Family offices must recruit ‘expensive’ private equity staff to ensure long-term success, a conference has heard.
Speaking virtually at the Cyberport Venture Capital Forum in Hong Kong on Tuesday, Professor Heinrich Liechtenstein, of Barcelona’s IESE Business School, told delegates that recruitment should be a greater priority than financial concerns such as tax domiciliation when launching a family office.
“You need an excellent team,” Liechtenstein said. “How to attract the best team… is probably the biggest challenge for family offices – private equity people can become really expensive.”
The availability of investment talent should be key in deciding the location where family offices choose to launch, Simon Je, a fellow panellist and co-founder of the Hong Kong International Family Office Association, told Private Equity International on the sidelines of the Cyberport event.
“Family offices need to be run by professionals,” he said. “There’s no quick way, no free lunch. You need to have professionals to run your business in some sectors, especially alternative investments.”
Hong Kong is one of several markets vying to attract more Asian family office wealth. Last year, it launched Family Office HK, a government initiative to promote the Special Administrative Region as a wealth hub. In September, it introduced the Wealth Management Connect scheme, permitting eligible mainland, Hong Kong and Macao residents in the Greater Bay Area to invest cross-border in wealth management products.
As part of these efforts, Hong Kong also launched a series of reforms intended to attract private equity investment professionals. It established a Limited Partnership Fund regime for private funds in August, which has been used more than 360 times as of November. It also set up a carried interest tax concession this year to exempt qualifying carried interest from profits tax and salaries tax.
The SAR was Asia’s largest private equity hub outside mainland China as of December 2020, with about $170 billion in capital under management and 580 firms, according to the Securities and Futures Commission of Hong Kong. This dynamic appears to have contributed to its increasing popularity as a wealth destination, with private banking and private wealth management AUM growing 25 percent last year to HK$11.3 trillion ($1.45 trillion; €1.25 trillion).
“You don’t necessarily have the team where the family is,” Liechenstein said. “You cannot have [private equity teams] in the midst of nowhere.”
Rising demand for sustainable investment among family offices and wealthy individuals may also impact hiring trends. “[You need] people who understand ESG and how this is going to impact your medium-to-long-term investments,” Je said. “If your investment is medium to long term and you’re talking about a serious family office… then you need to hire a professional.”
Family offices with professional-grade investment staff are better prepared for succession events, he added. As of December, only 49 percent of Asia-Pacific family offices had succession plans, versus 54 percent in Europe, according to InvestHK.
“Sustainable investment is not only how we invest in a sector of business and how many X we can return; it’s how we can sustain that return,” Je said. “And the sustainability of the return is based on your governance of the family.”