China's super rich make their money from real estate

Beijing

CHINA'S wealthy families are twice as likely as global peers to have made their millions in real estate, according to a report co-authored by UBS Group, which found an increasing focus on wealth preservation and succession.

Almost 30 per cent of participants surveyed said their family wealth came from property, followed by consumer discretionary and industrials.

The swelling ranks of China's super rich are also increasingly turning to family offices as they focus on wealth maintenance and succession planning, according to the study.

The concept of a family office is relatively new in China compared to Europe, the US and other parts of Asia, where rich families have long used privately held companies to handle investment and wealth management decisions.

Although the combined wealth of billionaires in mainland China dropped 12 per cent in 2018 to US$982.4 billion, according to a separate UBS/PwC Billionaires Report released in November 2019, their numbers have been growing more quickly than elsewhere.

For around one-third of the clans surveyed, the primary wealth-management vehicle is a single-family office, while around 16 per cent manage their money via a multi-family office.

The average net wealth of those represented in the report is US$943 million and the maintenance of their wealth was the main motivation for establishing or joining a family office, it found.

The study, conducted in partnership with AVIC Trust and consultancies Campden Wealth and FOTT, also found the average age of the generation currently in charge in China is 55.

"The wealth creators are now entering their mid-50s, and considering inheritance and succession planning," the report said. As a result, "the Chinese family office arena has been growing and maturing, rapidly".

It added that while the "relatively subdued global economic environment and heightened uncertainty have, no doubt, affected business and investment in China, as elsewhere," they've also reinforced the need for "structure and organisation" in Chinese wealth management.

Still, there are challenges. Those include the initial establishment of a family office structure, recruiting outside talent and finding experienced service providers.

Trust, confidentiality and reputation are the most critical factors when selecting service providers.

In terms of returns, Chinese family offices earned an average return of 11 per cent over the past 12 months, with private equity the top-performing asset class.

About the same proportion of participants have adopted a growth-oriented investment strategy (44 per cent) versus a balanced approach (43 per cent).

Only 13 per cent adopted a preservation-oriented strategy, according to the report, which canvassed 76 family members, family office senior managers and family wealth managers. BLOOMBERG