Asia now has the most billionaires in the world and accounts for one third of global wealth. But how are Asian families’ attitudes changing towards fund domiciles, structures and technology?
A 2020 report on global billionaires confirmed Asia to be the fastest growing market of wealth in the world. With more ultra-high net worth individuals than anywhere else, this continent has become a real engine of global wealth generation.
Singapore has long been a global centre for wealth managers and fund domiciliation, and has also been a key beneficiary of the recent surge in Asian wealth.
At our recent webinar “Family office trends”, our guest speaker Maan Huey Lim, a tax partner at PwC, explained how Singapore’s popularity has strengthened still further over the past year, with many families looking more closely at their financial arrangements as a result of the global pandemic.
Ms Lim explained that assets under management on behalf of families in Singapore recorded very strong year-on-year growth of around 15%, with the number of family offices doubling. “New enquiries are coming from across Asia and beyond as we are also seeing European and Middle East families wanting to set up in Singapore,” she added.
While the stats behind wealth growth in Asia tend to dominate the headlines, this is not the only noticeable trend.
Valerie Mantot-Groene, Regional Managing Director, APAC at Apex Group, said that the Asian wealth market has become much more discerning as it has matured which, in turn, has brought new demands to family offices servicing these clients.
“The pool of wealth in Asia is now undergoing a phase of growing sophistication and institutionalisation,” she explained. “Family offices are considering suitable and proper structures of their wealth, not just for preservation of wealth, but for growth and succession planning as well. This is a key trend and is driving the quality of family offices.”
The pandemic has forced families to approach management of their wealth differently, particularly the new generations. As a result, Apex has seen family offices and families shifting their mind-sets, according to Ms Mantot-Groene.
“They are becoming key stakeholders in the financial ecosystem and economies in these countries. At the same time, the younger generations are becoming more involved, travelling to top universities, and bringing new insights home with them. They have a greater sense of ownership of their wealth that they are bringing to the family office.”
Read more: Valérie Mantot-Groene in conversation with Asian Private Banker
Singapore is well-placed to benefit from this growth due to its tax treatment of high-net-worth families, with a regulatory environment designed to accommodate innovation. In Singapore, families can establish both family office and investment trust structures (such as Variable Capital Companies) whereas they could be limited to just one elsewhere.
“We also have very transparent tax policies,” added Ms Lim. “There is the possibility to apply to the Monetary Authority of Singapore (MAS) for tax incentives for an investment company. Combined with the high quality of service providers we have here, that has been a winning formula.”
New structures and trust trends
The growth and sophistication of wealth markets, particularly in Asia, is already starting to influence the way family offices structure and manage the estates of their clients. Increasingly, segregated portfolio companies – from a family office perspective — are now being structured differently. Historically, it would have been common for the parents to hold the controlling entity, but it is becoming increasingly common for the second generation to become investment managers.
“In some instances we are seeing clients who would like the second generation to be the investment manager,” says Maggie Kwok, Asia Head of Funds and Regulatory and Partner at Harneys. “That is where the family would allow the second generation to have a rehearsal with the management skills that they will need later in life.” Ms Kwok explained this has become increasingly common in Singapore, China and Hong Kong.
In Singapore, the variable capital company (“VCC”) has become extremely popular thanks to new legislation introduced in the jurisdiction earlier in 2020. The VCC structure is a corporate entity designed to allow onshore funds to be easily launched in Singapore, which has attracted attention within the family office community with over 200 launches being recorded this year.
However, Ms Mantot-Groene advised caution and explained how VCCs are still a work in progress. “VCCs are only a product for the investment solution of a family, not for the succession planning side and how wealth is structured,” she explained, “therefore, it may not be ideal for all families. What will be interesting is that MAS is coming up with a new version of the VCC for private wealth purposes which could complement the framework we already have.”
The popularity of these structures, and the flexibility they offer, could see them receive further traction among family offices.
Nicola Roberts, Head of Trusts and Private Client Advisory Group (Asia) at Harneys, says structures such as the BVI VISTA Trust or the Cayman Islands STAR Trust are likely to retain their popularity, however, “foundations have not been popular in the private world over the past 10 years. They have been slowly dying out,” Ms Roberts reflected.
“It’s hard enough in Asia for the concept of a Trust to be understood because there is still so much misunderstanding of what a trust is. A Foundation is even more of an alien concept for families. However, there is a common saying in Hong Kong that when anyone turns 18, they get a BVI trust. Clients there have always used them as they have many advantages. Shares are held in these trusts for succession planning and protecting confidentiality. The second point is a huge benefit, as with an offshore trust no one can obtain a list of the directors and beneficiaries in these structures.”
The impacts of Covid-19
Like all industries, family offices have been impacted by the Covid-19 pandemic. Although this has not resulted in significant structural or regulatory changes for these organisations, this has led to a greater focus on technology and risk management.
“More family offices are upgrading their technology as a result of the pandemic and we are seeing more family offices go virtual. This not only applies to communication but to the way trades are executed, data is stored and reports are created,” said Ms Mantot-Groene. “We have seen an increasing number of family offices outsourcing their middle and back office functions.” This trend is not purely because employees are working remotely but it is because families understand that keeping operations in-house also means owning that risk. As a result, they would rather push this out to an external party.
Family offices are focusing more closely on continuity in light of the global pandemic, with a greater focus on employee retention. Some families are even looking to offer key team members phantom shares as a form of additional incentive.
Ms Kwok added that more families have been “considering and expanding” their list of beneficiaries to include employees who are now basically trusted in-house advisers. “That probably explains why we have seen an uptick on the fund side in terms of clients coming to us wanting to set up quasi fund structures for the benefit of these people,” she concluded.
How we can help
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