of Asia, where rich families have long used privately held companies to handle investment and wealth management decisions. Although the combined wealth of billionaires in mainland China dropped 12% in 2018 to $982.4 billion, according to a separate UBS/PwC Billionaires Report released in November, their numbers have been growing more quickly than elsewhere.
For around one-third of the clans surveyed, the primary wealth-management vehicle is a single-family office, while around 16% manage their money via a multi-family office. The average net wealth of those represented in the report is $943 million and the maintenance of their wealth was the main motivation for establishing or joining a family office, the report found.
The study, conducted in partnership with AVIC Trust Co and consultancies Campden Wealth Ltd and FOTT, also found the average age of the generation currently in charge in China is 55.
While the report’s authors don’t have an estimate for the current combined size of Chinese family offices, Tiffany Fan, founder of Beijing-based FOTT, said their total assets under management could reach 20 trillion yuan ($2.9 trillion) in 10 years. The rapid growth in China could potentially push the global scale of the industry above Campden Wealth’s projection of $10 trillion by 2025, she said.
Some challenges include the initial establishment of a family office structure, recruiting outside talent and finding experienced service providers, the report said.
Trust, confidentiality and reputation are the most critical factors when selecting service providers.
In terms of returns, Chinese family offices earned an average return of 11% over the past 12 months, with private equity the top-performing asset class. That compares to 6.2% in Asia Pacific and 5.4% globally.
About the same proportion of participants have adopted a growth-oriented investment strategy, 44%, versus a balanced approach, 43%, while only 13% adopted a preservation-oriented strategy, according to the report, which canvassed 76 families.