BEIJING Contents

Preliminaries

Foreword 05

Executive summary 06

1. Introduction 08

2. Key characteristics 11

GUANGZHOU a. The operating business 14

b. The Greater Bay Area 18

3. Established Chinese family offices 21

4. Future Chinese family offices 33

5. Investments 45

a. Investment strategy 46

b. Asset allocation 48

c. Performance 52 SHANGHAI

6. Service providers 55

7. Afterword: about family offices 61

About us 66

HONG KONG

3 Campden Wealth Research Team Director of Research Dr. Rebecca Gooch Senior Research Consultants Dr. Masud Ally Dr. Gustavo Bonifaz

Design Elisa Barbata

FOTT Research Team Fan Xiaoman Zeng Shuling

Acknowledgements Jan Boes Enrico Mattoli Pierre-Guillaume Kopp Blake Kwok Jiang Yan Meng Haojie Dominic Samuelson Gemma Samuelson Nick Hayward

ISBN: 978-1-9993399-0-6 The Chinese Family Office and Wealth Management Report, 2020

4 Foreword

Dear reader,

We are delighted to introduce the Chinese Family Office and Wealth Management Report. This study has resulted from the efforts and insights provided by several entities which are continuously striving to provide their clients with cutting-edge analysis, based on primary data. It has been undertaken by Campden Wealth in collaboration with FOTT, and in partnership with UBS and AVIC Trust in its production and distribution.

This report begins to fill an increasingly important vacuum of information, and the proceeding pages contain information on a range of topics – from Chinese family office operations and use of external service providers, to investments and performance, and the transition of wealth between generations.

The extraordinary economic growth that China has exhibited, and the rapidly developing financial infrastructure in the country, have driven a sharp rise in the number of ultra-high net worth individuals. Furthermore, as this research confirms, the wealth creators are now entering their mid-50s, and considering inheritance and succession planning. Thus, as explored in the proceedings pages, the Chinese family office arena has been growing and maturing, rapidly. The relatively subdued global economic environment and heightened uncertainty have, no doubt, affected business and investment in China, as elsewhere, but, seems also to be reinforcing the drive towards structure and organisation in Chinese wealth management.

One key finding is that, while many Chinese families of significant wealth are using family office services (64% of participants) – with their key motivation being the maintenance of wealth – they are also facing challenges, including in recruiting talent and finding external service providers. Trust appears to be amongst the central issues. Most of the families not currently using family office services are interested in doing so (75%), and, of those interested, most are actively taking measures to set up or join a family office (84%).

In terms of investments, we find that private equity (20% of the average portfolio) is preferred to public equity (17%). As with much of the character of the landscape, the central explanatory factor seems to be that the wealth creators are still around, still active, and keen to be hands-on.

We trust that this report will be a valuable resource for established Chinese family offices – to benchmark themselves – and families looking to use family office services – to help them plan and structure their operations and investments. It will also be of interest to global family offices – to get an insight into a central, but distinct, segment of the arena.

We would like to thank all the families and executives who shared their insights, and hope you enjoy the read.

Yours faithfully,

Dominic Samuelson Anurag Mahesh Fan Xiaoman Fan Hua Chief Executive Officer Head Global Family Office Founder and CEO Vice General Manager Campden Wealth Group APAC FOTT AVIC Trust UBS Global Wealth Management

5 Executive summary

Average family wealth is Most families have RMB 6.5 billion; average maintained control of their AUM, RMB 4.2 billion business; two-fifths have listed their business

The average net wealth of the A substantial fraction of the families families represented in this report reported that they have either a is RMB 6.5 billion majority stake in (USD 943 million), the core operating and the average business (45%) AUM of the or complete family offices is ownership (37%). RMB 4.2 billion Two-fifths said (USD 604 their business is million). listed.

Average age of About two-thirds use wealth-holders is family office services; key 55 years motivation is maintenance of wealth The primary wealth management vehicle is a single family office for 30% of the families; commercial multi-family office (16%), and private multi-family office and hybrid family office (9.2% each). The maintenance of family wealth is the main The average age of the generation motivation for establishing currently in charge of family wealth or joining a family office is 55 years. (47%).

Real estate is the most The central challenges are common industry in establishing a structure, which wealth originates recruiting talent, and finding service providers

Twenty-nine percent of participants reported that their family wealth originated in the real estate Establishing a family industry – twice the global figure. office structure Real estate is followed by accounted for 35% consumer of the top ranked discretionary challenges that family (16%) and offices are faced with; industrials recruiting outside talent 21%, and finding (13%). experienced service providers 21%.

6 Significant and active interest in family office services

Of those who do not currently use family office services, over three-quarters are interested in either setting up a single family office (44%) or joining a multi-family office (33%). Of those interested, 84% are actively taking measures.

Chinese families The average portfolio are looking returned 11% for growth or balance In the previous 12 months, Chinese family offices earned an average return of 11%. Private equity was the top performing asset class – direct investments returning 19% and fund-based investing Roughly the same proportion of participants 15%. Real estate have adopted a growth-oriented investment also performed well strategy (44%) as a balanced approach (43%), – direct investments and a much smaller proportion have adopted a returning 14% and preservation-oriented strategy (13%). REITs 9.0%.

Fixed income constitutes Service providers found the top asset class; private through recommendations. markets preferred Trust, confidentiality/security, to public ones and reputation the key criteria The most popular paths to service providers are recommendations from professionals already known (87%) and from family and friends (54%). The top asset class in which family offices Trust, confidentiality/security, invest is fixed income (22% of the average and reputation are the most critical portfolio). Private equity constitutes 20%, real considerations – with 91%, 84%, estate 17%, and public equities 17%. and 76% indicating that these The vast majority of respondents consider are very important criteria, international investments (90%). respectively.

7 1 Introduction

ast year marked the 40th anniversary hence the emergence of family offices in China. of China’s ‘reform and opening-up’ While these offices are generally investment- L policy. Between 1978 and 2010, the oriented, this research finds that the wealth country experienced rapid economic and social creators are, on average, entering their mid- development, with Gross Domestic Product (GDP) 50s and have been naturally confronted with growing at an annual average rate of 10%, and by challenges related to protecting their wealth as much as 15% per year.1 Over that time period, through the coming years, and dividing it / China emerged as the second largest economy in passing it down to their children and extended the world. While, since 2010, growth has steadily families. Hence, the sprouting interest in declined – from 10.6% in 2010 to 6.9% in 2016 inheritance and succession planning. and 6.6% in 2018 – it is still relatively high by current global standards – with global growth at As even the concept of a ‘family office’ is still 3.1% in 2018.2 rather nascent in China, the lines between family offices and other wealth management or family In the last 30 years, Chinese capital markets business entities, or UHNWIs, are often blurry. The have also rapidly developed, including the re- rules and regulations governing family offices and establishment of the stock and bond markets. family trusts are only beginning to be developed, By 2018, the Shanghai Stock Exchange was the and information about the space is scarce. fourth largest in the world by market capitalisation. The other two independent stock exchanges in With this said, in recent years, the family office China – Shenzhen and Hong Kong – are also arena has been maturing rapidly. This has been currently in the top 10. helped by the fact that families do not need to ‘reinvent the wheel’, so to speak. They have been The extraordinary economic growth and the looking outwards from mainland China, including monetisation of assets has driven a sharp rise to Hong Kong and Taiwan, and adopting the best in the number of ultra-high net worth individuals ideas and practices – albeit making specifically (UHNWIs) in China. Many of the wealth creators mainland adjustments. – often a group of relatives – launched start-ups in the early 1990s and went on to build industry- According to some Chinese families, the recent leading companies, a notable proportion of which drive towards structure and organisation in wealth have only recently completed their Initial Public management is also related to the relatively Offering (IPO). subdued investment returns achieved over the last few years. Others add that, in the last 15 years As their wealth has grown, families have needed or so, Chinese families have been accumulating to consider the management of their assets – investment experience and, in turn, now want

“While a great deal of wealth has been amassed over the last two decades, there is not much conversation about how the underlying businesses were established or how the wealth was created. Reservations about discussing wealth is deep-rooted in Chinese history.”

8 greater control over their wealth and more personalised services.

In the words of one family member: Methodology

“While a great deal of wealth has been amassed This study has used a mixed over the last two decades, there is not much methods approach to collect data. conversation about how the underlying The quantitative component involved businesses were established or how the wealth procuring data from Chinese families was created. Reservations about discussing with a net wealth of, at least, RMB 350 wealth is deep-rooted in Chinese history.” million (approximately USD 50 million), including both families currently using Hence the motivation to conduct this study – single family office or multi-family which aims, amongst other things, to provide office services and families planning insight into family wealth and its management, the to use such services. The data was burgeoning family office space, the transition of collected through a questionnaire wealth between generations, and families’ use of designed to explore a range of relevant external service providers. topics, which was largely administered in person in mainland China. Family Overall, Chinese families of wealth have stressed Office Think Tank (FOTT), which is how varied the family offices – and, indeed, the based in Beijing, identified participants families themselves – are, including in terms of through its network of wealth holders structure and sophistication. Still, the character of and family offices. The data collection the family office space is clearly and thoroughly took place between March and August shaped by the fact that the entrepreneurs/wealth- 2019, and, in total, 76 family members, creators are still around, still energetic, and very senior family office executives, and hands-on. family wealth managers completed the survey. In order to provide context and greater insight into the quantitative findings, Campden Wealth and FOTT also conducted in-depth qualitative interviews with 10 individuals/families.

1The World Bank, GDP growth, https://data.worldbank.org/indicator/NY.GDP.MKTP. KD.ZG?locations=CN [accessed September 2019]. 2United Nations Conference on Trade and Development, https://unctad.org/en/pag- es/newsdetails.aspx?OriginalVersionID=1981 [accessed September 2019].

9 Chinese Family Office and Family Wealth Management Report, 2020 Introduction

10 2 Key characteristics

11 2 Key characteristics

This study is based on information provided by 25% of participants have over RMB 5 billion a range of individuals involved in the family office managed, and the average AUM is RMB 4.2 billion and wealth management landscapes in China. (circa USD 604 million) (figure 3). Thus, about 65% of net wealth is managed. About 17% of participants explicitly reported that they are family members. But direct family input is Figure 2 likely to be much higher – because founders (16%) Family net wealth and chairpersons (12%) of Chinese family offices are most likely family members, too (figure 1).

Figure 1 45% Roles of the survey respondents

17% 16% 8.5% 14% 15% 12% 12% 7%

9.2% 10% 2.8% 7.9% 6.6% 11% 5.3% RMB 300 - 499 million RMB 1.5 - 2.99 billion RMB 500 - 749 million RMB 3.0 - 4.99 billion RMB 750 - 999 million RMB 5.0+ billion RMB 1.0 - 1.49 billion Average: RMB 6.5 billion (USD 943 million) Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 Other Director

Researcher Chairperson Figure 3 Family member Assets managed on behalf of the family (excluding operating business ownership) Founder /Chief Co-founder Executive Officer Chief Investment Officer Business owner / Principal Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 25% 27%

Families’ average wealth is 14% 11% RMB 6.5 billion; family offices’ average AUM is RMB 4.2 billion 11% 5.6% The net wealth of 45% of the families that 5.6% participated in this study is over RMB 5 billion, RMB 300 - 499 million RMB 1.5 - 2.99 billion and the average net wealth is about RMB 6.5 RMB 500 - 749 million RMB 3.0 - 4.99 billion billion (circa USD 943 million) (figure 2).3 RMB 750 - 999 million RMB 5.0+ billion RMB 1.0 - 1.49 billion Average: RMB 4.2 billion In terms of assets managed on behalf of the (USD 604 million) Note: Figures may not sum to 100% due to rounding families (excluding operating business ownership), Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

12 These figures can be compared with the global Figure 5 and Asia-Pacific figures detailed in the Campden How the family wealth is split across holdings Wealth and UBS Global Family Office Report 2019. Globally, average net wealth stood at USD 1.2 billion and average family office AUM at USD 917 million; in Asia-Pacific, average net wealth stood at USD 908 million and average AUM at USD 600m. Thus, globally, about 76% of net 6.6% 45% wealth is managed, and, in Asia-Pacific, about 66% is managed. Overall, the China and Asia- 21% 27% Pacific figures are similar, and 20-35% lower than their global equivalents.

