When wealthy families fight, here's how they avoid ugly public battles
A growing trend in Asia, family offices help stave off acrimony among Asia's wealthiest, while safeguarding their ever-evolving portfolio of investments.
Last year, a fracture in the Kwek family became apparent when second-generation scion of Hong Leong Group Kwek Leng Peck parted ways with the conglomerate's real estate business, City Developments Limited (CDL).
The billionaire cited disagreements with the board and management over a now fraught investment in a Chinese property firm led by his nephew Sherman Kwek – fomenting speculation of an intergenerational rift. But such conflict among the monied isn't new, despite the careful divvying of trust funds.
According to The Wealth–X Billionaire Census 2020, Asia showed the largest percentage jump in billionaires in 2019. This new class of ultra-high-net-worth individuals (UHNWI) brings, along with its curious juxtaposition of pleasure craft and philanthropic banners, complexities in areas from succession planning to Environmental, Social, and Governance (ESG) investment. The latter was thrust into the mainstream consciousness by the ongoing pandemic.
Vast intergenerational transfers of wealth in Asia have prompted a growing demand for more bespoke and independent wealth management solutions, which have materialised in the family office. Such privately-held companies are positioned as all-inclusive vehicles for wealth management and dispute resolution, in a landscape bristling with contentious issues.
“We handled a case involving siblings who were at odds with their mother and father over how much of their parents' wealth would be donated to charities. At the same time, the sister and brother were at odds over what types of charities they should donate to,” shared Chiman Kwan, CEO and founder of Raffles Family Office (RFO), which has offices in Hong Kong, Singapore, Taipei and Shanghai.
The multi-family office, which serves families with a liquid net worth of US$50 million to US$300 million (S$67 million to S$400 million), helped broker an internal resolution, reaffirmed by the creation of a family constitution and investment governance frameworks. Incepted in 2016, it recently launched an independent advisory board, comprised of industry veterans with specialist skills in the areas of dispute resolution and philanthropic planning.
With high stakes involved, the goal is to prevent conflict from devolving to the point of litigation, which isn't the remit of family offices. This is especially important in traditionally patrimonial Asian systems, where constructs such as honour and harmony prevail.
“There are certainly situations where professional legal advice – which we don't offer – may be needed. But we tend to view it as incumbent upon ourselves to take every action possible to help our client resolve such matters amicably, in a way best suited to preserving their wealth and relationships,” explained Kwan.
While family offices typically act as intermediaries between stakeholders that place systemic safeguards to avert future disputes, professional partners such as family lawyers and accredited mediators are consulted when necessary.
“Disputes often occur when there is a lack of clarity and fair process, and when decisions are made based on emotions and knee-jerk reactions. Perhaps due to our Asian culture, these often lead to cold wars between family members.” – Robin Pho
A RISING TREND IN ASIA
Family offices such as RFO – while rooted in European institutions – are becoming increasingly prevalent in Singapore and the region. The Monetary Authority of Singapore (MAS) reported a five-fold rise in the number of single family offices set up in Singapore between 2017 and 2019, while Senior Minister Tharman Shanmugaratnam shared last year that Singapore has about 200 single family offices managing some US$20 billion in assets.
Unmistakably, the Lion City's deepening appeal as a family office hub stems from its reputation as an international arbitration centre with a strong regulatory framework and foreigner-friendly tax incentives. Adding lustre to her mane, such factors have enticed the likes of billionaires Sergey Brin and Eduardo Saverin into basing their family investment activities here.
Lee Woon Shiu, regional head of wealth planning, family office and insurance solutions at DBS Private Bank, shared that the proportion of locals to foreigners among family office families served by DBS stands at roughly 2:8.
Established in 2019, the bank's family office unit advises high-net-worth families on the planning and execution of cross-generational legacy succession and family governance strategies. It reported the completion of more than double the number of family office structures in 2020, compared to 2019.
“The landscape for dispute resolution in Singapore is constantly evolving along a positive trajectory, with the latest development being the signing of the new cooperation agreement between the Singapore International Mediation Centre and International Centre for Settlement of Investment Disputes,” said Lee.
This follows the enforcement of the Singapore Convention on Mediation in 2020, which provides a simplified and harmonised framework translating into a higher degree of certainty and significant cost and time savings.
“We handled a case involving siblings who were at odds with their mother and father over how much of their parents' wealth would be donated to charities. At the same time, the sister and brother were at odds over what types of charities they should donate to.” – Chiman Kwan
IN SINGAPORE, A NEW TYPE OF FAMILY OFFICE
Singapore's burgeoning investment landscape has given rise to new forms of the family office beyond the binary of multi-family versus single-family iterations, the latter of which typically requires liquid assets of upwards of US$100 million to be viable. This includes independent hybrid structures that outsource certain functions to stay cost-efficient, while untangling knotty family issues discreetly.
Robin Pho, CEO of renewable energy start-up Right People Renewable Energy, established such a family office to consolidate, review and rebalance his family's wealth and assets when his father passed away in 2014. As the family's appointed wealth manager, Pho has the latitude to make investment decisions, with the help of trusted advisors.
A former private banking professional, he is no stranger to clients locking horns. “Disputes often occur when there is a lack of clarity and fair process, and when decisions are made based on emotions and knee-jerk reactions. Perhaps due to our Asian culture, these often lead to cold wars between family members,” he shared.
Possible incendiary areas of ambiguity Pho highlighted include wealth distribution policy – should dividends be paid out yearly regardless of financial performance, tied to portfolio, or based on whim? – as well as caveats for loans disbursed to family members. He recounted the case of an “entitled next-generation family member” who was incensed at having her business loan denied, despite it comprising less than one per cent of the family's total wealth.
“If the family had established clear rules and policies on when capital could be loaned out, then the aspiring entrepreneur would not have simply expected an easy handout. Criteria can include insisting that the borrower complete their university education, or find a co-investor who believes in the idea in order for the family to match the investment,” he said.
“The landscape for dispute resolution in Singapore is constantly evolving along a positive trajectory.” – Lee Woon Shiu
The father-of-two sits on the board of directors of Family Business Network Asia, a non-profit organisation that shares best practices for family businesses. Members receive training, which may involve role-playing sessions, on how to deal with tough conversations and address issues respectfully. Such initiatives – alongside sound frameworks – brace families from being caught on the back foot, especially when individual values can be diametrically opposed.
A study commissioned by DBS Private Bank noted that a generational shift in how the purpose of wealth is perceived has recently taken place in both the East and West, with the younger generation placing greater emphasis on impact investing.
“When we think of wealth, we think of financial capital, but there is so much more than that. Families also have social, spiritual, human and intellectual capital, which they need to preserve, manage and develop. This is where working with family offices helps,” asserted Pho.
If anything, family offices are a barometer of changing priorities.
“Following COVID-19's emergence, high-net-worth families share heightened awareness of their potential vulnerabilities, and are placing greater urgency on long-term needs such as succession planning. They're also more cognisant of societal issues, and increasingly keen on driving meaningful change in their communities,” said Lee.