Japan's Rich Embrace Family Offices Amid Market Boom and Weak Yen

Economic

Summary:

Family offices are growing in Japan for asset protection and tax planning, with recent expansions by Deloitte, Takashimaya, and Money Forward. This trend is fueled by rising wealth from a booming stock market and real estate prices.

Family offices are on the rise in Japan as business owners and their families seek a one-stop solution to concerns ranging from protecting family assets from inflation to tax planning.

Deloitte Tohmatsu launched family office services in Japan this month. That move was followed by department store chain Takashimaya's acquisition of Japanese wealth management startup Vaste Culture, which offers services including family offices and philanthropy.

Money Forward, an operator of popular money-managing apps, has begun offering family office services together with PrivateBank, a Tokyo-based family office operator. The partners set up a joint venture in March.

Family offices, which manage the assets of single or multiple families with a clear organizational vision and governance structures, are a relatively new concept in Japan. Business owners typically set up personal holding companies, but these often lack proper governance systems, such as a family constitution and a council for conflict resolution, and they do not have active investment strategies.

Game maker Nintendo's founding family was one of the first in Japan to make use of a family office. Yamauchi No. 10 Family Office was established in 2020 by Banjo Yamauchi, a fifth-generation member of the founding family.

"Instead of leaving investment activity to other people, we make investment decisions by ourselves and invest in companies that we think are promising, or are run by great managers," Hirowaka Murakami, chief investment officer at Yamauchi No. 10, told Nikkei Asia.

Yamauchi No. 10 has a staff of about 10 and manages assets between 100 billion and 200 billion yen ($627.5 million to $1.255 billion). Reflecting the growing interest in family offices, "we are often asked about how to set up a family office," he added.

Japan's Rich Embrace Family Offices Amid Market Boom and Weak Yen_1

Historically Japan has had fewer billionaires than other countries due to its high inheritance tax rates of up to 55%. In 2022, according to the UBS Global Wealth Databook, there were 1,094 Japanese with a net worth of $100 million or more, putting Japan 13th behind India, Russia, South Korea and Switzerland.

However, that may be changing thanks to a reflating economy and booming financial markets. Takayuki Sato, president of PrivateBank, is a close observer of this trend. Sato's PrivateBank offers services to dozens of wealthy families with at least 10 billion yen in financial assets.

"There has been an increase in wealthy individuals due to rising real estate prices, a booming stock market, more startups going public and more people making money with cryptocurrencies," said Sato, who doubles as the head of the joint venture, Money Forward PrivateBank.

Japanese stock prices have risen about 50% since the start of 2022, while Tokyo condominium prices are at an all-time high. Wealthy people today are much keener on investment than before because of the sharp depreciation of the yen, which has lost 27% of its value versus the dollar since the beginning of 2022.

"People's attitude toward money has changed in Japan," Sato said. "People no longer think it is a bad thing to want to increase their wealth. They think what's important is how the money is being used."

Many of his clients are owners of tech companies that went public within the last 10 years. By combining with Money Forward's network of tech companies and its expertise in mobile apps, PrivateBank hopes it can broaden its client base. Its goal is to oversee 10 trillion yen in assets in the partnership with Money Forward.

A Takashimaya department store in Tokyo: Vaste Culture, a wealth management startup, aims to find clients among Takashimaya's upscale customers. (Photo by Makoto Okada)

More recently, Vaste Culture, a wealth management startup, decided to join the Takashimaya group, betting that the upscale retailer's customers will make good clients. It provides a range of services, from wealth management to arranging overseas education for family members to advising on philanthropic giving.

"We are aiming to manage 1 trillion yen in assets," said Kotaro Yamamoto, Vaste Culture's co-CEO. The partnership with Takashimaya will give the company's clients opportunities to invest in artworks and jewelry, he added.

Koh Shimizu, deputy head of Sumitomo Mitsui Trust Bank's private banking department, underlines the company's commitment to the startup sector -- which might pay off in the form of more revenue from initial public offerings and from managing wealth for startup owners. The company's private banking department serves individuals with at least 1 billion yen in financial assets. Sumitomo Mitsui Trust owns a stake in PrivateBank.

"Japan's economy has been led by big traditional companies," Shimizu said, "but startups are increasingly playing an important role as well."

His customers include startup founders, second-generation owners as well as venerable public companies. "We want to meet clients' needs, which include wealth management services for the founding family," he said.

Shimizu added that his bank is preparing for the possibility of startups growing bigger and turning into unicorns, companies worth $1 billion or more.

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Generational change among business owners is also fueling the growth of family offices.

Ryosuke Higuchi, head of Deloitte Tohmatsu Family Office Services, said many of the wealthy households that Deloitte serves own medium-size companies, typically with at least hundreds of millions of dollars in sales and more than 1,000 employees.

These companies are predominantly owner-managed. "It is often the case that owner-owned companies experience governance issues as soon as something happens to the founder," Higuchi said. He added, "It is more prudent to institute a decision-making structure" before such issues arise.

Family offices are relatively new to Asia, gaining momentum around 2010, when the smartphone revolution produced scores of billionaires in China, some of whom diversified their investments across the region and set up family offices in places like Singapore and Hong Kong.

Money Forward estimates there are 15,000 to 20,000 family offices worldwide. In Singapore, there were around 1,400 single-family offices that qualified for tax incentives as of the end of 2023, according to the city-state's government. Hong Kong, using its own tallying method, estimates there were 2,700 single-family offices.

"The number of family offices in the region has nearly quadrupled in the past five years, according to Preqin data," said Harsha Narayan, senior financial writer at Preqin, an investment data company. "The region is witnessing a rapid growth of wealth. This growth has created more demand for family offices to manage the needs of these newly wealthy families," Narayan said.

Since last year, the Japanese government has set out a policy plan aimed at making Japan a leading asset management center. The plan aims to stimulate the economy by utilizing personal assets that have been sitting idle due to low interest rates in the country.

Yamauchi No. 10, the family office of Nintendo's founding family, invests in deep tech companies that use cutting-edge technologies to address major social issues. Its target companies are endeavoring to create direct brain-machine interfaces, explore for rare earths with the help of artificial intelligence and develop lab-grown meat using tissue culture technology.

Murakami, Yamauchi No. 10's chief investment officer, expects to see more startups and family offices in Japan. In the past, bright people in Japan became civil servants. Today, he pointed out, "There are many people who leave the civil service to join startups.

"There are also many who quit jobs at investment banks and consulting firms to join startups. That led me to believe that the pace of economic renewal is gaining momentum in Japan," said Murakami, himself a former Goldman Sachs banker.

Source: NikkeiAsia

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Japan's Rich Embrace Family Offices Amid Market Boom and Weak Yen

Source: NikkeiAsia

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