The average wealth and AUM of the family offices Operating business Real estate based in Hong Kong that participated in the global Financial instruments Collectibles / other hard assets family office survey were USD 1.0 billion and USD Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth 813 million, respectively. Thus, the Hong Kong net Management Survey 2019 wealth figure is relatively close to the Asia-Pacific and China figures, while the Hong Kong AUM The average age of wealth-holders is 55 years figure is about 35% higher (figure 4). The average age of the generation currently in Figure 4 charge of family wealth is 55 years. In keeping Average net wealth and average AUM with the significant generational transition that is currently underway worldwide, a notable Average Average Percent net wealth AUM Managed proportion of respondents (55%) are in the older (USD million) (USD million) brackets, 55+ years, while a smaller proportion (21%) are in their younger years, 25-44, and likely China 943 604 65% only relatively recently transitioned into their wealth Global 1,200 917 76% oversight roles (figure 6). Asia-Pacific 908 600 66% Figure 6 Hong Kong 1,000 813 81% Age of the generation currently in charge of the Source: The Campden Wealth / FOTT Chinese Family Office and Wealth family wealth Management Survey 2019

Family wealth resides mainly in operating 18% 3.9% businesses 17% 37% In terms of wherein family wealth lies, on average, 45% is in the operating business, 27% 24% and 21% are in financial instruments and real estate, respectively, and the balance (6.6%) is in collectibles or other hard assets, including art, 25-34 years old 55-64 years old cars, and wine (figure 5). 35-44 years old 65+ years old 45-54 years old Average: 55 years old

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

3 In this report, where RMB is converted into USD, the average rate during the data 13 collection period, 6.88 RMB to USD, is used. Chinese Family Office and Family Wealth Management Report, 2020 Key characteristics

Most families have maintained control of The operating business their business; two-fifths have listed their business Real estate is the most common industry in which wealth originates A substantial fraction of the families reported that they currently have either a majority stake Twenty-nine percent of participants reported in the core operating business (45%) or, indeed, that the family wealth originated in the real estate complete ownership (37%) (figure 8). industry. After all, over the last 20 years, as China has served as the world’s manufacturing hub and Figure 8 Family ownership in the operating business moved up the global supply chain, incomes have increased. The new middle class – consisting of single-child households, who also face barriers to investing overseas – has demanded and bought real estate, and those higher up the income spectrum can often have multiple properties. 45%

The 29% can be compared with the finding in 4% the Global Family Office Report 2019 that real estate was the primary industry in which the family 5.3% 37% generated its wealth in 14% of cases. 8%

In the present study, real estate is followed by consumer discretionary (16%) and industrials Yes, majority stake (13%). Consumer discretionary includes retail Yes, complete ownership (5.3%) and clothing and textiles (also 5.3%), and Yes, minority stake (with controlling rights) industrials includes equipment manufacturing Yes, minority stake (without controlling rights) (9.2%) (figure 7). No, operating business was sold Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

Figure 7 Industry in which the family wealth originates

Real estate 29% Consumer discretionary 16% Industrials 13% Information technology 12% Health care 9.2% Energy 6.6% Materials 5.3% Consumer staples 3.9% Financials 2.6% Communication services 2.6%

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

14 Two-fifths of families reported that their business Beijing popular for operating business is now listed (figure 9). headquarters

Figure 9 Most of the operating businesses associated Whether the operating business is listed with the families surveyed are headquartered in Beijing (24%), followed by Guangdong (19%). The latter includes Shenzhen (8.0%) and Guangzhou (2.7%). One quarter of the operating businesses Yes 40% 60% No are based in either Shanghai (13%) or Zhejiang (12%), and the remaining 32% are spread across a number of locations, including Shandong (5.3%) and Fujian (4.0%) (figure 10).

Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

Figure 10 Location of the operating business headquarters

2.7% 24% 2.7% 1.3% 5.3%

1.3% 2.7% 13% 2.7% 1.3% 12% 1.3% 4.0% 1.3%

TAIWAN 1.3% 1.3% 19%

2.7%

SHENZHEN 2.7% 8.0% Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

15 Chinese Family Office and Family Wealth Management Report, 2020 Key characteristics

In terms of the distribution of industries across Figure 11 the locations, Beijing houses businesses in a Key risks the family faces in its management of the business range of industries – being the most or joint- most popular for six out of 10 of the industries. Competition within China The most popular locations for real estate are 53% Guangdong (23%, of which Shenzhen accounts Business environment within China for 18%) and Shanghai (also 23%); for industrials 52% is Zhejiang (30%); for energy is Guangdong (40%, all of which is accounted for by the region Competition globally 37% excluding Shenzhen and Guangzhou), and for consumer staples are Guangdong (excluding Adaptation to technology-driven platforms for the business Shenzhen and Guangzhou), Shanghai, and 34% Shandong (with families surveyed split equally The difficulties of passing on leadership responsibility from across these locations). one generation to the next 29% Domestic and global competition are key Lack of interest in the business by the next generation risks 24% The impact of succession on the value of the business The key risks that families believe they currently 22% face in the management of their businesses Unplanned death of a family member include domestic and global competition, 20% which 53% and 37% of participants indicated, The conflict between the next generation and the old respectively, and adaption to technology-driven ministers of the family business platforms (34%). Fifty-two percent also said that 18% the business environment within China presents Family’s potential loss of control of the business risks, but many added that it also presents 6.6% opportunities (figure 11). Family involvement 3.9% Chinese families are diversifying to Note: Figures need not sum to 100% because respondents can select multiple mitigate sectoral risk options Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 Over four-fifths of families reported that, if their operating business risk is within a particular sector, they are investing in other sectors in order Figure 12 to mitigate that risk (figure 12). Mitigation of sectoral risk

No

19%

81% Yes

Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

16 “If there is any problem and the operating business finds that it requires capital, the entrepreneur will typically be the first person to inject capital into the business.”

Private and business assets have been Case study separated Indicating that wealth management in China Challenges in is more developed than sometimes assumed, almost 90% reported that the family’s private manufacturing assets are either currently separated from its business assets (72%) or will be separated in the We interviewed a family member who future (17%) (figure 13). outlined the challenges his family’s manufacturing business is currently facing. Figure 13 “Firstly, beginning about 30 years ago, Separation of private and business assets China’s manufacturing industry took off. With globalisation, many developed No Don’t know countries, including the US, UK, and 2.7% Germany, relocated their factories to China, and China became the world’s Yes, the 8% family’s factory. That certainly helped our family private build up its business. But, now, everything assets will 17% be separated has changed. The US, concerned about 72% Yes, the domestic jobs, is engaged in trade family’s tensions with China – and, in fact, albeit private assets are to a much lesser degree, with other currently countries. This will affect living standards separated around the world and will affect our business. Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Secondly, labour costs in China have been Management Survey 2019 escalating. Thirdly, real estate is becoming more In our interviews with them, however, some expensive. families urged a nuanced interpretation of such figures, particularly because “if there is any Finally, technology is evolving so rapidly problem and the operating business finds that it and business in general is becoming requires capital, the entrepreneur will typically be faster and faster. On the one hand, this the first person to inject capital into the business.” creates opportunities for all manufacturing businesses – to use more advanced machines or systems. On the other hand, systems will keep having to be upgraded – and if you slack, you will get left behind by your competitors. Regarding the trade tensions, there is the potential for the entire technological process to radically change – with, for example, the emergence of domestic rather than global leaders. Overall, manufacturing in China is becoming more and more complicated.”

17 Chinese Family Office and Family Wealth Management Report, 2020 Key characteristics

Focus on The Greater Bay Area

• The Greater Bay Area (GBA) consists of the two Special Administrative Regions of Hong Kong and Macau, and nine cities in Guangdong Province. • With a combined GDP of USD 1.6 trillion, it represents about 13% of China’s overall GDP and is comparable to South Korea, the world’s AUSTRALIA SOUTH KOREA GREATER BAY AREA UNITED KINGDOM 11th largest economy. GDP (2018) GDP (2018) GDP (2018) GDP (2018) USD 1.4 USD 1.6 USD 1.6 USD 2.8 • In July 2017, the central and relevant local trillion trillion trillion trillion governments signed a framework agreement on the development of the GBA. This will involve the deepening of cooperation between the cities/regions, playing to their distinct strengths, and the building of a world-class metropolis. 13% 5% 1% • In February 2019, the central government of China’s of China’s of China’s issued a much-anticipated blueprint for overall overall overall GDP population land area development. This includes near-term targets until 2022 and longer-term targets until 2035, and sections on developing an international technology and innovation hub; expediting infrastructural connectivity; building a globally competitive modern industrial system, and developing a quality living environment. • Some of the related projects are already 33% underway. Last year, President Xi Jinping opened the world’s longest sea crossing Families studied bridge, which connects Hong Kong to Macau with family offices and Zhuhai. The Chinese government has in GBA also announced tax subsidies for talented individuals from outside mainland China who move to the GBA. Average wealth of the families in the region • The GBA’s financial sector will benefit from the greater trade and capital flows and greater RMB 10 billion financing demand, and the government is also promoting active participation of the GBA in the related work of the ‘Belt and Road’ initiative. In this context, going or Guangdong more • Since the trade and technology tensions forward, it will be generally. This is between the US and China erupted, the important to track the equivalent to only 16 latter has implemented a number of fiscal GBA family office space. families, however, and any resulting statistics and monetary policies to support economic At present, 33% of should therefore be growth. The tensions heighten the significance the families in our treated with caution. of developing the GBA, and it is quite likely sample which use that the government will move timelines family office services The average wealth forward for a number of initiatives. indicated that their of the families in the family office is based region is RMB 10 billion, Data sources: Greater Bay Area, Major Social and Economic Indicators, 2018, https://www.bayarea.gov.hk/en/about/the-cities.html [accessed October 2019]; The in either Hong Kong, and their family offices World Bank, GDP, https://data.worldbank.org/country/ [accessed October 2019]. Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Guangzhou, Shenzhen, manage, on average, Management Survey 2019

18 144.4 GDP (USD bn) 332.3

FOSHAN GUANGZHOU • Area (sq km): 3,798 • Area (sq km): 7,434 • Population (mn): 7.91 • Population (mn): 14.90 • GDP (RMB bn): 993.6 • GDP (RMB bn): 2285.9 32.0

ZHAOQING • Area (sq km): 14,891 DONGGUAN • Population (mn): 4.15 • Area (sq km): 2,460 • GDP (RMB bn): 220.2 • Population (mn): 8.39 120.3 • GDP (RMB bn): 827.9

ZHONGSHAN HUIZHOU 52.8 • Area (sq km): 1,784 • Area (sq km): 11,347 • Population (mn): 3.31 • Population (mn): 4.83 59.6 • GDP (RMB bn): 363.3 • GDP (RMB bn): 410.3

JIANGMEN SHENZHEN 42.2 • Area (sq km): 9,507 • Area (sq km): 1,997 • Population (mn): 4.60 • Population (mn): 13.03 • GDP (RMB bn): 290.0 • GDP (RMB bn): 2422.2 HONG KONG • Area (sq km): 1,107 ZHUHAI • Population (mn): 7.5 • GDP (HKD bn): 2842.9 42.4 • Area (sq km): 1,736 • Population (mn): 1.89 • GDP (RMB bn): 291.5

352.1

MACAU 55.5 • Area (sq km): 33 • Population (mn): 0.67 • GDP (MOP bn): 440.3 362.7

RMB 7.3 billion in assets consumer discretionary or complete ownership The average age of – about RMB 3.5 billion (19% versus 16%); health (56% versus 37%). None wealth-holders in the and RMB 3.1 billion more care (13% versus 9.2%); hold a minority stake region is 52 years – 3 than the overall averages, energy (6.3% versus (versus 13.5% overall), years below the overall respectively. 6.6%), and consumer and, in 13% of cases, average. staples (6.3% versus In terms of the industries the operating business Of the families using 3.9%). in which wealth in the was sold (versus 4.0% family office services, region originates: real A substantial fraction of overall). Sixty-three 56% use a single family estate (38% versus the the families have either percent of families office; 31% use a hybrid overall figure of 29%); a majority stake in the reported that their office, and 12.6% use information technology core operating business business is now listed either a commercial or (19% versus 12%); (31% versus 45% overall) (versus 40% overall). private multi-family office.

19 Chinese Family Office and Family Wealth Management Report, 2020 Key characteristics

20 3 Established Chinese family offices

21 3 Established Chinese family offices

This section of the report is concerned specifically It should also be noted that, according to our with participants who already have some family interviewees, the vast majority of family offices in office affiliation. China are embedded within family businesses. 64% of respondents use family office …and they do so to maintain family wealth services… The maintenance of family wealth is the most A substantial 64% of the participants in this study popular core reason that originally motivated the reported that their primary wealth management families to establish or join a family office (47%). vehicle is a family office: single family office (30%), This is followed by the office being an investment commercial multi-family office (16%), and private platform (24%) and it being both a deal and multi-family office and hybrid family office (9.2% investment platform (24% each) (figure 15). each) (figure 14).

