Kyongchol (Richard) Kim, Managing Director of a Singapore-based single family office (SFO), describes how he came into his current role, what the investment strategy is, and the advice he would give to anyone thinking of setting up a family office.
After working for a government-owned financial institution in South Korea, Kim recognised that his country’s bond and equity markets were too small for its fast-growing pension funds and insurance companies. Buoyed by his experience overseas in Australia and the US, he believed that there would be a greater demand for alternative investments and that private equity would be one of their top preferred asset classes.
Thus, he created a private equity fund which, bolstered by the momentum of the increased liquidity from local pension and insurance firms, became so successful that the Chairman of the family-owned group, who had backed its launch, asked him to seek additional private equity investments for a subsidiary. Within a year, they agreed to a lucrative offer from one of Korea’s top private equity funds and decided to set up a family office to manage the proceeds. As the Chairman’s only child lived overseas and had little interest in running the family business, in 2014 they incorporated Pole Capital in Singapore, attracted by the country’s efficient and reasonable legal and government systems.
Kim cites that one of the reasons he moved from Korea to Singapore was his relationship with the Chairman. Given that establishing a first-time family office starts off as a small organisation as you build out your team, ‘it is important that you choose someone to run it with a similar chemistry to you. From my point of view, the primary reason for joining the Chairman’s family office was definitely the chemistry between us.’
The family-owned business was created immediately after the end of the Second World War. The Chairman became the third-generation family member to run the business and helped expand its footprint. ‘He did a great job and made the company much bigger than it was when he first joined the family company,’ Kim notes.
Was there any pushback when the idea emerged of founding an office in Singapore? ‘He graduated university in the US, where he also received an MBA, so he is pretty open to living overseas, as well as doing business globally,’ says Kim.
Kim believes that Asian families have different approaches to managing their wealth. ‘It varies case by case, but I think that Asian families prefer single family offices to multi-family offices. On the investment side, they are more conservative than European families, preferring real estate investments over equities and bonds.’
‘Our investment policy is to beat the inflation rate by 3 percentage points,’ Kim says. ‘To achieve that, our portfolio is 50 per cent in long-term investment-grade corporate bonds, 40 per cent in real estate and 10 per cent in private equity – in other words, half in alternative asset classes.
‘Strategically, Pole Capital invests in cash-flow generating assets in developed countries, and is building a diversified, balanced and sustainable portfolio in Singapore and overseas. In real estate, we have a strong focus on retail and commercial property in Singapore, Australia, the US and Europe.’
On the philanthropy side, Pole Capital is interested in becoming involved but like with their investment philosophy, they have taken a long-term view. ‘We are a pretty new family office with only three years of running experience,’ and they have therefore been more focused on building up the family office and its investment objectives at this stage. While philanthropy may play a more significant role for them in the future, it is important for them to be discerning in how to allocate their funds. ‘We are exploring our philanthropy values and further planning now,’ Kim says.
Kim believes that the wealth explosion in Asia will lead many more of the newly enriched entrepreneurs to set up family offices outside their home countries. ‘Some Asian countries continue to have an unfavourable environment for doing businesses and also have high estate tax systems, and people running businesses in these countries are likely to want to move their businesses and homes to neighbouring, lower-tax countries such as Australia, New Zealand, Hong Kong and Singapore. I guess that there will also be increased demand for the asset classes of the countries they choose for investment.’
While the majority of the new family offices of Asian entrepreneurs will remain in Asia, he says, they will send their children to western developed countries for their education. ‘Their main concerns are to keep their wealth and provide a good education and living environment to the next generation.’ He predicts that the next generation educated in the West are likely to choose their own lifestyles, rather than joining their family businesses in their home countries.
He notes that privacy is a very sensitive issue for Asian family offices. ‘They don’t want everybody to know about their activities and lifestyle. The chairman dislikes being recognised as a rich person in public, which makes him very uncomfortable.’
His advice for people thinking of setting up a family office? ‘I recommend that you get the right people to manage the money, choose the right country to locate your family office, and devise the right investment strategy which is most appropriate for your family’s overall wealth position.’
He strongly recommends outsourcing many functions of family offices, such as accountancy, taxation and legal services, to top-tier global service firms. ‘When setting up Pole Capital, we relied on external professionals to help while we were settling into the country. From introducing us to the best law firm to helping us lay out our investment objectives, their team was there every step of the way. It is definitely very important to find a good partner/adviser when setting up a family office.
‘For investment advice, I also recommend outsourcing to the top-tier advisory firms for each asset class. For example, if we need to invest in a real estate fund in Australia, we usually contact the top two or three Australian real estate dedicated funds.’
However, the one function he is adamant that cannot be outsourced is the decision-making function. ‘The key skill of family office investment managers is their ability to assess the balance between risk and opportunities, which is totally different in every case.’ He says that family office members are ‘our people’ while outside fund managers are ‘their people’. What matters for family office members is protecting the assets over the long term, while external fund managers have their own priorities.