Equity investment gains popularity among family offices in China

China's family offices usually adopt more active investment strategies than their overseas peers, with direct equity investment more favored, according to a family office report released on Wednesday.

The report was jointly written by UBS Wealth Management and the Shanghai Advanced Institute for Financial Research, which has been issued for the third consecutive year.

By polling a total of 45 Chinese family offices, experts from the two institutions discovered that equity investment in the primary market is most favored, as 84 percent of the interviewed family offices said they have included this in their portfolio, with an average ratio of 21.5 percent.

A family office is a private wealth management advisory firm established by an ultra-high-net-worth family that serves the financial and investment needs of an affluent individual or family. Their services include financial planning, investment management, budgeting, insurance, charitable giving, wealth transfer planning and more.

Chinese family offices are more proactive in terms of investment style, as private equity investment takes up around 40 percent of their total investment capital. The ratio is 21 percent among international family offices, said Marina Lui, China head of UBS Wealth Management.

However, due to the downward economic pressure globally and market uncertainties complicated by geopolitical tensions, Chinese family offices tend to be more conservative this year. Globally, family offices attribute 57 percent of capital to traditional investment categories such as stocks and bonds, while the ratio was less than 30 percent in China in 2021. But the gap has narrowed this year, with Chinese family offices directing more attention to investment-grade bonds, said Lui.

Wu Fei, professor from the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, further explained that most of the family office users are first-generation company owners. This group usually has a bigger risk appetite. Although they are allocating less capital to equity investment this year, especially regarding the overheated industries, their weight in equity investment will not be significantly changed in the short run.

Over 40 percent of the interviewees using family offices have total assets of at least 10 billion yuan ($1.4 billion). About 12 percent see their family wealth worth between 5 and 10 billion yuan, while another 19 percent have a total net worth of 2 to 5 billion yuan.

But the majority 36 percent of the surveyed family offices only manage assets valued between 1 and 2 billion yuan, with another 21 percent managing 2 to 5 billion yuan of family wealth. The huge difference between the size of family offices and the wealth of the ultra-high-net-worth families indicates that the family office industry is still in the very early stage in China, said Wu.

At present, Chinese family offices mainly serve family businesses from the manufacturing and real estate industries. Around 39 percent of the offices are based in Shanghai, with 17 percent located in Zhejiang province and another 17 percent in Beijing, the report said.