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The forces that shape the Asian family office landscape

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This is a sponsored article from HSBC Global Private Banking.

Aik Ping Ng,
Head of Family Office Advisory, Asia Pacific,
HSBC Global Private Banking

In the post-pandemic era, the global economy is already facing multiple new challenges, from simmering geopolitical tensions to stubbornly high inflation and increasing financing costs.

Asian families are now adopting a proactive approach to managing their wealth while passing on their legacy to their next-generation heirs. Among wealth management and planning solutions, there is an increasing trend for Asian families to establish family offices to institutionalise wealth management practices and enhance their risk management framework. Asian family offices are still relatively young compared to their European and American counterparts, but the strong momentum of this industry in recent years is a testament to its growth potential.

Business families, governments and industry practitioners are exploring and learning as they move ahead, and gradually developing a unique growth path for Asian family offices. Recently, the Singapore and HKSAR governments have announced or updated their policies relating to family offices, while at HSBC Global Private Banking, the number of incoming inquiries is growing steadily.

Based on the latest policy announcements and our actual experience working with client families, we have summarised a few industry trends.

More diverse asset-holding structures

Wealth protection and intergenerational wealth transfer are among the primary reasons for many ultra high net worth (UHNW) individuals to set up their own family offices. Therefore, at the outset, having properly designed asset-holding structures is critical in enhancing asset protection, as well as tax efficiency.

Among the existing family offices in Singapore, many are using trust and other suitable asset holding structures for proper asset protection and risk segregation.

Meanwhile, in Hong Kong, to support families with sophisticated asset-holding structures , the new family office tax exemption regime gazetted by the Hong Kong SAR government in May this year not only accommodates most of the existing structures of family offices in operation in Hong Kong, but also offers a flexible design framework for new family offices to be future-proof.

We expect the forms and structures of family offices to become increasingly diverse to meet the unique objectives of different families.

Professional division of labour

In the latest policy update in July, the Singapore government stipulated that there must be at least one non-family member among the investment professionals hired by a 13O or 13U family office. This updated policy reflects Singapore’s desire to broaden the diversity of staff deployment in family offices while facilitating the professionalisation of family offices. In November, the Wealth Management Institute (WMI) in Singapore celebrated its 20th year anniversary. Total participation in WMI’s family office programmes and forums have doubled to over 3,000 since launch. More than 200 professionals have successfully earned their Certified Family Office Advisor credentials to date.

When it comes to planning and budgeting for the family business and family office, among other considerations, an increasing number of families choose to outsource services such as tax planning, legal advisory, and management of investments in specific asset classes to third-party professionals.

In June this year, the HKSAR Government launched a professional service providers network for family offices, members of which include private banks, accounting firms, law firms, trustees, and other professional service providers, offering comprehensive supporting services to family offices in the city. In November, with the official launch of the Hong Kong Academy for Wealth Legacy (HKAWL), HSBC Global Private Banking is excited to work with the Financial Services Development Council and industry stakeholders to drive thought leadership and further develop family office human capital to strengthen Hong Kong as a leading global family office hub.

Family office setup and professionalisation are high on the agenda for many of our clients as they move beyond wealth creation to intergenerational wealth transfer. Choosing the right people to fill these roles is paramount, potentially involving the family’s next generation members. By creating platforms for learning, collaboration, networking and knowledge sharing, both the HKAWL and the WMI will play an important role to developing a diversified pool of talent that will benefit the family office industry and the wider private wealth management market over the longer term.

Greater emphasis on social responsibility

According to the Asia Pacific SDG (Sustainable Development Goals) Progress Report 2023 issued by the United Nations Economic and Social Commission for Asia and the Pacific, at the current pace, Asia Pacific will miss 90% of the 118 measurable SDG targets by 2030 unless efforts are multiplied. Relying on government resources and existing open financial investment channels alone is not enough to cover the funding gap in sustainable development projects. Implementing favourable policies to encourage capital injection into charities and blended finance projects which support the SDG could encourage traditional family offices to contribute to sustainable development efforts in the region.

In July, the Monetary Authority of Singapore (MAS) broadened the scope of annual business expenditures to include donations to local charities and grants to blended finance projects. A new capital deployment requirement was also introduced, incorporating expanded options such as global climate-related and blended finance-related channels. MAS also introduced a philanthropy tax incentive scheme with the objective of attracting greater charitable giving among single-family offices under the 13O and 13U tax incentive schemes by allowing certain overseas donations to be tax deductible in Singapore.

Separately, the HKSAR Government announced in March its objective of developing Hong Kong into a philanthropic centre. Related measures include enhancing the application process for tax exemption for charities and expanding the extent of beneficial interest that an exempted charity may hold in a family-owned investment holding vehicle. We believe that the HKSAR Government and industry practitioners will continue to work together in achieving the above objective by establishing a platform that connects professionals and philanthropists, as well as promoting best practice in the industry.

What does this all mean for UHNW families?

When determining the optimal location for establishing a family office, these policies and government incentives may appear attractive. However, it is highly recommended for families to determine their long-term goals to assess which policies align best with their objectives. This calculated diligence approach is crucial in identifying the ideal location and the right purpose for their family office. This will be an ongoing dialogue among family members and, quite often, having external professionals such as family advisors in these discussions may assist in facilitating such discussion.

At HSBC, we have the ability to partner with the entire spectrum of family offices, from those that are just starting up to the largest institutional family offices. We have a dedicated team providing a comprehensive suite of end-to-end solutions, ranging from transactional banking to bespoke investment solutions for UHNW and family office clients. Our global footprint means we are able to draw from insights within our network if a family seeks to learn from others who have started their family office journey earlier.

Ultimately, a family office is set up by the business family to help them with the management of their wealth and family affairs. It is and will always be as unique as the families that set them up. The location, form, function and degree of professionalisation will change in line with the growth of the family and its wealth.

1 Asia and the Pacific SDG Progress Report 2023: Championing sustainability despite adversities – World | ReliefWeb

This is a sponsored article from HSBC Global Private Banking.