Hedge funds face a new threat in Asia - family offices

Mr Manish Tibrewal (seated), CEO of Tolaram's family office, with (from left) Mr Lee Kim Leng, head of macro, Mr Prashant Sirohi, assistant vice-president of operations, and Mr Liew Han Piow, head of equity derivatives.
Mr Manish Tibrewal (seated), CEO of Tolaram's family office, with (from left) Mr Lee Kim Leng, head of macro, Mr Prashant Sirohi, assistant vice-president of operations, and Mr Liew Han Piow, head of equity derivatives.PHOTO: BLOOMBERG

At least eight family offices have started or are planning to start investment funds

They have already come for the talent, poaching traders from the likes of Millennium Management LLC. Now, Asia's family offices are going after the hedge fund industry's clients, too.

Take Tolaram Group, which runs a US$500 million (S$682 million) family office in Singapore. After hiring former Millennium and Goldman Sachs Group staff to manage US$100 million of its own cash, Tolaram plans to convert the portfolio into a hedge fund and accept outside money next year. It is the first foray into asset management for a family that made its fortune in textiles, consumer goods and other mostly non-financial businesses.

Not content to simply cut costs by managing their wealth in-house, an increasing number of ultra-rich clans want to turn their family offices into revenue generators by charging the merely well-off to invest alongside them.

While sceptics say conflict-of-interest concerns and limited track records may deter outside investors, the trend underscores the growing sophistication of Asia's family offices and could pose a threat to incumbent money managers in a region that is minting millionaires at the fastest pace worldwide.

"What we're doing, I am sure other families will do in similar ways," said Mr Manish Tibrewal, chief executive officer of Tolaram's family office.

At least eight family and multi-family offices in Asia have recently started, or are planning to start, investment funds that accept outside money.

The challenge is convincing outsiders to hand over their cash. While family offices can tout their business acumen, some observers question whether they will be able to compete with existing wealth-management offerings.

They include AJ Capital, which is applying for a licence to make its planned financial services-focused lending fund available to external investors by March, and Kamet Capital Partners, which is planning a $250 million fund to invest in liquid assets. Golden Equator Capital, JM Enigma and Golden Horse Fund Management also have offerings in the works.

Asia is now arguably the most important battleground for the world's asset managers. The region is home to more rich people than any other region after adding new millionaires at an annual rate of about 12 per cent last year, data compiled by Capgemini shows.

In 2016, a fresh Asia billionaire emerged every other day on average, according to the UBS/PwC Billionaires Report.

Family offices have become an increasingly notable feature of the region's wealth management scene.

They are typically staffed by former investment bankers, hedge fund traders and private-equity analysts, overseeing investments that span both public and private markets. If managed well, they can give families more control over their assets and cost less than farming money out to hedge funds and private banks.

Family offices that take outside money see several advantages to opening up. For one thing, fee income helps offset the cost of hiring experienced investment professionals, which can quickly add up.

At Tolaram, for example, the payroll now includes former Millennium trader Ankit Khandelwal, Mr Lee Kim Leng, formerly from Goldman Sachs, and Mr Liew Han Piow, who used to run the equity derivatives desk at United Overseas Bank. Other family offices in Asia have recently poached talent from firms such as Deutsche Bank AG and Singapore sovereign wealth fund GIC.

External investors can also help instil family offices with a greater sense of discipline and professionalism.

It is part of the "transition from family entrepreneur to entrepreneurial family", said business administration professor Thomas Zellweger from the University of St Gallen in Switzerland.

The challenge is convincing outsiders to hand over their cash. While family offices can tout their business acumen, some observers question whether they will be able to compete with existing wealth-management offerings.

"I view this development with great scepticism," said Professor Claudia Zeisberger, a Singapore-based professor of entrepreneurship and family enterprise at Insead. "Asian family offices still have a way to go to achieve a level of institutionalisation that gives them the right governance structure, the right risk-management framework and level of sophistication before they can start thinking about turning their family office into a business."

Asia's rich clans have a history of success when it comes to founding and operating companies, but many lack track records in money management of the sort that external investors often require.

Another worry is that investment decisions could be unduly influenced by family members, whose objectives may not align with those of the fund, said Mr Vikas Gattani, the Singapore-based founder of a hedge fund that invests in Indian consumer-related industries.

Sparse public statistics on funds run by family offices make it difficult to draw definitive conclusions about their results.

The few that do disclose performance figures include Golden Equator Prime Currency Income Fund, which has returned more than 20 per cent since its inception in 2015, and Thirdrock Asian Affluence Fund, a long-short Asia equity fund that gained 8.3 per cent from January 2015 through June.

Said Mr Mohammad Hassan, an analyst at Eurekahedge in Singapore: "The new funds will gain traction only if they can compete with the existing hedge fund industry, both in terms of returns and fees.''

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 06, 2018, with the headline 'Hedge funds face a new threat in Asia - family offices'. Print Edition | Subscribe