It’s part of the “transition from family entrepreneur to entrepreneurial family,” said Thomas Zellweger, a professor of business administration at the University of St. Gallen in Switzerland.
The challenge, of course, is convincing outsiders to hand over their cash. While family offices can tout their business acumen and show that they’ve got skin in the game, some observers question whether they’ll be able to compete with existing wealth-management offerings.
“I view this development with great skepticism,” said 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 institutionalization that gives them the right governance structure, the right risk-management framework and the 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 always align with those of the fund, said 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 returned more than 20 percent since its inception in 2015, and Thirdrock Asian Affluence Fund, a long-short Asia equity fund that gained 8.3 percent from January 2015 through June. The Eurekahedge Asia Long Short Equities Hedge Fund Index climbed 24 percent during the same period.
The strategy Tolaram plans to use for its hedge fund returned 12 percent in 2016 and 10 percent last year. It plans to charge external investors a 2 percent management fee and a 20 percent performance fee, versus industry averages of about 1.3 percent and 16 percent, respectively.
“The new funds will only gain traction if they can compete with the existing hedge fund industry, both in terms of returns and fees,’’ said Mohammad Hassan, an analyst at Eurekahedge Pte in Singapore.
Only time will tell how family office funds perform over the long haul, but Tolaram’s Tibrewal is confident of one thing: more of them are coming.
“Asia generates a billionaire every other day,’’ he said. “The logical extension is that a lot more family offices will be opened. They’ll want to extend their asset-management offering to outside investors.”
This article was provided by Bloomberg News.