Figure 14 Figure 15 Primary wealth management vehicle Reason for setting up or joining the family office

30% 47% 9.2% 5.3% 9.2% 16%

12% 12% 24% 24% 12%

Single family office Commercial multi-family office To maintain family wealth for multiple generations No wealth management services used To solely be an investment platform Wealth management is outsourced to external wealth To be both a deal and investment platform managers/advisers To preserve family harmony Advice from family/friends

Private multi-family office Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Hybrid family office Management Survey 2019 Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 Interest in family offices is on the rise This finding should, however, be treated with Over three-quarters of the families reported that some caution. Firstly, it is likely that families using they either established or joined a family office family offices were more likely to partake in this after 2010. In the last six years, interest has been study. Secondly, there is some fluidity in how growing, and almost one-third reported that they the relevant terms – including ‘family office’ – began using family office services in either 2018 are understood and used, particularly as these (13%) or in the first eight months of 2019 (18%) concepts are still relatively novel in parts of (figure 16). mainland China.

22 Figure 16 Beijing is popular for participating family Year family office was formed or joined offices

24% Most of the family offices that participated in this study are based in Beijing (38%), which houses almost twice the number of those in Shanghai 18% (20%), the second most popular location. Hong Kong follows, with 15% (figure 17). 13% Based on our discussions with the families and 11% with other experts on the ground, however, 7.9% 7.9% 7.9% this might reflect the fact that our network is 5.3% 5.3% particularly extensive in Beijing. Shanghai is likely 0.0% to house more family offices, and Shenzhen houses many, too. prior 2011 2012 2014 2015 2016 2017 2018 2019 2013 2010 or Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

Figure 17 Location of the family office

2.6%

38%

2.6%

20%

5.0%

2.6%

15% 2.6% 12%

Note: Figures may not sum to 100% due to rounding. 5.0% Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

23 Chinese Family Office and Family Wealth Management Report, 2020 Established Chinese family offices

Single family offices serve, on average, In terms of the services that the family offices three family members; multi-family offices provide, substantial proportions of the families eight families reported that investment-related activities such For single/hybrid family offices, the average number as asset allocation, traditional investment, and of family members served is three, which tallies alternative investment are performed wholly in- with the historical one-child policy and with the house rather than wholly outsourced (59% versus indication from our interviewees that family offices 9.4%; 56% versus 6.3%, and 48% versus 6.1%, generally serve immediate rather than extended respectively). families (figure 18). In addition, a substantial share reported that accounting services are provided either in-house Figure 18 or both in-house and out-house (52% and 42%, How many family members or families the family respectively), and it is similar for financial planning office serves (55% and 39%) and estate management (39% and 55%). 3 8 Average Average While 32% reported that they outsource legal services, 67% provide these either wholly in- house or in some combination with external partners. As indicated by comparison with figures contained in the Global Family Office Report 2019, Chinese family offices provide practically the entire range of services wholly in-house to a lesser degree For single/hybrid family offices, For multi-family offices, than the global average. For example, in China, how many family members how many families does 14% of family offices provide concierge services does the family office serve? the family office serve? and security in-house while, globally, 65% do. The Source: The Campden Wealth / FOTT Chinese Family Office and Wealth exceptions are estate planning (39% versus 27%) Management Survey 2019 and legal services (19% versus 4.2%). In most service categories, Chinese family offices For multi-family offices, the average number of also wholly outsource less than their global families served is eight. peers. For example, in China, 21% of family Looking ahead, some of our single family office offices outsource IT while, globally, 53% do. interviewees mentioned the ultimate aim of drawing The exceptions include family governance and in other families or merging with other family offices succession planning (26% versus 6.8%) and trust in order to benefit from economies of scale and management (45% versus 29%). improve access to deals. The implication is, of course, that Chinese family Chinese family offices provide a range of offices depend on a combination of in-house services and external provision of most services to a greater degree. The biggest differences include The majority of our interviewees said that, while philanthropy (China 52% versus global average Chinese family offices provide a range of services, 20%) and management of high value physical they are generally investment-oriented and also assets (55% versus 24%). tend to do substantial legal work. Our quantitative data appears to lend some weight to this (figure 19).

24 Figure 19 How services are provided – in-house, outsourced, both

In-house Outsourced Both 14% Concierge services and security 38% 48% 38% Family counselling / relationship 28% management 34% 45% Family governance and succession 26% planning 29% 32% Training and education 32% 35% Management of high value physical 35% assets (e.g., property, art, yachts) 10% Family professional services Family professional 55% 57% Support for new family business and 3.3% other projects 40% 28% IT 21% 52% 52% Accounting 6.5% 42% 10% Other office services 28%

Administrative services 62% 55% Financial planning 6.1% 39% 16% Tax planning 38% 47% 39% Estate planning 6.5% 55% 19% Legal services 32% 48% General advisory 16% Insurance planning 39% 45% 13% Trust management 45% 42% 59% Asset allocation 9.4% 31% 61% Risk management 3.2% 35% 52% Manager selection / oversight 0.0% 48% 56% Traditional investment 6.3% 38% 48% Alternative investment 6.1% 45% 53% Real estate 6.3% 41%

Investment related activities Investment related Investment banking functions (deal 38% sourcing, due diligence, capital 10% structuring, exits) 52% 39% Financial accounting / reporting 13% 48% 39% Philanthropy 9.1% 52% Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

25 Chinese Family Office and Family Wealth Management Report, 2020 Established Chinese family offices

The average family office has nine Figure 21 members of staff; the chairperson is The roles played by family members in the family usually a family member office The family offices consist, on average, of two family members and seven non-family members, with 74% family members generally taking up the key role of chairperson (74%) and many also serving as a director (43%) or CEO (29%) (figures 20 and 21).

Figure 20 Number of family members and non-family 43% members working in the family office

29% 2 7 9 26% Average Average Average 23% 17%

Director Partner

Chairperson Family Non-family Total members members Chief Financial Officer Chief Executive Officer (professional) Chief Investment Officer Note: Figures need not sum to 100% because respondents can select multiple Note: Figures may not sum to 100% due to rounding options Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 Management Survey 2019

Chinese family office salaries are lower Figure 22 than global ones Base salary of key personnel, 2019 Some of our interviewees indicated that Chinese Chinese averages Global averages family office salaries are substantially lower than RMB USD USD both global averages and the averages across the Asia-Pacific region. This is corroborated by Chief Executive Officer 865,000 126,000 335,000 comparison of the data collected for the present Chief Investment Officer 660,000 96,000 266,000 study with the remuneration data contained in the Chief Operating Officer 450,000 65,000 213,000 Global Family Office Report 2019. Chief Financial Officer 410,000 60,000 208,000 The average base salary in China in 2019 for CEOs, CIOs, COOs, and CFOs stood at RMB 865,000 Traders 285,000 41,000 - (approximately 38% of the global average), RMB Portfolio Managers 265,000 39,200 - 660,000 (36%), RMB 450,000 (30%), and RMB Source: The Campden Wealth / FOTT Chinese Family Office and Wealth 410,000 (29%), respectively (figure 22). Management Survey 2019

26 “I imagine preparing children and also gauging whether they have an interest in the family business and/or investments in this manner is probably very different from in Europe or the US.”

Case study Next Gen education and work experience

In terms of Next Gen education and work He explained: experience, interviewees recounted the experiences of family members: “Through investment banking, one gets a grasp of the whole financial sector and “One family member has been preparing receives a great deal of training in due since she was young – 13 or 14 years old. diligence and financial statement analysis. I After school or during the holidays, at every think my path is somewhat representative of opportunity, her father took her to meetings. others in China. It is the only kind of formal They might have been about some new external training children often get.” technology, new pipelines, or some specific research. Initially, she was not able to fully In fact, in some cases, upon graduation, Next understand them, but she listened and, over Gens immediately joined the family office. time, she came to understand the basic structure of investments. I imagine preparing children and also gauging whether they have an interest in the family business and/or investments in this manner is probably very different from in Europe or the US.” “Every summer, we interned in the company or the family office. You’re working, you’re sitting next to CEOs, and people who are experts in their fields – there is no better way to understand a business than talking directly with its founder. This is very common in China and it has always been like that.” Most of the Next Gens interviewed pursued their tertiary education overseas. However, they did not necessarily read for degrees in business- or finance-related subjects. As one interviewee explained: “A lot of people do not have a formal education in finance, and working in a family office or working in finance, more generally, does not require it.” Upon graduation, one interviewee spent a few years in finance before joining the family office.

27 Chinese Family Office and Family Wealth Management Report, 2020 Established Chinese family offices

The Next Gen are involved and have Chinese family offices than global ones, with influence the global averages standing at 36% and 32%, respectively. In contrast, the proportion in which Nearly three-fifths (59%) of families reported Next Gens have no involvement is substantially that the next generation is involved in a lower, with the global average standing at 28%. management/executive role, while 29% reported that they sit on the board. Fifty-nine percent Regarding their influence, the next generation reported that Next Gens have some involvement appear to have, at least, some say across the – such as on a project-by-project basis or to gain board. The vast majority are involved, either a work experience – and only 2.9% reported that partial or significant amount, with the family’s they are not involved at all (figure 23). long-term investment objectives (85%), day-to- day investment decisions (84%), and investment Figure 23 strategy (81%) (figure 24). Next Gen involvement in the family office Figure 24 Next Gen influence None Some Significant amount 59% Strategy of the 21% family office / wealth 45% management activity 33% Investment 18% strategy 42% 39% 2.9% 59% Family office 21% 2.9% structure and 48% governance 30%

Family office 18% 8.8% 52% 38% staffing 30% 12% Long-term 15% 29% investment objectives 44% of the family 41% Day-to-day 16% Management/executive role investment 50% decisions Some involvement (e.g., on a project-by-project basis, 34% work experience) 25% Involved in philanthropy Philanthropy 38% 38% Sit on the board Allocations to 22% Next generation is too young sustainable/impact/ 41% N/A family has no successors ESG investments 38% No involvement at all Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Other Management Survey 2019 Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 According to our interviewees, typically, the Next Gen will take up investment management roles The proportion of family offices with Next Gens and sit on the investment committee. They will be holding management/executive roles and the paired with a professional investment manager proportion with Next Gens having some less and will also be expected to learn by observing regular involvement are notably higher amongst the older generation in action.

28 “In China, it is typical that the decision-maker makes every decision and seldom does he or she delegate the whole investment mandate or related decisions to a manager or the second generation. Even the second generation would have to obtain approval from the actual decision-maker.”

The patriarch/matriarch is in charge Figure 26 A large majority of the families reported that either Does the strategy ensure a legacy for the current the patriarch or matriarch is primarily in charge of and future generations of the family? setting the family office’s objectives and strategies – Don’t 53% and 31%, respectively. Only 3.1% said that an know external third-party leads on this front (figure 25). 28% Figure 25 Responsibility for setting the family office’s objectives and strategies 66% Yes 6.3% External third-party No 3.1% Next generation member Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth 13% Management Survey 2019

Families have different plans about the 53% Patriarch long-term management of their offices Matriarch 31% Of the participants in this study who already have some family office affiliation, 46% reported that, in the long-term, family members will run the office. 31% reported that it will be run by professionals, Note: Figures may not sum to 100% due to rounding and 23% do not yet know (figure 27). Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 Figure 27 Two-thirds (66%) reported that the strategies Who the family office will be run by in the long-term currently in place ensure a legacy for the current and future generations of the family, suggesting that long-term wealth and succession planning are still in need of development (figure 26).

According to one family office executive: 46% “In China, it is typical that the decision-maker makes every decision and seldom does he or she 23% delegate the whole investment mandate or related decisions to a manager or the second generation. Even the second generation would have to obtain 31% approval from the actual decision-maker.” As another interviewee added, however, there is Family members some subtlety. Many family offices have a standard Professionals outside the family investment process – i.e., with investments being Don’t know presented to an investment committee. It is that, Note: Figures may not sum to 100% due to rounding ultimately, the patriarch or matriarch “has the most Source: The Campden Wealth / FOTT Chinese Family Office and Wealth power to determine the decisions.” Management Survey 2019

29 Chinese Family Office and Family Wealth Management Report, 2020 Established Chinese family offices

Families’ most important objective is long- Other notable objectives include centralised term wealth preservation control and improved risk management – which features prominently amongst the second When families were asked to rank their three most and third ranked objectives (21% and 18%, important objectives, long-term wealth preservation respectively) – and establishing a structure to ranked number one (35%), followed by strategic transfer wealth between generations – 8.8% and and tactical investment management (24% and 12% (figure 28). 18%, respectively).

