Asia’s family offices multiply

The rapid rise in prosperity has created unprecedented demand for private wealth management solutions.

In March 2020, just as the Covid-19 outbreak was turning into a pandemic, the billionaire co-founder of the world’s largest chain of hotpot restaurants opened a family office in Singapore.

Shu Ping, the Chinese-born businesswoman behind the Haidilao global restaurant empire, became sole shareholder and director of a vehicle established as part of a strategy to manage her fortune. Shu’s move is part of a growing trend among Asia’s high-net-worth individuals to set up family offices as an efficient and secure way to manage the vast amount of wealth they have built up over the past few decades.

The ranks of billionaires in the world skyrocketed last year, rising by 655 to reach a record 2,755, according to Forbes’ 2021 billionaires list. The biggest swell by far came from China, which now has 626 billionaires — 238 more than the previous year.

The scale and speed of that growth has helped boost Asia’s share of global wealth, with the region now accounting for about 12 per cent of the roughly $15tn set to shift from the baby boomers to the next generation over the coming years, according to Wealth-X, the consultancy firm.

Organising their wealth

Against that backdrop, many of Asia’s ultra-high-net-worth families are looking to establish a more structured way of managing their wealth as they prepare to pass down their family businesses and wealth to the next generation.

Because they have created their wealth more quickly they are setting up family offices at a much earlier stage of the wealth cycle compared with their western counterparts

“A lot of Asian family firms are still relatively young, with the first or second generation of the founding families still in charge of the business,” says Angie Han, Head of Wealth Planning South Asia at Pictet Wealth Management. “But because they have created their wealth more quickly, including through the tech-focused unicorns of recent years, they are setting up family offices at a much earlier stage of the wealth cycle compared with their western counterparts.”

Han says family offices can help high- and ultra-high-net-worth families with a long list of important long-term goals on top of investment management, such as succession, philanthropy, family governance and legacy — a concern that has gained greater importance since the onset of Covid-19.

“Whether it’s about a business brand or the family name, family offices allow founders to think about how they want to shape their legacy and how they want to pass it on,” she explains.

Family offices allow founders to think about how they want to shape their legacy and how they want to pass it on

“They want to ensure that the next generations benefit from their wealth in a clear and structured way without falling into the entitlement trap.”

In many cases, the formation of more family offices in the region is indirectly benefiting the wider investment community, injecting greater transparency into Asian companies’ accounts thanks to the separation of families’ financial assets from those of the companies they control.

In jurisdictions such as Singapore and Hong Kong, between 60 per cent and 70 per cent of listed companies are family controlled. Such Asian family firms have an estimated market capitalisation of about $5tn.

Singapore beckons

In fact, Singapore has emerged as one of the principal centres in Asia for the formation of family offices, with more than 400 single-family offices established by the end of last year. These are set up not just by families in Asia but also those from the rest of the world, who want to use the region as a way to capture the investment and growth opportunities here.

David Turysk, Head of Strategic Solutions, South Asia at Pictet Wealth Management, says the region’s high-net-worth individuals are drawn by the city-state’s stable political and legal system. “When you set up a family office, you are thinking about a long-term structure with long-term value that will serve as a legacy,” he says. “For that, you want a stable, predictable environment.”

Singapore also offers at least two additional benefits. The first, says Turysk, is that the government and financial authorities have created incentives that extend from favourable tax regimes to the availability of Variable Capital Companies (VCCs) — relatively new investment fund structures that improve operational and tax efficiency.

“Privacy is immensely important to high-net-worth individuals,” says Turysk. “When family offices look to invest their wealth, they want to do it discreetly.”

Wealth ecosystem

The second benefit Singapore offers is a comprehensive wealth management ecosystem that can handle the often complex demands of high-net-worth individuals. This was made possible by long-term government efforts to facilitate investment in the city-state. More recently, the Monetary Authority of Singapore (MAS) and the Economic Development Board (EDB) established a Family Office Development Team to build a systematic approach to engaging family offices.

In addition, MAS has partnered with the Institute of Banking and Finance (IBF) and the wider industry to develop the capabilities of family-office advisers under IBF’s Skills Framework for Financial Services.

Complementing those efforts, Singapore has a large number of international wealth-management banks and specialists that can cater to families requiring bespoke family solutions. As Turysk of Pictet says, “Family offices are never the same, and each one is tailor-made for the particular needs of the family.”

Taken together, high-net-worth families in Asia today have all the support and facilities to establish the governance systems and wealth structures they need to create an enduring family legacy for future generations.

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