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Creating a sustainable legacy in Asia

Some family offices are shifting their investment strategy to impact investing, led by visionary next-generation family members.

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In Asia-Pacific, it is projected that around 45 per cent of the wealth will be transferred in the next five years, and around 70 per cent for the next 10 years.

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Mr Mahesh says succession planning has been identified as one of the top priorities among Asia's wealthiest families.

ASIA continues to lead the way as the centre of innovation and wealth. According to the UBS/PwC Billionaires Report 2017, a new billionaire was created in Asia almost every other day in 2016. For the first time, Asia has the highest number of billionaires (637) in the world compared to 563 from the US.

There were 162 new entrants to the billionaires list of Asia in 2016, out of which as many as 101 were in China. Billionaire wealth in other key Asian markets (Hong Kong, Singapore and Japan) grew by almost 30 per cent. The number of Asia's female billionaires has grown by almost 13 times from 2005 to 2016.

Interestingly, the combined net worth of Asian billionaires grew by almost a third in 2016, from US$1.5 trillion to US$2 trillion. If the current trend continues, the total wealth of Asian billionaires will overtake that of their counterparts in the US within four years.

One unique aspect of Asian wealth is that more than 85 per cent of its billionaires are first-generation business owners. As a result, the average age of an Asian billionaire is 59 years; in China it is 55 years.

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After working hard to build business empires over the past three to four decades, the pioneering entrepreneurial families in Asia are ready to hand over charge to the next generation. In Asia-Pacific, it is projected that around 45 per cent of the wealth will be transferred in the next five years, and around 70 per cent in the next 10 years. Succession planning has been identified as one of the top priorities among Asia's wealthiest families.

The Global Family Office Report 2017 published by UBS, in partnership with Campden Wealth Research, notes that in Singapore, 67 per cent of business families are in the process of developing a succession plan, while 29 per cent of Hong Kong families are doing so. Overall, in Asia-Pacific 48.4 per cent of families are in the process of developing a succession plan.

Business families need to ensure that there is a smooth transfer of wealth from one generation to the next. In Asia, there is greater emphasis on wealth preservation rather than wealth creation. Business continuity for generations to come is a top priority.

SUCCESSION PLANNING

Many families set up committees (for example, a family council) to groom the next generation to be responsible owners in the future and to set the strategic direction on how to control their wealth and businesses over the generations to come .

Before setting up such a council, family stakeholders need to come together and decide on what they seek to achieve in each of the dimensions of family and business continuity planning. The trend is towards formalising such agreed guiding principles and decision-making framework in a family constitution. This is also where it can be helpful to involve an experienced, professional and neutral external party to facilitate the discussions and eventually ensure a productive outcome.

As part of their aspirations to create a multi-generational governance framework, more and more families with substantial wealth are considering setting a family office entity outside of their operating businesses to help them manage their financial assets. Some also rethink and professionalise their philanthropic engagements, be it through putting a proper giving strategy in place, supported by properly set up legal structures (for example a foundation or charitable trust), or by embracing more innovative and collaborative ways to solve some of society's most important issues around topics such as education, health, poverty, the environment and so on.

We have observed that the second or third generations of Asian families are more involved in the family office compared to their peers in other regions. They may contribute to the family office by joining the investment advisory board or assuming managerial or executive roles.

Typically educated in the West, their cross-cultural mindset paired with their millennial ambitions to make a positive impact in society, will lead to a keenness in exploring ways and opportunities to ensure that sustainability is part of the family's agenda, a change of paradigm from previous generations.

SHIFTING STRATEGY

In order to follow through on this, a number of family offices in the region have started to shift their investment strategy to impact investing, led by visionary next generation family members, striving to align their family values with their investment practices.

The numbers underline this trend. According the latest UBS Global Family Office Report 2017, 26.7 per cent of family offices in Asia-Pacific are involved in impact investing. In Singapore, 29 per cent of the family offices indicated that they embrace the concept and are active in impact investing. We expect to see these numbers grow in the future driven by the emergence of networks of like-minded investors to accelerate problem solving through collaborative models.

Traditional top-down succession planning models, while still relevant in some situations, are witnessing an evolution globally and in Asia-Pacific. The new paradigm when it comes to family transitions is around multigenerational family engagements, professional setups and sound governance benefitting not only the family but also making an impact on the larger community. By choosing a partner that deeply understands these developments and is able to support you in your legacy aspirations, you and your business will be able to thrive for generations to come.

  • The writer is head global family office group Asia-Pacific, UBS Wealth Management
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