Figure 28 Ranking of the family’s three most important objectives

Number 1 objective Number 2 objective Number 3 objective

35% Long-term wealth preservation 15% 8.8% 24% Investment management strategic 12% 8.8% 18% Investment management tactical 2.9% 2.9% 8.8% Intergenerational wealth transfer structure 8.8% 12% 5.9% Centralised control and improved risk management 21% 18% 2.9% Family administration and professional services 21% 2.9% 2.9% Tax efficient wealth transfer 2.9% 8.8% 2.9% Vehicle for family intergenerational cohesion 0.0% 8.8% 0.0% Family real assets management 18% 5.9% 0.0% Consolidating information and reporting 0.0% 5.9% 0.0% Economies of scale in operating / investing costs / 0.0% dealing with financial services counter-parties 5.9%

Vehicle for the promotion of core family values and 0.0% 0.0% traditions set by the patriarch / matriarch 8.8%

Vehicle to support and reward positive behaviour from family 0.0% 0.0% members and without support for negative behaviour 2.9% Note: This table shows how the first, second, and third ranked objectives are distributed across objectives. Figures may not sum to 100% due to rounding. Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

30 Family offices are looking to establish Establishing a family office structure, investment strategies/guidelines recruiting talent, and finding service providers are family offices’ central When families were asked to rank the top three challenges governance priorities for the family office in the next 12-24 months, establishing investment strategy/ Respondents were also asked about the guidelines was the most popular (34%), followed challenges that the family office is facing at by risk management (investment, IT, etc.) (26%) present, and, in addition to establishing a family (figure 29). These are also the top global priorities; office structure – which accounted for 35% of although, year-on-year, risk management typically the top ranked challenges – as corroborated by ranks as the number one priority for global family our interviews, recruiting outside talent (21%) and offices. finding experienced service providers (also 21%) were central issues (figure 30). Succession planning is another important governance priority, accounting for 14%, 26%, and According to several of our interviewees, Chinese 11% of the first, second, and third ranked priorities. families are heavily engaged in determining how to objectively interpret relevant regulatory policies Figure 29 and tease out the related investment opportunities. Ranking of the family office / wealth management Indeed, across the second and third ranked staff’s top three governance priorities challenges, planning with regulatory uncertainty Number 1 priority Number 3 priority was prominent (24% and 18%, respectively). Number 2 priority 34% Investment strategy/ 26% guidelines 5.7% Figure 30 Ranking of the family office’s top three challenges 26% Risk management 29% (investment, IT, etc.) Number 1 challenge Number 3 challenge 29% Number 2 challenge 14% 35% Succession planning 26% Establishing a family 15% 11% office structure 0.0% 8.6% 21% Control policies 5.7% Recruiting outside talent 15% 17% 8.8% Establish clear guidelines 8.6% Finding experienced 21% for communication 0.0% 24% between family offices 5.7% service providers 18% and families 8.8% 5.7% Defining the family Human capital 15% 2.9% office’s purpose oversight 5.7% 5.9% 5.9% Include non-family 2.9% Compliance with laws 5.9% members in the activities 0.0% and regulations 2.9% of the family office 2.9% Formulating a structure 5.9% Designing the board / 0.0% for next generation 2.9% key responsibilities of 2.9% 47% senior staff 2.9% succession 2.9% 0.0% Planning with Involve the next 24% 8.6% regulatory uncertainty 18% generation 20% Note: This table shows how the first, second, and third ranked governance priorities Note: This table shows how the first, second, and third ranked challenges are are distributed across priorities. Figures may not sum to 100% due to rounding distributed across challenges. Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 Management Survey 2019

31 Chinese Family Office and Family Wealth Management Report, 2020 Established Chinese family offices

Case study Recruitment and trust

In our conversations with families regarding Some families explained that they closely recruitment of non-family employees into family guard their investment information from outside offices, the theme which emerged most clearly employees, who work on a project-by-project was trust – which trumps all other factors in the basis. They are aware that this approach can, at recruitment process, including the candidate’s least, exacerbate the problems – implying a lack investment skills. of trust. According to one family office executive: Several families mentioned the difficulty of “This dilemma is something many family offices finding and retaining suitable outside talent. in China are constantly thinking about.” They said that turnover is high and expressed Other families use contract clauses for some their concerns about whether individuals were protection: attempting to simply pick up know-how in the budding industry or, worse still, obtain sensitive “There are some terms in contracts whereby information (e.g., personal or portfolio information the employee makes a commitment which to use for their own advantage). restricts his or her ability to join other family offices.” In the words of two family office executives: “There are written agreements – i.e., that you “In China, there are a lot of very young – in their cannot disclose certain things or use certain early 30s – and very hungry – i.e., financially- information for your own gain – but they [ex- driven – individuals. There is a shortage of employees] still have the information, and particular kinds of investment talent and it is difficult to know if that information has abundant opportunities. An individual might been disclosed and difficult to enforce the stay with his employer for a few years and then agreements.” be offered several multiples of his current pay by another firm.” Professionals involved in the family office space suggested that employee frustration might be “You invest in him for several years, and then, based on their limited decision-making power one day, he leaves with all your information.” and the fact that many family offices have not Most family office employees are Chinese and closely considered the links between employee have a pre-existing social relationship – e.g., and portfolio performance and not closely linked they might be a family friend or a friend-of- performance and pay. On the thorny issue of a-friend – or business relationship with the remuneration, one professional added: family. In our conversations with them, families “Families are very concerned about whether described an organic process in which they work outside employees are loyal and generating with the individual over time, increasing their value. They wonder, ‘now that the lawyer [let collaboration. The individual might be their ex- us say] is one of my own, do I have to pay private/investment banker, someone with whom him such a high rate?’. On the other hand, deals were conducted, or a longtime employee the lawyer probably thinks, ‘I am not being in the family business finance department. One remunerated at the market rate’.” family office executive described one case: It should be noted that another likely reason for “The CEO of the family office, after graduation, dependence on social and professional networks became the personal assistant to the patriarch is that the Chinese recruitment industry is also of the family and then, over a decade, worked still in its infancy. her way up to become a very trusted friend of the family. This is not a one-off situation.”

“Families are very concerned about whether outside employees are loyal and generating value.”

32 4 Future Chinese family offices

33 4 Future Chinese family offices

This section of the report is concerned specifically Figure 32 with participants who are interested in setting up Whether the family is taking active measures to set or joining a family office. up or join a family office

Significant and active interest in using No family office services 16% Of the participants in this study who do not currently use family office services, over three- quarters stated that they are interested in either setting up a single family office (44%) or joining a 84% multi-family office (33%). A further 10% have yet to determine their interest (figure 31). Yes

Figure 31 Note: Figures may not sum to 100% due to rounding Interest in using family office services Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

Growth in family offices likely to be strong in 2019

44% In terms of dates for setting up or joining a family office, most of the relevant families said, when surveyed between March and August 2019, that 10% they were planning to do so sometime in the rest of the year (45%). There was also significant activity planned for this year (21%) and some for 13% 18% 2021 (10%) (figure 33). 15% Figure 33 Year family office will be formed or joined Yes, in setting up a single family office Yes, in joining a commercial multi-family office 45% Yes, in joining a private multi-family office Not interested Don’t know

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Manage- ment Survey 2019 24% 21%

Of those interested, 84% are currently taking active measures to set up or join a family office 10% (figure 32).

2019 2020 2021

2022 or later

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

34 Shanghai is the most popular city for 32% of the relevant families indicating that their future family offices office will be based in the city. This is followed jointly by Beijing (21%) and Guangdong (21%), with In terms of the regions in which family offices will the latter including Shenzhen (12%), and then by be based, Shanghai is the most popular – with Zhejiang (15%) (figure 34).

Figure 34 Likely location of the family office

2.9%

21%

2.9%

32%

ZHEIAN

15%

2.9%

2.9%

21%

2.9%

12%

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

35 Chinese Family Office and Family Wealth Management Report, 2020 Future Chinese family offices

For second branches, Hong Kong is the was the only region outside Asia selected by the most popular region; the US is the only relevant families (figure 35). Some specified New region outside of Asia specified York, and others, Silicon Valley in California.

The participants in the study that currently use These findings broadly echo the Global Family family office services were asked whether they Office Report 2018, which found that 40% of are considering setting up a second office and, the family offices in Asia-Pacific with secondary if so, to indicate, in a free-text field, their region branches house them in Asia, while 20% do so in of preference. Hong Kong (37%) and Singapore North America. (24%) were the most popular, and the US (22%)

Figure 35 Preferred regions for second family offices

Hong Kong 37% Singapore 24% US 22% Beijing 6.6%

Shanghai 6.6% Fuzhou 0.8% Don’t know 3.3%

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

36 Service provision similar in practice and In two out of the three remaining services, the plans proportion indicating a combination of internal and external provision is higher in plans than in The families that are planning to establish practice. family offices in the future also indicated which services they will likely provide.

Notable findings include that substantial shares of the families reported that investment- related activities such as asset allocation and traditional investment are more likely to be performed wholly in-house rather than be wholly outsourced (57% versus 13% and 58% versus 4.2%, respectively) – which aligns with the indication from families that already use family office services regarding their actual practices.

Overall, it appears that the difficulty of outsourcing might be underestimated.

In 16 out of 24 services, families (that will use family offices) plan to depend on wholly in- house provision less than families (currently using family offices) actually do. For example, whereas 7.7% of the former plan to provide training and education wholly in-house, 32% of the latter do so.

In seven out of the eight remaining services, families plan to both in-house and outsource more than is currently done in practice.

In 21 out of 24 services, including 14 of the aforementioned 16 cases, families plan to wholly outsource more than is done in practice. For example, whereas 54% of families (that will use family offices) plan to outsource legal services, 32% of families (currently using family offices) actually do so. Whereas, plans are more in favour of wholly outsourcing than wholly in-housing investment banking functions and financial accounting / reporting (44% versus 20% and 33% versus 29%, respectively), in practice, families provide these services in-house more than outsourcing them (38% versus 10% and 39% versus 13%, respectively).

37 Chinese Family Office and Family Wealth Management Report, 2020 Future Chinese family offices

Figure 36 How services will be provided – in-house, outsourced, or both

In-house Outsourced Both 8.7% Concierge services and security 57% 35% Family counselling / relationship 29% 25% management 46% 42% Family governance and succession 17% planning 42% 7.7% Training and education 50% 42% Management of high value physical assets 42% (e.g., property, art, yachts) 13% Family professional services Family professional 46% Support for new family business and 65% 7.7% other projects 27% 12% IT 40% 48% 42% Accounting 17% 42% 21% Other office services 33%

Administrative services 46% 46% Financial planning 12% 42% 12% Tax planning 46% 42% 35% Estate planning 19% 46% 3.8% Legal services 54% 42% General advisory 19% Insurance planning 54% 27% 16% Trust management 60% 24% 57% Asset allocation 13% 30% 46% Risk management 8.3% 46% 48% Manager selection / oversight 16% 36% 58% Traditional investment 4.2% 38% 28% Alternative investment 12% 60% 56% Real estate 12% 32%

Investment related activities Investment related 20% Investment banking functions (deal sourcing, 44% due diligence, capital structuring, exits) 36% 29% Financial accounting / reporting 33% 38% 50% Philanthropy 19% 31% Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

38 On average, family offices expect to start Figure 38 off with six members of staff The roles family members will play in the family office The family offices that will be set up are forecasted to consist, on average, of two family members and 60% four non-family members (figure 37). The offices already set up consist of two family members and seven non-family members. The difference might 48% be the result of families starting out with smaller numbers of staff and, as they mature, taking on additional professionals. It might also be related to families overestimating the amount that family members / non-family members can achieve, and resonates with the previous suggestion that the difficulty of outsourcing is underestimated. 20% 16% 12% Figure 37 Number of family members and non-family 8.0% members that will work in the family office 2 4 6 Average Average Average

Director Partner

Chairperson

Chief Financial Officer Chief Executive Officer Chief Investment Officer

Note: Figures need not sum to 100% because respondents can select multiple Family Non-family Total options members members Source: The Campden Wealth / FOTT Chinese Family Office and Wealth (professionals) Management Survey 2019

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 …as is Next Gen involvement Family member roles similar in practice and plans... Regarding how the next generation will be involved, 40% plan to have Next Gens in The roles which family members are most often management or executive roles, while another forecasted to take up are director (60%) and 40% plan to bring them in on a project-by-project chairperson (48%) (figure 38). or internship basis, and 32% expect that they will sit on the board (figure 39). Notable differences with family offices already established include that, amongst the latter, a The former two figures contrast with the greater proportion indicate that family members corresponding ones for families already using a actually serve as chairperson (48% planned family office, amongst which 59% have Next Gens versus 74% in practice) and as CEO (12% versus that hold management/executive positions and 29%). This might indicate an evolution in family the same proportion have Next Gens with some involvement in family offices in China. involvement in the family office.

39 Chinese Family Office and Family Wealth Management Report, 2020 Future Chinese family offices

anticipated to have ‘no influence’ and ‘significant Figure 39 influence’ in 7.7% and 15% of cases, respectively, How the Next Gen will be involved in the family office but currently have such influence in 16% and 34% of cases, respectively (figure 40).

