The changing needs and increasing globalisation of the Asian elite is seeing an evolution of the region’s private banks and multi-family offices.
Asian investors, traditionally favouring fast trades and IPOs, are beginning to attach increasing importance to smooth wealth transition within their families. Media coverage of costly, drawn-out conflicts around succession and inheritance serves as a constant warning.
While first generation entrepreneurs still control the majority of Asian wealth, and are actively involved in its management, their family needs are becoming increasingly complex. This is leading to changes in investors’ mindset and objectives.
As a consequence, Asia-based private banks and multi-family offices (MFOs) are moving away from purely selling products to include wider services such as succession planning and tax advisory. They are also providing greater access and connectivity to global markets.
“The past few years have underpinned the importance of preparing for the unexpected,” says LH Koh, head of global family and institutional wealth at UBS, the world’s largest wealth manager. This period, he adds, has “imposed a sense of urgency for entrepreneurs and wealthy families to consider succession planning”. UBS has “invested significantly” in helping clients preserving wealth and build legacy for themselves and future generations.
The Covid-19 pandemic “acted as a catalyst for many Asian high net worth (HNW) families to take stock of succession plans and give them due priority”, says Gautami Gavankar, CEO, estate planning and trusteeship at Kotak Mahindra Trusteeship Services in India. Legacy planning and preservation of wealth has now become more important than management of investments and business interests, she says.
Increasing globalisation of Asia’s wealthy families, with many educating children at top universities in North America and Europe, is also giving rise to multi-jurisdictional planning needs. Failure to plan for succession can cause substantial difficulties for the next generation, with “significant amounts of wealth” spent in legal fees and taxes.
Rise of family offices
Growth and concentration of wealth in the region, combined with families’ desire to preserve wealth through generations, has led to a rapid rise of family offices (FOs) across Asia. As a result, wealth management firms have hired dedicated teams to cater for this expanding clientele.
“Asian families are recognising the need to organise affairs properly,” says Bank of Singapore’s global head of wealth planning, Paul Chua. “This means an increase in family office set-ups that can help create a framework for families to manage wealth in a professionalised and structured manner.”
Rival financial centres are keen to boost this business. Both Singapore and Hong Kong have put in place frameworks and schemes to actively attract FOs to their markets, including tax exemption frameworks and programmes linked to residential status.
Through these regional hubs, clients are developing a network with other FOs and professionals “to capture and harness investment, risk management and succession planning knowhow and expertise”, explains Mike Tan, Standard Chartered Bank’s global head, wealth planning and family advisory.
Recognising the value families gain from engaging with and learning from peers, wealth managers are organising major international networking events. “This ability to bring together a family office ecosystem is immensely powerful,” says Hannes Hofmann, the global head of family office business at Citi Private Bank. With Asia becoming “the epicentre of global wealth creation”, FOs are increasing both in size and sophistication, he adds.
Home bias
Growing professionalisation is demonstrated by recruitment of more experts specialising in finance, law and taxation, plus knowhow in “effective wealth management and decision-making”, says Rakesh Singh, group head, investment, private and international banking at HDFC Bank in India. Larger family offices are embracing technology and data analytics to enhance both investment and operational efficiency, he adds.
An important consideration for these families is how geopolitics relates to strategic sector investments, states Michael Blake, UBP’s head of wealth management and CEO Asia. For the more sophisticated FOs, it is dictating the reduction of exposure to concentrated Asian holdings around a family’s core business interests. Yet the instinct to invest in “China plus” opportunities remains strong. What is increasing is diversification to a broader range of Asian markets.
Fifty-one per cent of FOs’ assets are invested in Asia-Pacific, with families now diversifying portfolios across the region, away from Greater China, according to the 2023 UBS Global Family Office Report.
Many FOs have recognised the importance of broadening investments beyond traditional real estate and stocks, towards ‘alternatives’ including private markets and venture capital. Forty-six per cent of APAC family offices invest in hedge funds as diversifiers. There is also rising interest from FOs in private credit, which can offer “relatively attractive returns, strong income and lower volatility” in the current environment.
Preserving value
Despite increasing importance of investment management, the main purpose of Asian FOs is generational wealth transfer (56 per cent), according to UBS. But most have yet to develop a succession plan for family members.
In fact, this is a significant risk for FOs globally. Only one in three has a leadership succession plan in place, and one in five an education programme to prepare the next generation, according to Citi’s Global Family Office Survey Insights 2023. While Asian FOs lag more mature counterparts in Emea when it comes to leadership succession, they are the most advanced of all regions in educating their children, (26 per cent).
Indeed, the primary concern for Asian families, more than in any other region, is “preserving the value of their assets” (74 per cent) and preparing the next generation “to be responsible wealth owners” (59 per cent).
Service offerings addressing these evolving needs can differentiate the offers of private banks and MFOs, increasingly springing up in the region as an extension of services offered by single FOs to other families.
Leadership succession
Most of these firms are helping the younger generations of families become involved in impact and sustainable investing. “For many FOs and certainly the bigger ones, impact investing is a key part of the investment objective, and more recently we have observed a switch from ‘donations’ to ‘directing’ how the money is spent,” states Kian Leong, partner at PricewaterhouseCoopers in Singapore.
Socially connected younger cohorts are driving this trend, taking a “hands-on” approach by forming peer-based consortiums and pooling funds “to invest in meaningful initiatives, such as climate change and social or economic inequality,” explains William Chou, Asia-Pacific private leader at Deloitte.
By encouraging their offspring in these pursuits, linked to venture philanthropy and impact investments, older relatives are starting “to nurture the entrepreneurial spirit in a new generation”, believes Lim Ping Ping, vice-chairwoman global family wealth Asia-Pacific at LGT Private Banking.
“Many Asian families have a deep wish for their values to be retained and for families to stay connected and cohesive. They have seen the movie and wish strongly to avoid being the family who loses the wealth in the third generation,” she explains, describing “a hunger for guidance” on how best to balance all these goals and learn the best way forward for their family.
Lasting relationships
These challenges are being increasingly highlighted in a booming sector, which also displays a certain fragility. Families must work hard to “address the needs, circumstances and aspirations of family members and how these are matched with future ownership, management needs and growth of different assets”, notes Bank of Singapore’s Mr Chua.
This uphill task is particularly relevant in Asia, where first generation wealth creators made fortunes by riding tailwinds of the region’s past surges in economic growth. Today’s next gens face less favourable conditions within the industries in which the family businesses were founded. Instead, their advisers expect much of the innovation to come from the way they invest, “with a growing interest in establishing FOs and investing in venture capital, ESG and new technology”, according to Deloitte.
But while the topic of wealth transition to next gens is gaining importance, there is, as yet, “little evidence” that succession in Asia is leading to “a dramatic shift in investor mentality”, believes UBP’s Mr Blake. Flight to safety over the past year due to inflation, rising rates and sluggish equity markets in North Asia is a cyclical trend, and he expects “appetite for tactical trading to return” when markets pick up.
The ‘family office’ is clearly the new “buzz word” in Asia, although the current crop is still very heterogeneous. For senior bankers such as Mr Blake, key developments will be driven by “cultural and family business specifics of each jurisdiction”. In the Chinese market, seen by wealth managers as the biggest prize, he expects focus on wealth protection, succession, social impact and non-financial topics, in line with the hallmark of Chinese culture that “health is wealth”.
This diversity will lead to “a deeper family office ecosystem”, as advisers recognise that no single firm can fulfil all client requirements alone. But so far, Asia is still at the beginning of the FO story, with many gripping chapters yet to be written.
