Family Office Elite Spring_16

SOUTH KOREA
EXPLORING HNW AND UHNW POTENTIALRG
Over the years, it has been very difficult to map the
true wealth that has been generated in South Korea. In
addition to a general reluctance of the High Net Worth
(HNW) & Ultra High Net Worth (UHNW) families to go
public about their wealth, there is a unique Korean
wealth hierarchy which has no other similar structure
in the world. In comparison with other Asian countries
like China and Indonesia, the coverage and knowledge
of the super wealthy in Korea have been kept out of the
spotlight to a certain extent. However if we look closer
into its UHNW segment, it becomes a true revelation
for the rest of the world, and there is huge potential
for the wealth management industry and family office
businesses as a whole, explains Rakesh Naker, Head of
International Business at Machlin-Oracle (part of Oracle
Capital Group).
Family conglomerates in Korea are called Chaebols, and
they came into existence in the 1960’s when President
Park Chung Hee came to power and helped South Korea
start its rapid rise to becoming a major industrialised
nation. The Chaebols wealth rose rapidly during the
1980’s and 1990’s, but in turn, this has led to the gap
between the rich and poor widening, especially since
the Asian financial crisis in the late 1990’s. To put this
into perspective, the 2015 OECD report states that the
top 20% of the population earned nearly six times as
much as the bottom 20% of the population.
This is primarily because the Chaebols have flourished
to make Korea the economic powerhouse that it is
today. This is further evidenced by the fact that there
are approximately 20 billionaire families in South
Korea, and nearly 100 families with assets greater than
$250m, out of a population of nearly 50m people.
Furthermore, the richest family in Asia in 2015,
according to Forbes, was a South Korean family, with
a combined wealth of over $26bn. This family’s net
revenues in 2014 amounted to nearly 22% of Korea’s
GDP alone. In turn, the number of Ultra High Net Worth
(UHNW) people (classed as those with wealth greater
By Rakesh Naker
Head of International Business at Machlin-Oracle
than US$50m in net assets) has grown to approximately
1,800, as of 2015. However when you compare this to
the rest of the Asia-Pacific region, which has just under
16,000 UHNW families, South Korea with around 11%
of the Asia-Pacific wealth, still has a way to go.
Traditionally when wealth is generated, it is put back
into the family’s operating businesses, which in turn has
helped to create the conglomerates that we are familiar
with today. This is how the Chaebols have grown over
the years, and this is a normal, traditional practice but
in turn, this opens up a door of opportunity.
Due to the tradition of recycling profits back into the
operating businesses, these UHNW families are now
seeking advice and guidance on how to segregate
their wealth out of the business and put it aside for “a
rainy day”. Furthermore, the concept of a Family Office
is still fairly new in Korea and Asia as a whole. Where
some Family Offices exist, the structure is more likely
to be dominated by the family members, which is in
contrast to the normal operating structure seen in the
Western world. This, in turn, means that the concept
of segregation can be lost as independent advisors
are not engaged to the fullest extent. However, this
trend towards a more professional structure is starting
to change in conjunction with generational change,
where the existing Family Offices are now looking
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FAMILY OFFICE ELITE MAGAZINE