Figure 40 40% The level of influence the Next Gen will have

None Some Significant amount

12% Family office 16% 40% structure and 56% 4.0% governance 28% 16% Family office staffing 64% 4.0% 20% 32% 16% Strategy of the 8.0% family office / wealth 60% management activity 32% 32% 8.0% Investment strategy 72% 20% Management / executive role Long-term 8.0% Some involvement (e.g., on a project-by-project basis, investment objectives 64% internship) of the family 28% Involved in philanthropy Day-to-day 7.7% Sit on the board investment 77% decisions 15% Next generation is too young N/A family has no successors 8.0% Philanthropy 64% No involvement at all 28% Don’t know Allocations to 8.0% Note: Figures may not sum to 100% due to rounding sustainable/impact/ 56% Source: The Campden Wealth / FOTT Chinese Family Office and Wealth ESG investments 36% Management Survey 2019

Note: Figures may not sum to 100% due to rounding Regarding the influence the next generation will Source: The Campden Wealth / FOTT Chinese Family Office and Wealth have, it appears that they will have, at least, some Management Survey 2019 say across the board.

In terms of differences between current plans Practically the same percentage of the two groups and current practice, the next generation are – those planning to use and those using family forecasted to have both ‘no influence’ and offices – reported that the patriarch is primarily ‘significant influence’ less commonly than they in charge of setting the family office’s objectives actually have. In terms of investment strategy, and strategies (54% and 53%, respectively). Next Gens are expected to have ‘no influence’ However, amongst the former group, the ranking and ‘significant influence’ in 8.0% and 20% of continues with a Next Gen member (31%) and cases, respectively, but they currently have such then the matriarch (7.7%), and amongst the latter, influence in 18% and 39% of cases, respectively. it continues with the matriarch (31%) and then a In day-to-day investment decisions, Next Gens are Next Gen member (13%) (figure 41).

40 In the long-run, the family offices will be Figure 41 Responsibility for setting the family office’s run by a blend of family members and non- objectives and strategies family professionals

External third-party Eighty-one percent of the relevant families 7.7% reported that, in the long-term, the family office will be run by a blend of family members and professionals outside the family; 11% said that it Next will be run by family members, and 7.4% said that generation it will be run by professionals (figure 43). member

31% Figure 43 54% Patriarch Who will run the family office in the long-term

Matriarch 7.7%

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 81% 11%

Eighty-eight percent of the relevant families 7.4% indicated that their strategy ensures a legacy for the current and future generations of the family (figure 42). Family members Professionals outside the family Figure 42 Blend of family members and professionals outside the Does the strategy ensure a legacy for the current family and future generations of the family? Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Don’t Management Survey 2019 know Importance of long-term wealth 12% preservation reiterated

The families planning to establish a family office were asked to rank their three most important 88% Yes No objectives. Like amongst those already using 0.0% a family office, the top ranked objective was long-term wealth preservation, but it was less popular (22% versus 35%). Strategic and tactical

Note: Figures may not sum to 100% due to rounding investment management (both 15%) were also Source: The Campden Wealth / FOTT Chinese Family Office and Wealth prominent. Centralised control and improved Management Survey 2019 risk management (19%) and tax efficient wealth transfers (19%) were the most frequently selected options amongst the second and third most important objectives, respectively (figure 44).

41 Chinese Family Office and Family Wealth Management Report, 2020 Future Chinese family offices

Figure 44 Families looking to establish a family Ranking of the family’s three most important office are prioritising risk management objectives

Number 1 objective Number 3 objective Families planning to use a family office were Number 2 objective asked to rank their top three governance priorities in the next 12-24 months, and amongst the top 22% Long-term wealth 19% ranked priorities, in line with wider global trends, preservation 7.4% risk management was the most popular (28%), 19% followed by investment strategy/guidelines (20%) Family real assets 15% (figure 45). management 11% 15% Investment 11% management strategic 3.7% Figure 45 Ranking of the family office / wealth management Investment 15% staff’s top three governance priorities management tactical 3.7% 0.0% Number 1 priority Number 3 priority Number 2 priority Intergenerational wealth 11% transfer structure 7.4% 28% 3.7% Risk management 16% (investment, IT, etc.) Economies of scale in 7.4% 16% 0.0% operating / investing costs 20% / dealing with financial 7.4% Investment strategy/ 24% services counter-parties guidelines 12% Family administration 3.7% and professional 11% 12% services 7.4% Succession planning 8.0% 16% 3.7% Tax efficient wealth 7.4% transfer 12% 19% Involve the next 8.0% generation 8.0% Centralised control 0.0% and improved risk 19% Designing the board / key 12% management 7.4% responsibilities of senior 4.0% staff 4.0% Vehicle for the promotion 0.0% of core family values 3.7% 12% and traditions set by the 3.7% Human capital 4.0% patriarch / matriarch oversight 4.0% Vehicle for family 0.0% Include non-family 4.0% intergenerational 0.0% members in the activities 4.0% cohesion 15% of the family office 12% Consolidating 0.0% 0.0% 0.0% Establish clear guidelines information and for communication between 20% 3.7% reporting family offices and families 12% Note: This table shows how the first, second, and third ranked objectives are distributed across objectives. Figures may not sum to 100% due to rounding 0.0% Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Control policies 12% Management Survey 2019 16%

Note: This table shows how the first, second, and third ranked governance priorities are distributed across priorities. Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

42 “Many Chinese families have difficulties with communication between the first and second generations. The issue is that they have such different backgrounds, including education and work experience. I think they need a professional to bring them together and help them to appreciate each other’s values and goals, to help them work together.”

In terms of differences between this group and the group consisting of those already using a family Case study office, a greater proportion of the former stressed designing the board / key responsibilities for senior Governance, staff (12% versus 0.0%), which is understandable given their relative stage in the process. They also succession, and the stressed involving the next generation more heavily next generation (12% versus 0.0%). In our conversations with families, several Recruiting talent and finding service discussed issues surrounding governance: providers are the key challenges in establishing a family office “In Asia in general, it is challenging to push for change and for formal policies Families planning to set up a family office were and processes.” also asked about the challenges they are facing in One interviewee added that: the process, and, in addition to the trials associated with establishing a family office structure – which “In Chinese families, it is partly emotional accounted for 55% of the top ranked challenges – – some things are not said.” recruiting outside talent (27%) and finding experienced Overall, especially amongst the first service providers (64% of the number two ranked generation, governance is still a relatively challenges) were central issues (figure 46). unfamiliar concept. It is, however, one that is Figure 46 gaining traction: Ranking of the family’s top three challenges “As the second generation is increasingly regarding the family office brought into the fold, it informs and Number 1 priority Number 2 priority Number 3 priority educates the first generation, and Establishing 55% recommends ways to change based on a family office 0.0% international standards.” structure 0.0% In many cases, for both the first and second 27% Recruiting 18% generations, governance is simply not yet a outside talent 18% priority. In the current economic climate, in Planning with 9.1% which meeting return targets is becoming regulatory 9.1% increasingly difficult, governance and uncertainty 18% succession planning will quite possibly fall Formulating a 9.1% further in priority. structure for 0.0% next generation 45% According to another interviewee: succession Finding 0.0% “Many Chinese families have difficulties experienced 64% with communication between the first service providers 0.0% and second generations. The issue is that Defining the 0.0% they have such different backgrounds, family office’s 9.1% including education and work experience. purpose 18% I think they need a professional to Compliance 0.0% bring them together and help them to with laws and 0.0% regulations 0.0% appreciate each other’s values and goals, Note: This table shows how the first, second, and third ranked challenges are to help them work together.” distributed across challenges. Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 43 Chinese Family Office and Family Wealth Management Report, 2020 Future Chinese family offices

44 5 Investments

45 5 Investments

“Five years ago, businesses were returning 20% Investment strategy to 30% and families were looking for investment returns of, at least, 10% to 20%. Gradually, Chinese families are still looking for however, families are shifting emphasis from growth, but there are signs of a change in growth to preservation.” focus The change is, in part, a long-term one – relating In terms of investment strategy, roughly the same to the age of the wealth creators – but it has also proportion of participants in the study reported been prompted by slowing economic growth that they have adopted a growth-oriented in China, the low interest rate environment, and approach (44%) as a balanced approach (43%), failures amongst third-parties and the related and a much smaller proportion have adopted a losses. preservation-oriented approach (13%) (figure 47).

Figure 47 Investment strategy

Preservation Design and execution

13% Participants in the study were asked a series of questions about the design and execution of their investment strategies. 44% Growth 43% When asked if the design of the family office’s investment strategy is outsourced to advisers and Balanced then executed internally, 41% said yes, while 59% approach said no (figure 48).

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 Figure 48 Is the design of the investment strategy out- sourced to advisers and then executed internally? When comparing these figures to those contained in the Global Family Office Report 2019, it appears that families in China are significantly more focused on growth, with the proportions adopting growth standing at 25% globally; 19% in the Asia- Pacific region, and 25% in Hong Kong. No 59% 41% Yes According to some of our interviewees, investment strategy in the Chinese family office space is generally quite informal – with investment patterns shifting – and there is a notable emphasis on ‘the next hot thing’.

Note: Figures may not sum to 100% due to rounding While growth is still the goal, as one interviewee Source: The Campden Wealth / FOTT Chinese Family Office and Wealth explained: Management Survey 2019

46 “Five years ago, businesses were returning 20% to 30% and families were looking for investment returns of, at least, 10% to 20%. Gradually, however, families are shifting emphasis from growth to preservation.”

Amongst the yes-group, 100% reported that While 86% of families indicated that they are the patriarch/matriarch has the final say on the restricted in their strategy to asset allocations investment strategy (figure 49). based on the knowledge of the patriarch/matriarch/ next generation, only 25% said that family offices Figure 49 will outsource this work to professional investment If the investment strategy is outsourced to advisers in the future. Thirty-four percent said that advisers, does the patriarch/matriarch have final the current arrangements will remain in place, say on the strategy? and 42% said that they do not yet know what will happen (figure 51 and 52).

No Figure 51 0.0% Is the family office restricted in its strategy to asset allocations based on the market knowledge of the patriarch/matriarch/next generation? 100% Yes No

14%

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 86%

Yes If a family member is responsible for the investment strategy, in the vast majority of cases, he/she Note: Figures may not sum to 100% due to rounding has prior experience working in a professional Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 investment environment (81%) (figure 50).

Figure 52 Figure 50 If yes, will this arrangement stay the same, or If a family member is responsible for the will the family outsource its asset allocation to investment strategy, does he/she have prior professional investment advisers? experience working in a professional investment environment?

It will stay the No same 19% Don’t 34% know 42%

25% 81% Yes It will be outsourced to professional investment advisers

Note: Figures may not sum to 100% due to rounding Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 Management Survey 2019

47 Chinese Family Office and Family Wealth Management Report, 2020 Investments

Family offices, on average, allocate over half of their Asset allocation portfolios to fixed income (22%), equities (17%), and real estate (13%), with fixed income being the top The average portfolio is diversified across asset class in which they invest (figure 53). asset classes; fixed income constitutes the top asset class; private markets The balance includes a total allocation of 20% to preferred to public ones private equity – which, in turn, includes allocations of 11% and 9.2% to direct and fund-based In terms of asset allocation, the average portfolio investments, respectively, and which is more appears to be diversified across asset classes. popular than public equity.

Figure 53 Approximate average asset allocations

Approximate Chinese average asset allocation Approximate Global average asset allocation

22% 16% 17% 32% 11% 11% Fixed income Equities Private equity, direct

9.2% 7.7% 13% 17% 4.5% 1.0% Private equity, funds Real estate, direct REITs

4.6% 4.5% 2.3% — 1.0% 1.4% Hedge funds Commodities Agriculture

2.0% — 10% 7.6% 2.8% — Other tangibles Cash or equivalent Other

Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019; The UBS / Campden Wealth Global Family Office Survey 2019 Note: The asset allocation data from the Global Family Office Report 2019 sums to 97.7%, as the commodities categories are classified differently between the two reports and thus cannot be directly compared. In the Global Family Office Report, commodities totals 3.2%, which consists of 1.4% for agriculture, 0.8% for gold / precious metals, and 1.0% for other commodities.

48 In some cases, family offices allocate half of In terms of how the average Chinese portfolio their portfolios to private equity direct deals, differs from the average global one, the former funds, or some combination. In fact, some of our has larger allocations to fixed income (22% interviewees explained that many Chinese family versus 16%), REITs (4.5% versus 1.0%), and offices were established specifically to make cash (10% versus 7.6%) and a lower allocation to private equity investments. equities (17% versus 32%) and direct real estate (13% versus 17%). Several of our interviewees indicated that their allocations towards private equity and real estate have recently been boosted – prompted by relatively attractive returns and diversification benefits in the especially choppy and uncertain global market environment. International The substantial allocation to fixed income is investments interesting – especially given the apparent popularity of growth-oriented investment China has various rules and regulations governing strategies. But interviewees pointed out capital outflows and, in the last few years, that it includes overseas or foreign-currency some restrictions – for example, on mergers denominated bonds and non-traditional bonds and acquisitions (M&A) and on real estate and bond strategies. transactions – have been intensified.

