Asia is now universally recognized as being the engine of world wealth growth. In China and across Asia, new fortunes continue to be forged every day.
About 58 percent, of new billionaires worldwide, come from the Asia Pacific region, and their net worth grew by 32 percent to $2.7 trillion in 2017, according to the «UBS Billionaires Insights report 2018».
However, for the wealthy in the region, their biggest challenge could well be holding on to their hard-won financial status. Many wealthy Asians now face the issue of preserving their nest eggs. And to most, it is a severe test.
When Markets Tumbled
While making their fortunes was about setting and achieving career or entrepreneurial goals in areas they know well, managing their wealth may not be a familiar territory or a particularly intriguing prospect. However, it is equally, if not more, crucial to doing so.
As 2018 came to a close, the threat to wealth became a reality for many. Markets tumbled as investors fled, spooked by a phalanx of geopolitical twists and turns.
Black Monday Crash
Brexit, the China-U.S. trade friction, upcoming elections in India, Indonesia and Thailand – there is never a shortage of weighty issues or unforeseen market jolts that can rapidly drain portfolios.
Over the past four decades, Asia has witnessed a series of financial peaks and troughs. Many Asian fortunes were hollowed out in the 1987 «Black Monday» crash. A decade later in 1997, when the Asian financial crisis swept across the region, wealthy Asians saw their riches further diluted.
What Lessons?
The sudden rise of the SARS epidemic in 2002 badly hurt investors in the region. However, fresh in most minds is the Global Financial Crisis; an event that proved another hard lesson for Asian investors. Many unwisely thought the financial contagion would not reach Asia, but it did.
One thing we can guarantee is that sooner or later, another crisis, be it man-made or not, will unexpectedly surface, causing markets and assets to plunge, and hard-won wealth to evaporate.
So what lessons can investors and wealthy families learn from the previous years of economic vicissitudes, and how can they put in place a structure that will preserve and protect their capital?
Issue That Must Be Addressed
In the wake of the 2008 financial meltdown, the ultra-wealthy in Asia moved back into traditional asset classes. Countless investors, feeling they had been hoodwinked into purchasing exotic financial products they did not fully understand, shifted their funds into property, precious metals and even rare art. Owning tangible assets suddenly made sense.
While the new wealth being accumulated in Asia is, in most cases, not the result of investment success, given the negative market conditions, it could be significantly reduced in a short space of time.
With trillions of dollars of wealth in Asia changing hands between generations, plans for preserving wealth have now become a mainstream issue that must be addressed.
Need For Comprehensive Structures
«Establishing a trust can be a good vehicle for wealth preservation. A Trust creates a framework for the future management of assets. It can determine how they are ultimately distributed to specific or classes of beneficiaries at pre-determined times», Brian Balleine (pictured above), Butterfield’s Regional Head in Asia, said.
«Putting shares of a family business in a comprehensive structure can also ensure its continuity despite disputes or bankruptcies among family members», he added.
Despite sensitivity in Asian culture in discussing the death of the family patriarchs, more ultra-high net worth individuals now see the importance of considering this issue and structuring their affairs to match changing circumstances.
Preparing For Multi-Jurisdictional Tax Obligations
With so many wealthy Asians owning international assets or operating businesses across several borders, preparing for multi-jurisdictional tax obligations is also vital.
Consulting with a trust specialist and legal or tax adviser, to create a structure that holds a wide range of financial and/or non-financial assets can minimize the risk without necessarily compromising robust investment returns and performance overall in the long-term.
As some of the patterns and habits that led to the last collapse in the global markets are beginning to re-energize, those who remember their history are taking note and preparing now.
Learning Opportunity
For some wealthy investors and families, the previous global financial crises were seen as a learning opportunity. By creating customized structures around their individual or family wealth, they successfully preserved it for the longer-term.
Families would do well to take professional advice from experts in the leading financial hubs to create custom solutions for the preservation and growth of their hard-earned wealth across generations.
Butterfield Trust is licensed and regulated by the Monetary Authority of Singapore and holds a Singapore Trust Business License. The firm is renowned for its award-winning work with business owners, high net worth families and financial advisors.
