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Insight

Navigating Asia’s generational wealth transfer during a pandemic

Hong Kong

The global outbreak of coronavirus has created a necessity for Asia’s wealthy families to reflect and revisit the legacy structures of their family businesses, and to determine how their wealth will be managed over the long term – particularly as these families edge closer to the most significant inter-generational wealth transition in history.

Here at IQ-EQ, we have already seen COVID-19’s impact on the market forcing family businesses to shift their mindset from wealth creation towards wealth preservation. The current situation is proving an ideal time to re-evaluate legacy structures and, in line with this, we’re seeing a marked trend towards professionalisation of Asian family office functions.

As I discussed recently with Asian Private Banker, wealthy families in Asia currently tend to multi-bank because of a lack of integrated services. The inefficiency caused by the cumbersome administrative process and managing multiple banking relationships is also pushing these families to set up a more formalised family office, bringing together a broader array of functions and facets as well as improved governance and succession planning.

Establishing a single family office (SFO) or joining a multi-family office (MFO), when combined with other governance and succession tools such as private trust companies and funds, provides Asian families with greater oversight and risk mitigation. In addition, introducing an independent operating model in the delivery of fiduciary services – one that sits above any particular product push or type of banking service – further enables families to take an agile and integrated approach to managing their wealth.

Importantly, the introduction of European and US corporate governance models in Asia is not about forcing the ways of the West. A ‘blended’ approach is needed, reflecting the Chinese concept of guanxi, which emphasises the importance of relationships and trust. Eastern philosophies of managing wealth must be paired with the western aspects of governance that are indispensable.

Further, with their favourable tax and regulatory regimes, both Hong Kong and Singapore offer immense opportunities for Chinese and Asia-based families to set up modern family offices. These jurisdictions have often served as springboards for these international families, providing global linkages and facilitating global planning.

While there had already been extensive disruption of wealth across Asian families well before the current COVID-19 crisis, the pandemic is acting as a catalyst for the preparations needed to better protect family wealth and facilitate smooth transfer of this wealth to the next generation. It is my observation that families who manage market volatility well are those who take a more prudent and conservative approach to the stewardship of capital in the long term. Creating a systematic or institutionalised means of transferring wealth will prove essential in overcoming current and future disruption.

Professionalising the management of family wealth, whether through SFO or MFO, is key to enabling Asian families to steer through both the COVID-19 crisis and the inter-generational wealth transfer to come.