With regard to the public markets, a common Looking ahead, on the one hand, growth is approach is to focus on assessing the macro slowing, the exchange rate of the renminbi has environment, choosing strategies, and picking been volatile, and the US/China trade tensions managers - i.e., not actively trading shares. are ongoing.

Another notable finding is that there is a sizeable On the other hand, as Chinese manufacturing 10% allocation to cash or equivalents. continues to advance, enterprises will continue to set up operations abroad; China has issued In terms of asset allocation differences by explicit guidelines outlining deals that are both wealth, the wealthier families (above RMB 3.0 encouraged and discouraged, and the ‘Belt billion) have greater allocations to private equity and Road Initiative’ is concerned with building (+10%), hedge funds (+1.4%), and cash (+3.8%); infrastructure links between China and the and the relatively less wealthy families have developing world. greater allocations to fixed income (+6.0%) and real estate (+6.6%). In this context, while some family offices indicated that they have extensive experience in Interestingly, there is negligible difference in overseas investment, others suggested that they allocations to real estate between families are focused heavily on domestic investments. that originally amassed their wealth in the real Sophistication in this respect does not seem to estate industry and families that originated it be related to AUM in a simple way. elsewhere. There is also negligible difference in the ratio between allocations to real estate direct But, in terms of whether families, at least, deals and REITs between the wealthier and the consider international investments, the vast relatively less wealthy families. majority (90%) indicated that they do (figure 54).

49 Chinese Family Office and Family Wealth Management Report, 2020 Investments

Figure 54 Consideration of investment outside of China Asset allocation plans Don’t know Cuts likely coming to commodities, other No 5.9% 4.4% tangibles, and real estate; boost likely for private equity

Regarding plans to change asset allocations in the next 12 months, in net terms – i.e., the difference between the number of families that plan to 90% Yes increase versus decrease their allocations – large numbers plan to invest less in commodities (46%), other tangibles (84%), direct real estate (46%), and REITs (30%). On real estate, several of our interviewees expressed concerns about the Note: Figures may not sum to 100% due to rounding sustainability of China’s rising property prices, but Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 others were confident that the authorities would be able to stave off a bust (figure 55).

Generally, Chinese family offices are notably On the other hand, many plan to invest more in adventurous – i.e., they have a high risk tolerance private equity funds (24%) and some in hedge – in domestic investing. They have accumulated a funds (12%). While most of our interviewees great deal of knowledge about the relevant issues expressed their keenness to invest in private within China. They have a much subdued risk equity direct deals, it is also clear that the appetitive, however, in overseas investing – for resources required and the risk entailed are example, preferring to invest in mature markets substantial barriers, which is nudging family and hold cash, traditional fixed income, or real offices toward investment managers. estate.

50 Figure 55 Plans to change allocations over the coming 12 months More Less Net -100 -90 -80 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 70 80 90 100 53% Fixed income 48% 5.0% 47% Equities 53% -6.0%

Private equity, 53% 47% direct 6.0% 62% Private equity, 38% funds 24% 27% Real estate, 73% direct -46% 35% REITs 65% -30% 56% Hedge funds 44%

Asset class 12% 27% Commodities 73% -46% 40% Agriculture 60% -20% 8.0% Other tangibles 92% -84%

Cash or 50% 50% equivalent 0.0% 40% Other 60% -20%

Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

51 Chinese Family Office and Family Wealth Management Report, 2020 Investments

Real estate also performed well – with direct Performance investments returning 14% and REITs returning 9.0%. In the previous 12 months, the average portfolio returned 11% The returns for private equity directs and real estate directs were also the most variable Family offices were surveyed between March between the family offices, along with public and August 2019, and over that time they were equities. asked about their investment returns (in local currency) in the 12 months prior to the date of Most families said that, in the last 12 months, their participation. In response, families reported investment performance has been satisfactory. that they earned an average overall portfolio return of 11% (figure 56). On direct private equity deals – e.g., direct pre- IPO/venture deals – some families said that, while, in the last few years, returns have been strong, the Figure 56 next 12 months are much more uncertain: Investment return for the previous 12 months

Asset class Return “Some companies were listed and immediately dropped below the issue price, and some Fixed income 7.3% companies – for example, involved in Equities 13% cryptocurrencies – tried to list and were unsuccessful. Obviously, for families who invested Private equity, direct 19% in those companies, exiting is now a major problem.” Private equity, funds 15%

Real estate, direct 14% “Performance in the past year has been fine, but, next year, we are anticipating lower performance. REITs 9.0% Family offices in China are now starting to find Hedge funds 4.6% that there are so many companies and that exit options are limited.” Commodities 6.6%

Agriculture 6.9%

Other tangibles 6.5%

Cash or equivalent 4.0%

Other 8.2%

Overall 11%

Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

Private equity was the top performing asset class – with direct investments returning 19% and fund- based investing returning 15%.

52 Case study The next 12 months – dealing with changing geo-politics and economics

Several families expressed that the geo- policy-makers have limited tools at their political and economic context in which disposal. I am being extremely cautious.” family offices operate is increasingly While many families see an economic volatile, and that, within the next downturn on the horizon, some are five years, the environment could be relatively optimistic about their investment dramatically transformed. The likelihood opportunities: of a reversal in the globalisation which has occurred over the last two decades “Certainly, even in the next 12 months, or so was raised several times. valuation methodologies will evolve. But, the downturn itself, government One family office executive explained: intervention, and rapidly changing “I am not optimistic about the next technology will bring forth opportunities.” 12 months. The global economy Others reiterated a likely move in is struggling – the major European investment strategy towards preservation economies, the Japanese, and the and an even greater emphasis on the US economy are all slowing, as is the domestic market. Chinese economy, which has been the engine for global growth. Furthermore,

“I am not optimistic about the next 12 months. The global economy is struggling – the major European economies, the Japanese, and the US economy are all slowing, as is the Chinese economy, which has been the engine for global growth. Furthermore, policy-makers have limited tools at their disposal. I am being extremely cautious.”

53 Chinese Family Office and Family Wealth Management Report, 2020 Investments

Case study A taste for private markets

In our conversations with respondents, several in the next decade; that the impulse to chase explained that there is a strong interest amongst the next ‘hot thing’ – whether that be machine Chinese families of wealth in private markets. learning, blockchain, cryptocurrencies, or even cannabis – is not always matched by the There are a number of closely related reasons. deep expert knowledge required to adequately In the last decade or so, the Asian stock market differentiate between projects, and that there is indices have not shown a significant change a bubble which is inflating which will inevitably and, in China, there is not a great deal of burst. experience of making money on the market. As On the other hand, several family office one interviewee explained: executives advised that: “Many of the current wealth holders in China “Although there is a great deal of interest in built their own companies from scratch and the new and rapidly evolving technologies and are naturally drawn to – and enjoy – private other novel opportunities, few family offices are equity and venture capital deals.” as yet making substantial investments in them.” These deals entail greater information Some are certainly engaged in a process of asymmetries and opportunities; more hands-on learning – visiting companies and conducting due investment screening, and more active strategic diligence – and are actually making investments – and operational involvement. Family offices but these are mainly relatively small ones made in stress that through involvement with private order to obtain better insights. equity and venture capital investments: The family offices’ entrepreneurial spirit “You really get a feel of what is going on in might not be significantly diminished by the the next three to five years; you see what kind wealth transition currently occurring. The of industries and opportunities are emerging; entrepreneurs have been raising and preparing you meet brilliant general partners and hungry the second generation. Some families have young entrepreneurs.” described a family entrepreneurial spirit – or The wealth holders are keen to recreate their entrepreneurialism as a family value – which has success – in a new sector – and invest in their developed through the next generation sitting successors – that is, in the next generation in on meetings from a young age and the family of entrepreneurs. Family offices stress the bonding through exchanging ideas and making centrality of the private markets to Chinese investments together. commerce and economic growth, and the wider As one Next Gen and family office executive motivations include contributing to and being explained: part of the miraculous Chinese growth story: “The next generation are not purely financially “Without private capital, most of the new and driven. They are more interested in being able to exciting business ideas would never take off.” present an investment thesis to the family”. There are some concerns that China will not be able to sustain its double-digit GDP growth

54 6 Service providers

55 6 Service providers

Families use a range of service providers Service providers found through and buy a range of services existing professional relationships and recommendations from close ones; trust, Chinese families use a range of service providers, confidentiality/security, and reputation are with lawyers and private bankers being the key criteria most common, as indicated by 79% and 73% of participants, respectively (figure 57). In terms of how service providers are identified, as strongly corroborated by our interviews, the most Figure 57 popular paths amongst families – by far – are Types of service providers the family uses recommendations from professionals they already know (as indicated by 87% of participants) and Lawyer 79% recommendations from family and friends (54%) Private banker 73% (figure 60). Fund manager 64% In terms of the importance of various criteria in the selection of financial service providers, as Investment management 53% consultant corroborated by our interviews, families indicated Investment banker 52% that trust, confidentiality/security, and reputation are the most critical considerations – with 91%, Asset manager 50% 84%, and 76%, respectively, indicating that these Trust banker 50% are very important (figure 61). Commercial banker 47% Few of the criteria families were presented Accountant 36% with were classified as unimportant or very Custodian 35% unimportant. Notable exceptions were whether the service provider is a state or non-state Trustee 35% entity (which 16% and 23% indicated were Head hunter 30% unimportant or very unimportant) and whether it Broker 21% is a Chinese or non-Chinese entity (14% and 26%, respectively). Note: Figures need not sum to 100% because respondents can select multiple options Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

They outsource a number of services, with tax and legal advisory, investment management, and risk management and insurance, being the most common, as indicated by 83%, 68%, and 63%, respectively (figure 58). At present, families engage an average of three commercial banks, three investment banks, two private banks, and one trust bank. The number of investment banks engaged varies the most – with some families using as many as 10 (figure 59).

56 Figure 58 Types of services the family uses

83% 68% 63% 46% 43% Tax and legal Investment Risk management and Establishment of Compliance and advisory management services insurance services a family trust regulatory assistance

43% 37% 35% 35% 33% Family governance and Philanthropic Support for new Training and Family counselling / succession planning management services family business education relationship management

30% 21% 16% 16% Estate and Administrative Reporting and Concierge services wealth transfer services record keeping and security

Note: Figures need not sum to 100% because respondents can select multiple options Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

Figure 59 Figure 60 How many financial service providers the family Methods for identifying external service providers engages

3 3 2 1 Average Average Average Average 87%

10%

12% 54%

Commercial Investment Private Trust banks banks banks banks 26% 28%

Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 Recommendations from professionals you already know Recommendations from family and friends Published track record Response to direct solicitation Comparative shopping News sources

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

57 Chinese Family Office and Family Wealth Management Report, 2020 Service providers

Figure 61 The importance of the following criteria when selecting a financial service provider

Very important Important Neither important nor unimportant Unimportant Very unimportant

1.5% 1.5% 1.4% 1.5% 1.4% 1.5% 1.5% 1.5% 1.6% 2.9% 2.9% 4.4% 3% 8.7% 14% 12% 12% 15% 24% 22% 26% 32% 36% 44% 21% 21% 50%

64% 29% 34%

91% 39% 84% 40% 67% 76%

63% 62% 34% 53% 46% 36%

32% 26% 24% 19%

11% 6.3%

Trust

record security Quality of

Reputation State entity relationship Cross border Chinese entity Confidentiality / Long-term prior Non-state entity Investment track recommendation execution abilities party financial risk Non-Chinese entity

Zero or little counter- Close friend or family communication skills

Note: Figures may not sum to 100% due to rounding Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

58 Chinese families are well-connected to The families have indicated that they are most each other and to families in Asia-Pacific interested in benchmarking themselves against In terms of networks between family offices – to their regional peers – with 69% stating that facilitate the exchange of ideas/experiences or they would be keen to obtain information on facilitate co-investment – families revealed that the structures and performance of other family there are few official platforms in China. Part of offices within Asia-Pacific (69%) – and also very the reason is that families are concerned about interested in their local peers – 45% indicating privacy; they are wary of service providers diluting their enthusiasm for information on offices within networks, and, especially for the larger families, China (45%). They are far less interested in global it is not too onerous to reach out to other families family offices – with only 6.0% expressing an directly. There are more informal arrangements interest in information on offices outside the Asia- and members of networks tend to be long-time Pacific region (figure 63). associates. More than half of the families reported that Figure 63 Would it be helpful to receive information on the they have access to other family offices within structures and performance of other family offices China (62%) and within Asia-Pacific (54%) to locally, regionally or globally? communicate or collaborate with, and over one- third also have access to other offices outside Asia-Pacific (35%). Over seven percent (7.4%) indicated that, while they do not have it at present, they would be keen to establish such access 9.0% 45% (figure 62).

