Indonesian Family Offices : an Emerging Trend

Unique perspectives on the families behind Indonesia’s economic stronghold

It has been a common recognition that family businesses accounted for 95 percent of companies in Indonesia. Family businesses have long occupied the market of products we are seeing on the daily, and they keep expanding for times and generations on end. Indonesia’s titan family businesses generally started from small-scale retail or experimental projects that over time, turned into regional giants. Their businesses have differentiated and quintupled over the times to maintain their stand in the market.

Families of wealth would also invest a sum for their portfolios on instruments and commodities. Most Indonesian billionaires distribute their portfolio on business equities, properties, deposits and obligations. And their secondary assets come from precious metals and highly valued art pieces and hobby items. 

Subsequently, families are facing significant pressure as the new age emerges and exposes the family members to a shift of mindsets and business practices. As the family wealth transfers over generations, it is by nature that the family business and assets would also transform. Nonetheless, as rigorous as the transformations can be, not many of them have stepped out to pivot into the new age products or have the latter generations contribute radical changes to the enterprise.

Hence, it is reasonable that we are seeing a lot of second and third generations growing up and moving forward separately. Multi-generational issues arise as differentiating views take place. It could bring both advantages and disadvantages to the family: providing space to be more professional and less emotional with each other, but the relationship towards assets becomes similar to those in publicly held equities.

In every case that we see, families strive to be the next Rockefeller. Still, our study shows that multi-generational gap is the most common bottleneck to the families’ succession. First-generation patrons failed to emphasize the visions and essential wealth and business information to the following generations, and they also failed to integrate to the views and needs of the new generation. In fact, 70 percent of families of wealth worldwide lose their wealth in the second generation, and 90 percent lose it by the third (Kleindhandler D, 2018). 

The formation of a family office has been a top of mind for ultra-high net worth families worldwide in overcoming this multi-generational constraint. Local conglomerates have started to form their own. The highest net worth family in Indonesia as reckoned by Forbes, has used family office as their approach to occupy the market through three generations since the 1970s.

A family office helps set out the readiness to transport the business throughout crises and changing market demands. It is a space meant for the family to orderly structure how the wealth could sustain for as long as they aspire. This holistic model of capital preservation would not only guide the family to elevate excess capital, but it manages what they do and what they own as a collective, in a way that is convenient to all members. Maintaining the structure of the entire family, communicating the family’s assets and businesses in collective consensus becomes top of mind.

The family office takes on a lot of forms based on family needs and characteristics. Some families have a set of in-house advisors, and some chose to keep executive positions for the family and have their advisors outsourced. Some families even create a collective with other families to form a multi-family office. It would take significant investments in time and resources to form a family office. On the basis, your family office should cover the following topics:

• Family governance structure and organizational design
• Securing legacy : essential values of the family business, loyalty of customers and employees, creating a lasting impact to society, and more
• Action-planning inter-generational transfer
• Developing a framework for investments and asset allocation
• Creating collective and strategic financial decisions in the family
• Transforming business : building a cost-efficient and resilient enterprise that lasts through times of change
• Outsourcing the best ideas and talents to enhance enterprise growth

TheTitan helps you deep dive the essential matters and restructure your family enterprise into a solid and structured family office. With our line of advisors, we deliver tailor-made solutions to help you navigate the best practices for your enterprise. We believe major progressions in the economy will be visible with the inherent influences of the titan families in Indonesia as they build themselves to sustain and pose a larger impact in society.