This article was originally published on WealthBriefing
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Family offices are young in Asia, but given that so much wealth in the region is family-owned/controlled, the sector is certain to grow rapidly, and there are plenty of signs it is doing so. With any period of rapid growth, people make mistakes and take wrong turns. And it is wise for families to learn from other parts of the world.
Countless recent reports profile the phenomenal growth of wealth in Asia over the past 20 years. Despite turbulent economic markets, unsettled geopolitical landscapes, the rumblings of a US-China trade war and the current turmoil caused by the coronavirus, there is little doubt that, whilst tempered by volatility, the upward trajectory in Asian wealth will continue. Already home to a quarter of the global billionaire population, countries across the region will witness continued growth in the number of UHNWIs over the next five years, according to the 2019 Knight Frank Wealth Report.
Gains in almost all asset classes have contributed significantly to Asia’s growth in wealth, however the underlying success stories are the entrepreneurial, family-led businesses which can be credited with being major contributors to this wealth generation. Of the South East Asian businesses valued at $1 billion or more, 85 per cent are founder- or family-run. This figure stands at 67 per cent in India, and 40 per cent in China. Such businesses established in the last three to four decades have provided their founders with access to local and global markets and proliferated personal wealth in tandem.
With great wealth comes great responsibility. As the founding patriarchs and matriarchs advance in age, they reach a point in their life where they should be enjoying the fruits of their labours. Instead, they are faced with two considerable dilemmas; 1) how to pass on the family business to the next generation(s), and 2) how to protect and preserve the family wealth that has been generated for future generations.
For many, this need can be filled by family offices. De rigeur for the wealthy in North America and Western Europe since the start of the 20th Century, this trend is growing in Asia, steered by the new generation of wealthy Asian professionals. In Singapore for example, according to the Monetary Authority of Singapore, the total number of family offices quadrupled between 2016 and 2018. Of wealthy Chinese families surveyed by UBS in a research project with Campden Wealth, 64 per cent use family office services, and of those that do not, 44 per cent are considering establishing one. In India, 58 per cent of families are interested in setting up or joining a family office; and 50 per cent are currently in the process of doing so according to a survey by Edelweiss and Campden Family Connect.
Whilst single family offices deal with just one family, as the name suggests, multi-family offices are becoming much more popular. This is predominantly because they are able to pool their expertise (legal, tax, investment, real estate, insurance etc.) and benefit from economies of scale, from which their clients directly profit. That said, the overriding objective for any family office remains the same: to provide a comprehensive, one-stop-shop addressing the needs of its clientele and ensuring that the families can navigate their way through an increasingly international life.
Like their global peers, Asia’s wealthy are increasingly international with their investments spread across multiple jurisdictions. Given the variance of tax regimes in the context of increasing regulatory and compliance requirements in the region, managing these cross-border interests can be highly complex. These needs can be successfully navigated by family offices, and the correct, tailored solutions found in partnership with tax and legal advisors, through compliance and regulatory guidance, and by addressing cross-border succession planning, to name but a few.
The size of the wealth and the complexities of multi-generational, cross-border family dynamics demands the highest level of expertise and experience. Many experienced wealth industry professionals are drawn to family offices because they give them the ability to access best-in-class structuring, administration and governance. They benefit from external expertise to ensure that their family’s objectives are met and their legacy preserved with continued investments bringing further economic opportunities to the region.
For more established wealthy families, the pursuit of capital and protecting financial assets is no longer the sole priority. Now, many are championing valuable charitable and social philanthropic projects, and recognising their responsibility to educate current and future generations to understand how they structure and manage their wealth.
As many of Asia’s dynastic families face the challenge of passing down wealth to second and third generations, it will become increasingly important for Asia’s family offices to expand oversight of their family businesses, instill their family values in younger generations to ensure a continued legacy, and mitigate family disputes.
For most of us in the wealth industry, it is apparent that family offices are an essential component in the wealth management landscape, servicing a real need and demand for bespoke Asian wealth management services to protect and preserve wealth, but also to prepare the family for the role that their generation and beyond are set to play in shaping the future.
Associate Director, Head of Case Structuring
Lombard International Assurance