Figure 62 Do you have access to other family offices to communicate or collaborate with? 6.0%

69%

62% 7.4% Yes, on family offices within China Yes, on family offices within Asia-Pacific 10% Yes, on family offices outside Asia-Pacific 54% No

Note: Figures need not sum to 100% because respondents can select multiple 35% options Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019

Yes, within China Yes, within Asia-Pacific Yes, outside Asia-Pacific No, not interested No, but we would like access Note: Figures need not sum to 100% because respondents can select multiple options Source: The Campden Wealth / FOTT Chinese Family Office and Wealth Management Survey 2019 59 Chinese Family Office and Family Wealth Management Report, 2020 Service providers

Case study Finding qualified external service providers is a challenge

In terms of external service providers, the absence of service providers who are able to majority of families expressed that, in general, differentiate between and satisfy family needs. they are difficult to find. Some explained that They also reiterated their fears that external this might have to do with the fact that there service providers will improperly use their are large numbers of brokers in the market, information. but not firms that advise on the quality of One factor to consider, however, is that brokers, or firms that advise on the best the wealth creators are very self-reliant service providers for particular transactions. and hands-on – which, according to some One said: interviewees, can render them hesitant to turn “Everyone is claiming that they can do this to others for help. or that, but families do not have the time to The interviewees suggested that, with the conduct due diligence on each of them.” transition of wealth and power, there is likely to Some explained that: be a substantial shift: “In general, it is difficult to find integrated “The second generation are usually service providers – that is, ones that are able educated abroad and fluent in English, and to provide the personalised services that they often have some professional work family offices require.” experience. They are likely to have different expectations to their parents and have In fact, they explained that they see a more experience with, and trust in, service great deal of growth in the Chinese single providers.” family office space, in part, because of the

“In general, it is difficult to find integrated service providers – that is, ones that are able to provide the personalised services that family offices require.”

60 7 Afterword: about family offices

61 7 Afterword: about family offices

What is a family office? intergenerational wealth transfer, to organise the education of the next generation, to encourage Essentially, a family office is a private office entrepreneurialism in the next generation, and to dedicated to managing the affairs of a family with support family cohesion. considerable wealth. Thus, family offices are as varied as families and their affairs themselves are. What is your family’s purpose? For example, if your family is aiming to preserve wealth, what is the end goal? Is it to provide an economic foundation for What are the types of family office? subsequent generations? To what extent does the family have a social mission? There are four main types of family office: 1. Single family office (independent of the family According to some family office executives, business) family offices have been slow to adopt mission statements, and the challenges have included 2. Single family office (embedded in the family conveying the importance of mission statements business) to older members of the family and getting family 3. Private multi-family office (originated by a members to agree on the terms of the statement. founding family and widened out to include But, globally, the family office space is maturing. In multiple families. The offices are owned by 2018, two-thirds of family offices had some form of families and operated for their benefit) mission statement in place, whether that be written 4. Commercial multi-family office (owned by and fully documented (32%) or merely verbalised commercial third-parties and look after multiple (31%). families) Some families set up a single family office intending To this list, virtual family office might be added. This is for it to evolve into a private multi-family office. an office that typically has only one or two members There are numerous benefits, including bigger of staff who arrange for the outsourcing of the vast networks of contacts, greater assets under majority of the services the family requires. management, and cost and risk sharing. There are also many challenges, including the coordination Who are family offices best suited for? between different families. The decisions regarding whether your family should Net wealth use family office services, and, if so, regarding What is the family’s net wealth, and what will be the what type of family office it should set up or join; family office’s assets under management? where that family office should be based; how it In general, families with wealth in excess of $150 should be structured; how many staff it should million are in a strong position to consider whether employ, and what it should do in-house and what it they want to establish a single family office. should outsource, should be shaped by the family’s particular characteristics, strengths, requirements, Certainly, families with less wealth might also goals, and purposes. Thus, at the outset, these benefit from establishing such an office, especially should be explicitly and clearly determined, and, if they limit the objectives and the number and periodically, reconsidered. nature of the services provided – focusing on their strengths and carefully using external service providers. But, in general, such families might Factors to consider want to consider joining multi-family offices or Objectives and purposes establishing virtual family offices. What will be the family office’s objectives? Common For reference, amongst the participants in the ones include to preserve wealth, to facilitate Global Family Office Report 2019, the average net

62 wealth of families with single family offices stood at Some family offices cater to single nuclear families, USD 1.3 billion, with USD 802 million (or 62%) being while others cater to a myriad of families across managed by the family office, while the average different generations and familial links. wealth of families using multi-family offices stood As children become adults, they start their own at USD 880 million. In the Asia-Pacific region, the families, come up with their own ideas for business average net wealth of families with single family enterprises, financial investments, and philanthropic offices stood at USD 908 million, with USD 600 causes, and it is not uncommon for tensions to arise million (66%) being managed by the family office. regarding inheritance and succession. Costs In some offices, the principal asset is the family Setting up and operating a single family office can business; in others, the family’s wealth is divided be expensive. It includes initial costs related to across a wide range of assets, industries, and infrastructure and hiring, and ongoing operating geographic regions. costs in the form of rents, wages, and fees. As If your family is new to the family office space, one detailed in the Global Family Office Report 2019, the way to ‘dip your toe’ in before committing fully to average cost of running a single family office is 116 a single family office, is to join a multi-family office basis points of AUM, consisting of 67 basis points in order to learn from like-minded peers and better in operating costs and 49 basis points in investment understand how a family office operates. Another manager administration and performance fees. way is to create a virtual family office. Families that are unable or unwilling to cover the full breadth of these costs might consider joining a multi-family office, where the costs are generally Where, what, and how? lower and more predictable, and exit is simpler. Location For reference, the average cost of running a multi- family office is 110 basis points – consisting of In terms of where to locate a family office, families 64 basis points in operating costs and 46 basis naturally need to take into account where they live points in investment manager administration and and work, and also how geographically spread their performance fees. family members are. Other important considerations include access to service providers and talent – and Questions which your family will need to consider also access to investment opportunities, e.g., start- include, who would be accountable for both the ups and entrepreneurs – and the location’s legal, upfront and ongoing costs of running the family regulatory, and tax environment. office? How would these costs be split between family members, who might reply on different Over time, some family offices open additional services? branches and expand their geographic reach. Amongst the participants in the Global Family Office Complexity Report 2018, 21% had two offices; 7.1% had three In general, the more complex the family, the more offices; 3.4% had four, and 2.2% had five. Amongst likely it is that a single family office, with its multi- those in Asia-Pacific with secondary branches, 40% faceted offerings, will be the suitable fit. The housed them in Asia-Pacific, 20% in North America, relevant questions include: how many generations 20% in Europe, and 20% in Emerging Markets and how many family members are to be served; (South America, Africa, and the Middle East). how geographically spread are those family Structure members; how complicated are the family’s current investments and the management of its assets; how In terms of family office structure, it is a good idea tailored does the family want services to be, and to consult advisers, other families, and other family what weight does the family put on confidentiality. offices for advice.

63 Chinese Family Office and Family Wealth Management Report, 2020 Afterword: about family offices

Many families have a family constitution or Services equivalent document, which, in addition to Family offices are often initially set up for investment establishing the family office’s mission and scope, and wealth management purposes. They might start specifies family members’ roles and responsibilities off embedded within the family business, or they and outlines conflict resolution mechanisms. might be set up after the sale of a core operating In terms of decision-making structures, in some business. family offices, important decisions are taken by It should be noted that some family offices are highly one or two key members of the family. In other specialised. For example, an office might manage cases, there is a family board, which, of course, capital for a single family and focus exclusively on requires the family to decide who will serve as venture capital investments. In that case, the office board members. Some families also have a family might better be described as a single LP fund / council, which is an advisory board consisting family fund. of representatives from different generations, branches, or geographies where applicable. Over time, many family offices evolve and grow Families must also decide whether boards/ to provide a range of administrative, family councils will consist entirely of family members or professional, and general advisory services. a combination of family and outside professionals. More generally, they must consider what types of professionals would be best placed to fulfil the Figure 64 family’s objectives (e.g., experts in banking and Example of family office services finance, law, tax, specialists in certain asset classes or in managing personal assets). Asset allocation As detailed in the Global Family Office Report 2019, Tax planning Traditional and family offices are increasingly putting governance Legal alternative structures in place to further professionalise their services investments operations: between 62% and 74% of family offices ry Inve iso stm v e Manager have different forms of investment guidelines and ad s ac n Financial l e tiv t a ic i -r r v ti e selection/ r e l monitoring strategies in place, and 54% provide planning e e s a n s t e oversight e Family d market monitoring and analysis services. Improving G Office communication between the family members and Services p

r e o v family office is the number one governance priority f i Family e F t s a a s m r s IT for families over the next 12-24 months (66%), while counselling io st e n ily i ic a in v l dm er risk management is the number one priority for ser A s vices family offices (64%). Concierge Bookkeeping services and Staff security Management Naturally, the number of staff working within a Family of contracts governance family office varies considerably – from one or two and succession employees to 100 or more – depending on the planning number of family members and families served Source: The Campden Wealth / FOTT Chinese Family Office and Wealth and on the type and number of services provided. Management Survey 2019 Family office employees have to understand the family’s culture and purpose, and they have access to a great deal of private and sensitive information. In the recruitment process, due emphasis should be put on cultural fit, likely tenure, and, above all, trust.

64 In-house or outsourced? provision) and internally provide support for new family business and other projects (79% and Family offices usually depend on a combination 15%, respectively). of in-house and outsourced services. Outsourcing provides families with flexibility; it reduces their obligation to pay permanent staff wages, and it allows access to a wider pool of experienced professionals. It should also be noted that family offices are often small outfits: as detailed in the Global Family Office Report 2018, the average single family office employs 11 full-time staff and four part-time staff. Therefore, it is sometimes more pragmatic and cost effective to outsource certain services (e.g., IT, cyber security, tax, and legal work) to specialists, particularly for newly established family offices that are trying to find their feet. Over time, however, if the level of work required is consistently high enough to merit bringing staff in house, this can be a fruitful option to allow family offices greater control over certain work streams and greater customisation, along with the ability to reduce third-party fees. In some cases, families view the family office as a platform for nurturing next generation talent and, in such cases, certain services might be brought in-house, even if they can be performed less expensively or likely to a higher quality by third-parties. According to the Global Family Office Report 2019, family offices mostly outsource their legal services – with 63% entirely outsourcing this and 33% using a combination of in-house and external provision. Family offices also mostly outsource private banking services – also 63% entirely outsourcing, and 13% using a combination of in-house and outsourced provision. IT and global custody and integrated investment reporting are other popular services to outsource. Excluding paying for office overheads and other office services, which are naturally an in-house expense, family offices are most likely to internally handle asset allocation (with 73% providing this service entirely in-house and 17% using a combination of in-house and external

65 About Campden Wealth

Campden Wealth is a family-owned, global membership Campden Research supplies market insight on organisation providing education, research and key sector issues for its client community and their networking opportunities to families of significant advisers and suppliers. Through in-depth studies and wealth, supporting their critical decisions, helping to comprehensive methodologies, Campden Research achieve enduring success for their enterprises, family provides unique proprietary data and analysis based on offices and preserving their family legacy. primary sources. The Campden Club is a private, qualified, invitation-only Campden Wealth owns the Institute for Private Investors Members Club representing 1,400 multi-generational (IPI), the pre-eminent membership network for private business owning families and family offices across investors in the United States founded in 1991. In 2015 37 countries. The Club provides peer networking on Campden further enhanced its international reach with a global scale, bespoke connectivity around aligned the establishment of Campden Family Connect PVT. objectives, shared knowledge & best practices, co- Ltd., a joint venture with the Patni family in Mumbai. investment opportunities with qualified liquid investors For more information: campdenwealth.com and support for the NXG. Campden Club Members also enjoy privileged access to generational education Enquiries: [email protected] programmes held in collaboration with leading global T: +852 2682 0418 universities.

About FOTT

Family Office Think Tank (FOTT) is the leading What does FOTT do? professional consultancy for ultra-high net worth • Introduce the best family office and wealth Chinese families and family offices. We help our clients management services globally to ultra-high net-worth establish and improve family office services by applying Chinese families. our insights, gained through primary research and • Work with global institutions to develop financial industry best practices. FOTT also provides virtual strategies to meet the unique challenges of our platforms to facilitate family links to global service clients under different market environments. providers, and operates two official accounts on the WeChat platform, Huiyu Family Office Think Tank and • Source and promote direct investment opportunities Family Office Business Review. in the US, Europe and elsewhere for our clients. FOTT was set up by Family Office, the only high-end • Organize and host business conventions and trips in finance and economics magazine in China, and other the US, Europe, and elsewhere to provide bilateral, financial experts. peer-to-peer, and targeted communications between our Chinese member clients and executives globally. Our CEO, Xiaoman Fan, is a senior media worker in the Chinese financial and economics areas. She has • Provide a membership-based information platform over 20 years of experience and a large network of that helps in the sharing of insights and the best relationships. In 2001, she participated in establishing practices of family offices globally. China Times; in 2006, set up China Money weekly • Publish the annual “FOTT Family Office White Paper”, newspaper; 2011, China Money magazine; 2016, China which integrates our primary research with other Money/Family Magazine AB print, and 2017, Family leading industry research. Office magazine. In 2016, she also founded Huiyu • Help our member clients selectively expand their Family Office Think Tank. social networks in China and globally. • Provide customized consulting service for our member clients.

