While family offices are well-established in North America and Europe, the growth of family offices in Asia is recent and coincides with the economic rise of Asia.
By Sean Coughlan, Managing Director Trident Trust Company (Singapore)
The accumulation of wealth by families in Asia has been faster than in any other region of the world over the last two decades. Looking back at 2020, Knight Frank reported that China saw the largest increase in its ultra-high-net-worth (UHNW) population (9,594 additional UHNWIs) followed by the U.S. (6,080) and Japan (1,199).
According to Knight Frank’s latest report, Asia-Pacific’s population of UHNWIs is predicted to grow 33 percent in the next five years to 2025. The predicted rise of UHNWIs to 168,567 in Asia-Pacific will largely be led by Indonesia (67 percent) and India (63 percent), with the Chinese Mainland (46 percent) following behind.
Over the same period, the number of billionaires and millionaires in Asia-Pacific is set to rise by 46 percent and 37 percent respectively. Asia-Pacific is already home to more billionaires than any other region (36 percent of the global total), with China being key to this phenomenon.
More Effective Structure
Traditionally, wealthy Asian families used to manage their wealth through holding companies or special purpose vehicles (SPVs). This choice was often driven by the perceived simplicity of setting up companies and by the need to maintain confidentiality.
However, as wealth in Asia grew, these corporate holding structures became larger, more complex and more time-consuming to manage.
A need, therefore, arose for wealthy Asian families to institutionalize the management of their family wealth and investments through a more effective structure: the family office.
From an Investment Hub…
It is safe to say that the older generations of Asian high-net-worth (HNW) or UHNW families originally intended the family office as an investment hub, a formalized organization structure to manage family assets and investments.
More recently, second and third generations of HNW and UHNW families have been favoring family offices that can function not only as professional investment advisers, but also as trusted partners to help them manage complex financial, tax and estate affairs, and handle many other administrative and lifestyle tasks, including residence and citizenship, education, healthcare and reporting.
It is an evolution from being just investment-focused to offering a more holistic approach, including acting as a platform for corporate and family governance.
…to the Rise of Corporate and Family Governance
The influx of global regulations and intergovernmental cooperation is having a fundamental impact on family office structures, prompting families to centralize management and professionalize the governance of their worldwide financial affairs.
The majority of Asian families demonstrate an increasingly strong desire for formal governance mechanisms across all areas of their operations, businesses and wealth management. This means embracing sound leadership, meritocracy and appropriate decision-making practices.
Enhanced Family Governance
The rising importance of sound formalized investment management governance goes hand-in-hand with enhanced family governance and other developments involving the family's succession arrangements, especially as Asian families become larger, more geographically and generationally diverse, with greater transparency demanded by all parties involved.
More than ever before, families have been realizing that weak governance standards can be disastrous. It is not uncommon for family offices to be established by the founding patriarch or matriarch who has generated the wealth and continues to make all the key decisions both on the family wealth and the family.
Pivotal Moment
Ultimately the death of the founder can be a pivotal moment; if there is not a well understood and effective governance framework, there may be family discord and with no governance framework in place, there will be no effective means by which the family can make decisions on key issues after the crucial event. The consequences can be dire – loss of investment opportunities and ultimately the family office breaking apart.
What Could Family Offices in Asia Do to Help Families Put in Place Governance Measures That Are Fit For the Future?
A family governance structure cannot be an off-the-shelf template – families are bespoke and unique, and different frameworks will work for different families – so it should be a tailored solution based on the individual circumstances. Importantly, the governance framework should be shared across family members, not imposed by the first generation if it is to work effectively.
In order to approach decisions in a way that satisfies the diverse family members and that grows and safeguards wealth for future generations, family offices should help put in place a family charter or agree to formalize the approach and control of the family’s wealth holding structures.
Across Generations
In addition, the family office could help set up an elected family council with members across generations. They can follow up all decisions made in the council and lay down a family constitution with rules for family members to follow.
A family constitution can set, for example, family values and responsibilities for family members, define their rights or rules to sell family shares, etc. A family office could also assist to review and update the family constitution in time, including its policy and implementation status. Family gatherings and training for members can also be arranged by the family office.
Conclusion
Given the wide flexibility in shaping family offices and defining governance framework to cater to different needs and circumstances, it is essential to work with a trusted professional partner that has experience in advising on wealth management structures and expertise in putting in place tailored governance measures.
If you are considering setting up your own family office and you are looking for a professional advisor that can provide independent, neutral advice around oversight, control and supervision, our offices in Hong Kong and Singapore can help ensure everything is in line with the long-term vision for the management of the family’s financial assets and affairs.
Sean Coughlan is Managing Director and has overall responsibility for Trident Trust’s Singapore operations. Sean has held senior positions at both independent and institutional trust companies during his 30-year career, which spans both Asia and Europe. He has advised many international high-net-worth clients on the use of trusts and other estate planning vehicles. Sean is a Fellow of the Association of Chartered Certified Accountants and a qualified Trust & Estate Practitioner.
