HKUST Business School Magazine

While wealthy Asian families, whether they are old wealth or new wealth, started to set up formal family offices later than their Western counterparts, they have a higher starting point and have benefited from learning from the experiences of their European and American counterparts. For this reason, it is predicted that the process of Asian family offices from the initial stage to relative maturity will be significantly shorter than their Western counterparts. It is also worthwhile to note that besides formally structured single family offices and multi-family offices, a third type is often seen in the region: the ‘embedded family office’ (EFO), which is a less formal structure in which some of the family office services are performed by employees or family members who are involved in the family business. Family offices, unlike asset management companies, could manage both the financial and non-financial affairs of a family. In fact a well-designed family office not only helps preserve the family wealth, but also helps to preserve family harmony, and family value and legacy. The author sees growing interest among Asian families, regardless whether they have a formal structure of family offices, in making a positive impact in society so that the family legacy can be passed on through generations. As a result, impact investing and philanthropy in this region have become the two major areas of consideration of Asian families. Family offices and impact investing are a natural fit Impact investing refers to the practice of making investments with the intention of generating both financial returns and positive social or environmental impact. It involves deploying capital into companies, organizations and projects that aim to address social or environmental challenges such as climate change, poverty, education or healthcare. The primary goal is to invest to create measurable and beneficial outcomes socially in addition to financial gains. Given the function of family offices is to provide a range of services including investment management, estate planning, tax management and philanthropic activities, they are well positioned to play a unique role in investing for positive impact, unlike any kind of capital that exists out there. Added to this, they bring a history of innovation and an appetite to provide patient capital and a commitment to leave the world a better place. Here are a few detailed reasons why family offices have a natural advantage in doing impact investing. Firstly, family offices can afford customization and flexibility which is often required with impact investments. They have the advantage to customize their investment strategies and adapt them to their specific goals and values. They can make short-term investments, but if needed they also have the strength to make long-term investments, which is a key element given that it often requires patient capital to achieve the desired social or environmental outcomes. Family offices, unlike private equity firms, also do not have the pressures to exit within three to five years, or at most 10. Many high net worth families have a strong desire to make a positive impact on society Biz@HKUST 13