Trend Analysis of Family Offices in China

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Over the past 40 years of reform and opening up in China, tens of thousands of entrepreneurs with striving spirit and their sweat have written their own wealth legends. According to the “Hurun Wealth Report 2020” released in early 2021, the number of high-net-worth families with assets of RMB 100 millions has reached 130,000. As the saying goes, it is hard to start a business, but it is more harder to maintain it. In order to protect the foundation of business, the rich entrepreneurs have to care about the safety and value preservation and appreciation of their wealth, as well as more importantly—wealth inheritance. Obviously, ordinary wealth services cannot meet their needs, and family offices have been tried and tested as a mature solution to the worries of the rich, and are therefore favored.

 

Having said that, the family office is still a new thing and developing in China. Also, the global business environment is constantly changing. These factors will have a significant impact on the family office. The following development trends are expected in the future:

 

1.The service is more detailed and professional, service field is wider and service tool is richer

 

In recent years, black swan incidents have occurred frequently, which has had an impact on the global economy, as well as placed higher demands on the services of family offices. In order to increase service standards, the division of labor for family office employees is more detailed, and through the concerted collaboration of professionals in investment, law, taxation, medical care, pension, education, charity and other fields, a more complete service system is built for customers. Meanwhile, as for catering to the diverse needs of customers, the service scope of the family office will be more diversified. It not only provides family wealth inheritance planning, but also equity structure planning, risk isolation, overseas identity planning, tax planning, cross-border asset transfer and Configuration, family governance and cultural inheritance, establishment of charitable foundations, etc. For the purpose of achieving these service requirements, the comprehensive application of financial, legal, and structural tools such as family trusts, property division agreements, wills, gifts, corporate restructuring, and asset integration will become the mainstream. Coupling with technological advancements, service tools will become more abundant.

 

2.Diversified investment, no longer concentrated in the old economy

 

Increasing uncertainties in the world economy have caused investment to face serious challenges. In recent years, family office investment has shown a diversified trend, and its investment scope is no longer restricted to traditional asset classes such as stocks and bonds for the sake of better investment returns. Actually, it covers direct investment fields such as private equity, and interest in high-tech fields and start-up projects is also increasing.

 

3.Asset management supported by technology has become a trend

 

Nowadays, big data, cloud computing, artificial intelligence and other technologies are developing rapidly. Innovative technology has provided new impetus for the development of various industries, and the same is true for the family office industry. Family offices can use machine learning to monitor and reduce portfolio risks, use artificial intelligence to analyze alternative data, obtain investment insights, perform automated analysis and carry out customer reports. With the blessing of technology, the data analysis capabilities and service efficiency of the family office have been comprehensively improved, and the forms of investment research, risk control and compliance have been fundamentally changed. With the blessing of technology, the data analysis capabilities and service efficiency of the family office have been comprehensively improved, and the forms of investment research, risk control and compliance have been fundamentally changed.

 

In general, although the growth rate of China’s private wealth market is slowing down, it still has great potential. The scale of high-net-worth individuals continues to increase. In the future, the demand for wealth inheritance will become more and more vigorous. Along with technology advances, family office service capacity will be greatly improved, more refined, and the scope of investment will be wider. For practitioners, they can grasp the opportunities of the times as long as understanding these development trends.

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