Private banks in Asia are counting on family offices to grow their business, and the headline AUM predictions look favorable. But a Singapore-based startup launched by two former private-banking investors wants to usurp that business by offering a better proposition based around technology.
The rise of family offices is both a curse and an opportunity for private banks. Curse, because they sometimes wedge themselves between the private bank and the family it has a relationship with. But also opportunity, because tycoons mostly invest in what they know, alongside people they know, and the family office is meant to professionalize decisions, a need that private banks can meet.
Family offices, representing single, dual, or multiple families, are meant to provide an institutional structure around managing the wealth of rich people. These offices vary wildly in size, capabilities and sophistication. Most are very small and quirky, but some achieve the scale of a small bank, and are run by extremely savvy hired help.
In general, in Europe family offices employ a dozen or so professionals, while in Asia they are usually smaller, and more likely to employ a member of the family.
Winning the growth
But the growth is clearly in Asia. According to a recent survey by Campden Research, Asia now accounts for 18% of the approximately 7,300 family offices worldwide – but these are growing at a rate of 44% over the past two years. Campden estimates family offices worldwide manage nearly $6 trillion in assets, roughly half the assets of these families. Private banks in Hong Kong and Singapore expect the region’s bankable assets to double in the next five years.
But who’s going to capture that growth?
“Unless the family office is large or has generous equity backing, it’s hard for them to afford a full in-house investment capability,” said Johan Jooste, co-founder and managing director at The Global CIO Office, which went live in Singapore last week.
There’s no part of the value chain where there aren’t technology providersJohan Jooste, Global CIO Office
The startup’s two partners, Jooste and Gary Dugan, will provide asset-allocation advice and investment help to family-office teams that might lack expertise in, say, fixed income (Jooste’s speciality). They’ll farm out tech-based platforms for niche asset classes such as venture capital.
But the heart of the business isn’t consulting, but disaggregating the entire value chain of a family office, and using tech to put it back together again.
“There’s no part of the value chain where there isn’t one or more technology providers,” Jooste said.
Using vendors with plug’n’play solutions from trading and execution to custody to risk to reporting, the startup wants to bring simple, very low-cost support to family offices. Vendors can include trading platforms, robo advisors, and fintech service providers, from custody to KYC.
And if one solution isn’t working well for a client, The Global CIO Office can swap it with another without having to redo its infrastructure: these are just different uses of software-as-a-service. That is what the startup’s founders hope will provide their competitive edge against private banks, which are built around inflexible legacy tech.
Most family offices fail within their first 12 monthsGary Dugan, Global CIO Office
That means private banks have to charge higher fees to family offices, which may not be sustainable for new or small clients.
“Most family offices fail within their first 12 months because of cost,” Dugan said. They spend too much on people or fancy offices, without appreciating the running costs involved. Or they overburden the investment teams with the back-office work.
Keep it professional
Dugan says the idea is to work with professional investors working at small family offices to help them do their job better, rather than replace them. The company prefers to work with finance pros rather than get involved directly with family members, especially if those people aren’t well versed in financial markets.
The startup has launched using the capital-markets license of Purple Asset Management, a Singapore-licensed firm. Purple was set up three years ago to manage money for a single U.K.-based financial advisory, and the managers wanted to diversify the business with an outsourcing model.
The Global CIO Office is being funded by Purple’s two U.K. shareholders, the Fry Group and Independence Strategic Group, a B2B fintech asset manager.
Dugan and Jooste discussed the concept several years ago but only recently has the technology progressed to the point it can support the concept, they said. The new firm has a handful of U.K. and Middle East-based clients, and should onboard its first Singapore family office this year.