Over the past few months, the term “family office” has become a hot topic in Indonesia’s financial sector. Although this concept may be relatively new to most Indonesians, it has been a staple in wealth management in countries like the United States and Europe for many years. But what exactly is a family office, and will this concept have a significant impact on Indonesia? Let’s explore this in more detail.

A family office is essentially a private entity that professionally manages and oversees the assets and wealth of a particular family. Imagine an ultra-wealthy family—often referred to as “crazy rich.” With such immense wealth, some of these families struggle to manage their finances effectively. This is where the family office steps in. In countries that have adopted the concept, wealthy families typically have at least $50 million to $100 million in investable assets, or around Rp800 billion to Rp1 trillion.

The services provided by a family office cover various aspects of a family’s financial life, from investments to tax planning and legal matters.

Moreover, family offices often go beyond financial services. They can help manage non-financial aspects such as family education and welfare. With a family office, affluent families can focus on what matters most to them, like preserving and growing their wealth for future generations.

In addition to managing investments, family offices play a crucial role in ensuring that family wealth is passed down properly to the next generation. This involves carefully thought-out succession planning, ensuring that family assets remain intact and secure during generational transitions. This is particularly important in Indonesia, where there are often concerns about family disputes over inheritance or the management of family businesses.

As a highly specialized and personal service, this entity offers a flexibility that traditional wealth managers cannot match. Each family has unique needs, and family offices are designed to meet those specific requirements. Whether it’s international investments, local asset management, or philanthropic endeavors, family offices are equipped to assist.

Family Office in Indonesia

Though still in its infancy, the family office sector in Indonesia is expected to expand rapidly in the coming years, particularly with strong government support. President Joko Widodo (Jokowi) has set a goal of managing $500 billion in assets (approximately Rp8.178.8 trillion at the exchange rate of Rp16,357 per USD) through the creation of family offices for Indonesia’s “crazy rich.” This amount represents 5% of the global total assets held by family offices, which stands at $11.7 trillion.

The government has also formed a special task force, led by Coordinating Minister for Maritime Affairs and Investment, Luhut Binsar Pandjaitan, to examine the legal frameworks and other details necessary to establish family offices in Indonesia.

President-elect Prabowo Subianto has also endorsed the idea. Luhut mentioned that 28,000 wealthy Indonesians are already waiting for the official establishment of family offices, which are proposed to be set up in Bali.

According to Luhut, family offices in Indonesia have the potential to attract significant investments from the super-rich, helping to boost domestic capital circulation. He also noted that this could contribute to GDP growth and create more job opportunities.

Additionally, Indonesia could benefit from challenges faced by other financial hubs like Hong Kong and Singapore, which have traditionally been the go-to locations for the global elite.

The government plans to establish family offices in two locations: Bali and the new capital, Ibu Kota Nusantara (IKN). Bali was selected due to its status as a Special Economic Zone (KEK), while IKN is expected to become Indonesia’s new government hub, driving development in the eastern regions.

Challenges in Establishing Family Office in Indonesia

Despite the backing of both President Jokowi and President-elect Prabowo, the development of family offices in Indonesia has encountered delays due to issues within one government ministry.

“I reported this to the President-elect, and he said, ‘I agree, let’s do it.’ But it stalled at one ministry, for reasons I don’t understand,” Luhut revealed during the 15th Kompas 100 CEO Forum on Friday (Oct 11), held virtually.

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As a result, Indonesia has lost some momentum in establishing family offices. Meanwhile, Malaysia has already made a move. On September 20, 2024, Malaysia announced that Forest City in Johor would be the first location for its family offices.

Malaysia has also introduced various tax incentives for family offices, including a 0% corporate income tax rate for family offices, 0% to 5% for concession companies, and a special 15% personal income tax rate for workers in these offices.

Luhut stressed that Indonesia needs to act quickly to avoid missing out. He believes inter-ministerial coordination should not hinder policy development, including family office.

He confirmed that the government has been preparing for the launch of it. Teams have been assigned to study successful models in countries like Singapore, Hong Kong, and Abu Dhabi.

Key Considerations

The introduction of family offices in Indonesia could drive economic growth by attracting more foreign direct investment (FDI) and strengthening the financial sector.

Dr. Raden Aswin Rahadi, an expert from the Bandung Institute of Technology’s (ITB) School of Business and Management, emphasized that this entity could increase domestic investments by allocating managed funds across various sectors. This could boost the development of financial professionals and elevate the standards of wealth management in the country. Better risk management would also contribute to financial market stability.

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However, there are risks to consider. If not properly regulated, it could be used for tax avoidance or money laundering, which would undermine the country’s financial stability. Weak regulations could allow individuals to hide their wealth from international oversight.

Another concern is that social inequality could rise if only a small number of ultra-wealthy families benefit from large-scale wealth management while the economic gap widens.

To maximize the benefits and mitigate the risks, the government needs to ensure stringent regulations, transparency in asset management, and a robust legal framework to oversee these activities. Strengthening oversight and regulation would also boost Indonesia’s reputation as a safe and attractive destination for global investors while safeguarding national interests.

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