66 About UBS

UBS provides financial advice and solutions to wealthy, Global Family Office Group institutional and corporate clients worldwide, as well as A joint venture between UBS’s Investment Bank and private clients in Switzerland. UBS’s strategy is centered on Wealth Management divisions, the Global Family Office our leading global wealth management business and our Group focuses on servicing our most sophisticated premier universal bank in Switzerland, enhanced by Asset clientele with institutional-like profiles and requirements. Management and the Investment Bank. The bank focuses It offers holistic advisory services, direct access to UBS on businesses that have a strong competitive position in cross-divisional expertise across the globe, institutional their targeted markets, are capital efficient, and have an business opportunities and an extensive peer network with attractive long-term structural growth or profitability outlook. dedicated teams in New York, London, Zurich, Geneva, Headquartered in Zurich, Switzerland, UBS has offices Munich, Milan, Hong Kong and Singapore. in 50 regions and locations, including all major financial centers, and employs approximately 67,000 people. UBS Ultra high net worth Group AG is the holding company of the UBS Group. Under Swiss company law, UBS Group AG is organized as an Building on a deep understanding of our clients’ mind-set, Aktiengesellschaft, a corporation that has issued shares of motivations and core values, we create bespoke solutions common stock to investors. which are bold, innovative and tailored precisely to their individual needs. The four dimensions of ultra high net Global Wealth Management worth – business, investments, family, and purpose – form the basis on which we open a dialogue and begin As the world’s largest wealth manager*, UBS Global Wealth a partnership with our clients across generations for Management provides comprehensive advice, solutions and generations, so that great wealth endures. services to wealthy families and individuals around the world. Clients who work with UBS benefit from a fully integrated set *Scorpio Partnership’s “Global Private Banking Benchmark of wealth management capabilities and expertise, including 2018” rank of global wealth managers by assets under wealth planning, investment management, capital markets, management. banking, lending and institutional and corporate financial advice.

About AVIC

AVIC Trust Co., Ltd. is a non-bank financial institution to promote the industry’s development, AVIC Trust serves approved by The China Banking and Insurance Regulatory as the chairman of the 4th General Assembly of China Commission. Since re-registering for business in December Trustee Association. 2009, AVIC Trust has developed into a modern financial For several years, AVIC Trust’s main operating indicators enterprise with management assets of nearly RMB 700 have ranked in the top tier of the industry. The company billion and net assets of more than RMB 10 billion, ranking was awarded the highest rating of ‘class A’ by the at the forefront of the Chinese trust industry. The company China Trustee Association and the ‘AAA’ credit rating provides diversified financial products and services, by the largest Chinese rating company, for the last four including investment banking, asset management and wealth years. AVIC Trust has also won numerous honorary management. By the end of July 2019, AVIC Trust has set up titles, including “China Excellent Trust Company”, “Most 32 business branches and 24 wealth management centers in Competitive Trust Company” and “Annual Best Wealth 22 cities. Management Trust Company”. AVIC Trust’s controlling shareholder is AVIC Capital Co., Ltd., Adhering to the aviation culture, AVIC Trust actively which is a Shanghai exchange listed company and controlled advocates the concept of green development, commits by China Aviation Industry Corporation Limited, a wholly- to its customers, employees, partners and society, and state-owned company. OCBC Bank is its second largest is dedicated to becoming a highly trusted and widely shareholder and strategic foreign investor. respected financial service provider. AVIC Trust leads the industry in the areas of green trust and family trust, and has substantial experience in the fields of aviation, inclusive finance, and medicine & health. With the spirit of continuous innovation and the sense of responsibility

67 Disclaimer

This document has been prepared by Campden Wealth This document may not be redistributed or reproduced Limited and FOTT and is for personal use only. A number in whole or in part without the prior written permission of sources were utilised to research and profile the of Campden Wealth Limited and UBS and no liability characteristics of family offices. These were blended into a whatsoever for the actions of third parties in this respect mosaic analytical framework from which Campden Wealth is accepted. To the extent permitted by law, neither Limited conducted modelling and analysis. This information UBS, Campden Wealth Limited nor any of their directors, and data is part of Campden Wealth Limited and FOTT’s employees or agents accept or assume any liability, proprietary data and analytics structures and are non- responsibility or duty of care for any consequences of you commercial in nature and specifically non-attributable or anyone else acting, or refraining to act, in reliance on the regarding the identity of any underlying family offices and information contained in this document or for any decision individuals. based on it.

This document and the information contained herein are © Campden Wealth Limited 2020. All rights reserved. provided solely for information purposes to specific clients Campden Wealth Limited refers to the Campden Wealth / prospects, and shall not be regarded as investment Limited network and/or one or more of its member firms, research. It does not constitute an offer, recommendation each of which is a separate legal entity. or a solicitation of an offer to buy or sell any security, investment instrument, product or other specific service, or © FOTT 2020. All rights reserved. FOTT refers to the recommendation or introduction of any specific investment Beijing Huiyu Consulting Co., Ltd/or one or more of its instrument or financial services or to effect any transactions member firms, each of which is a separate legal entity. or to conclude any legal act of any kind whatsoever. Certain services and products are subject to legal restrictions and/ © UBS 2020. The key symbol and UBS are among the or license or permission requirements and cannot therefore registered and unregistered trademarks of UBS. All rights be offered worldwide on an unrestricted basis. No offer of reserved. any interest in any product will be made in any jurisdiction In addtion, Campden Wealth and FOTT note: in which the offer, solicitation or sale is not permitted, or to any person to whom it is unlawful to make such offer, The contents of this publication are protected by copyright. solicitation or sale. Information contained in this document All rights reserved. The contents of this publication, either has not been tailored to the specific investment objectives, in whole or in part, may not be reproduced, stored in a personal and financial circumstances or particular needs of data retrieval system or transmitted in any form or by any any recipient. Certain investments may not be suitable for means, electronic, mechanical, photocopying, recording all investors. UBS Group AG and its subsidiaries (hereinafter or otherwise, without written permission of the publisher. UBS) strongly recommend to all persons considering Action will be taken against companies or individual the information in this document to obtain appropriate persons who ignore this warning. independent investment, legal, tax and other professional advice. Neither UBS nor any of its employees provide tax The information set forth herein has been obtained or legal advice. Nothing in this document shall constitute from sources which we believe to be reliable, but this investment, legal or tax advice. is not guaranteed. This publication is provided with the understanding that the authors and publisher shall have Although all information and opinions expressed in this no liability for any errors, inaccuracies or omissions document were obtained from sources believed to be therein and, by this publication, the authors and publisher reliable and in good faith, no representation or warranty, are not engaged in rendering consulting advice or other express or implied, is made as to its accuracy, sufficiency, professional advice to the recipient with regard to any completeness or reliability, nor is it intended to be a specific matter. In the event that consulting or other expert complete statement or summary of the developments assistance is required with regard to any specific matter, referred to in it. All information and opinions expressed in the services of qualified professionals should be sought. this document are subject to change without notice and may differ or be contrary to opinions expressed by other First published in 2020 business areas or divisions of UBS, FOTT or Campden by Campden Wealth Limited and FOTT Wealth Limited. UBS, FOTT and Campden Wealth Limited are under no obligation to update or keep current the Campden Wealth Limited information contained herein. Any charts and scenarios are 30 Cannon Street London EC4M 6XH for illustrative purposes only. Historical performance is no United Kingdom guarantee for and is not an indication of future performance. Telephone: +44 (0) 20 3763 2800 / +852 2682 0418 Some charts and/or performance figures may not be based on complete 12-month periods which may reduce their Email: [email protected] comparability and significance. Web: campdenwealth.com

68 Disclosure

About Our Firm and Our Services: Alternative Investments (“AI”), including hedge funds, private equity, and real estate funds, are sold only to UBS Financial Services Inc. (“UBSFSI”), a subsidiary qualified investors, and only by means of a Confidential of UBS AG. UBSFSI is a registered broker/dealer Offering Memorandum or Prospectus that includes offering securities, trading, brokerage services, and information about risks, performance, and expenses, and related products and services. UBSFSI is a member of which clients should read carefully before subscribing and the Securities Investor Protection Corp. (SIPC) and is retain. AI are long-term, speculative, involve significant registered with the Financial Industry Regulatory Authority risk, illiquid, and subject to transfer restrictions. AI may (FINRA). Private Wealth Management is a business unit not be required to provide investors periodic pricing, tax, within UBSFSI. or valuation information, and are subject to high fees, including management and other fees and expenses, In providing wealth management services to clients, which reduce profits. AI performance may be volatile, UBSFSI offers both investment advisory services and and investors may lose all or a substantial amount of brokerage services. Investment advisory services their investment. AI may engage in leveraging and other and brokerage services are separate and distinct, speculative investment practices that may increase the risk differ in material ways, and are governed by different of loss. AI are not deposits or obligations of, or guaranteed laws and separate arrangements. It is important that or endorsed by, any bank or other depository institution, clients understand the ways in which UBSFSI conducts and are not federally insured by the FDIC, Federal Reserve business and that they carefully read the agreements and Board, or other governmental agency. disclosures that provided to them about the products or services UBSFSI offers. An investment in commodities may not be suitable for all investors. Commodities may be affected by overall market For more information on products and services, visit movements, changes in interest rates, and other factors ubs.com/workingwithus such as weather, disease, embargoes, and international economic and political developments, as well as the trading activity of speculators and arbitrageurs in the underlying commodities. General Investment Risks of the Asset Classes and Investment Investing in emerging market securities may pose different risks than investing in the securities of the U.S. or Types Noted in this Reports: developed markets. These risks include: political instability; This report is not a solicitation or offer to purchase or sell exposure to economic structures that are generally less any security. All investments involve the risk of loss. Past diverse and mature and to political systems which may performance is no guarantee of future results. Neither be less stable than those of more developed countries; diversification nor asset allocation assures a profit nor smaller market capitalization of securities markets, which protects against loss in declining markets. The value of a may suffer periods of relative illiquidity; significant price portfolio may fluctuate based on the value of the underlying volatility; restrictions on foreign investment; and possible holdings. repatriation of investment income and capital.

Equity securities fluctuate in value in response to general economic conditions and to changes in the prospects of UBS Financial Services Inc. is not affiliated with Campden particular companies and/or sectors in the economy. Fixed Wealth Limited, Family Office Think Tank or AVIC Trust Co. income investments will be affected by changes in the interest rate environment (interest rate risk), as well as the credit of the issuer (credit risk). Real estate investments are affected by numerous factors, including liquidity risk, credit risk, interest rate fluctuations, and the impact of varied economic conditions.

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69 Disclaimer

This material (and all related attachments) contained herein are for reference only and are not an offer, a solicitation of an offer, suggestion or recommendation for any securities or other financial instruments. This material is based on information that we consider reliable, but AVIC Trust does not represent its accuracy or completeness. Past performance is not indicative of future returns. No representation or warranty is made that any returns indicated will be achieved. The opinions or estimates herein are subject to change and may be amended without any notification. AVIC Trust may provide financial services to the companies, or have positions in securities or financial instruments of companies mentioned in this document. Relevant information is available on request. At different periods, AVIC Trust may release research reports which are inconsistent with the opinions, speculations and forecasts contained herein. Such reports reflect the different assumptions, views and analytical methods of the persons who prepared them, and AVIC Trust is under no obligation to ensure that such other commentary or reports are brought to the attention of any recipient of this material.

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The simulation results provided in this material are for illustrative and informational purposes only and are based on assumptions and parameters that reflect our judgments. These assumptions and parameters are not the only ones that can be reasonably selected or linked to the preparation of this sensitivity analysis. Different assumptions, parameters, market conditions, and other factors may result in different transaction estimates. AVIC Trust makes no representations or warranties to the applicability of the simulation results in the future. Although this sensitivity analysis is based on information or data that we consider reliable, no representation or warranty is made to its accuracy and completeness. This information is not intended to provide all the information you may need. In any case, you should conduct your own investigation and analysis of the transactions mentioned in this material and the data involved in them. Anyone who receives this material should make independent judgments on the transactions described in the materials and consult their own professional advisers.

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