(Bloomberg News) Stephen Diggle, who co-founded a hedge fund that made $2.7 billion for investors in 2007 and 2008, set up a family office to manage the millions in fees he earned instead of entrusting his wealth to private bankers.
"It was fairly demonstrably clear that there was a very significant problem of alignment of interests by private banks and their customers," said the 47-year-old founder of Vulpes Investment Management, whose Singapore-based family office has invested in hotels in Japan and farms in Uruguay. "They ceased to be custodians of people's money and they became salesmen."
Asia's wealthiest investors, whose ranks are swelling as the region's economic growth outperforms the rest of the world, are turning to family offices to maintain control of their money after the collapse of Lehman Brothers Holdings Inc. in 2008 made them more risk averse.
"Private banks try to sell you everything and not necessarily what's best for your family office or for yourself," said Clinton Ang, managing director of Singapore- based wine and spirits distributor Hock Tong Bee Pte, who is among those preferring to manage his family's wealth himself. "If sophisticated investors haven't already learnt the lessons of the past crisis, with the impending crisis that is on the horizon they'd better."
The MSCI World Index has tumbled 17 percent from this year's high in May and is trading close to a one-year low after Standard & Poor's stripped the U.S. of its AAA credit rating in August and Europe's debt crisis deepened.
"Markets go up and markets go down," said Tan Su Shan, head of wealth management of Singapore-based DBS Group Holdings Ltd., Southeast Asia's biggest bank. "It's easy enough for clients to point the finger at the banker when things go wrong. What about when things go up? There are always two sides to the story."
DBS attracted more than S$2 billion ($1.6 billion) in net new money in August, Tan said. The bank's wealth-management unit turned bearish two months ago and "took money off the table for clients" invested in equities, Tan said.
About 90 percent of Ang's family's investable assets of almost S$100 million are in cash after he sold from October through March its investments in stocks, bonds and most property assets, said the 38-year-old, who describes himself a follower of Templeton Asset Management's Mark Mobius.
Family offices are typically tailored to the families' investment and personal needs, and often include estate planning, philanthropy and lifestyle management such as maintaining homes and yachts. Private wealth managers, who generally work for global investment banks, rely on fees and commissions from managing their clients' money.
Most family offices in Asia are more defensive in their investment strategy and tend to hire a "generalist" to manage their wealth, rather than specialists such as former hedge fund managers, said William Chan, chief executive officer of Singapore-based Stamford Privee, which manages his family's wealth and that of two others. Such managers may cost a family office between $300,000 and $400,000 a year, while specialists would be more expensive, Chan said, citing U.S. surveys.