Alice Lau TEP is Executive Director, Head of Private Wealth Services, at Intertrust, Hong Kong, and Nicholas Tan TEP is a Manager, at Intertrust, Singapore.
What is the issue?
Increased amounts and sophistication of wealth in Asia are changing the way that high-net-worth individuals (HNWIs) wish to have their wealth managed and preserved.
What does it mean for me?
Practitioners must be aware of revised expectations and altered trends within the region, as well as the nuances of establishing trusts in Hong Kong and Singapore.
What can I take away?
Wealth among younger generations is increasing and HNWIs from China are progressively thinking internationally, alongside rising wealth in other south-east Asian countries. Hong Kong and Singapore are anticipating significant growth in the coming years.
An increase in wealth in Asia is changing the profile and demographics of individuals looking to protect and maximise their assets both inside and outside the region. This is resulting in shifting demands on trust professionals in the traditional centres for the management and administration of Asian wealth; namely Hong Kong and Singapore. Regulatory and legal changes in those two jurisdictions are also contributing to their popularity, but why has the profile altered and what are the new demands?
With global wealth on the rise, the demands on wealth managers are greater and more varied than ever before. This is especially apparent in the Far East, where the sophistication of wealth and number of high-net-worth individuals (HNWIs) are increasing, especially in China.
Wealth in the Asia-Pacific region (excluding China and India) grew by USD825 billion in 2019, according to Credit Suisse Research Institute’s Global wealth report 2019. The year also saw China gain around 158,000 individuals worth more than USD1 million and the nation now has more than 18,000 individuals worth more than USD50 million.
Sources of wealth
China’s focus on encouraging businesses in the technology sector, in its broadest sense, has attracted global attention in recent years. In particular, the mega-listing of Alibaba on the Hong Kong Stock Exchange (HKEX) in 2019 was the second-biggest initial public offering (IPO) of the year worldwide, and a clear signal that wealth generation from tech-based enterprises is only going to increase.
The focus on growing and supporting the technology and healthcare industries, in particular, has been ongoing for the past six or seven years and many of these companies are now at the point where international expansion is the logical next step. An economy undergoing an ideological shift towards consumer spending has helped to build them up, and now many are ready for global status.
An international outlook
The modern prominence of tech-enabled companies has meant a younger demographic of HNWIs in China and different demands on wealth managers in the traditional management centres of Hong Kong and Singapore.
In the 1980s and 90s, Chinese clients were wary because the nation did not have as great an international outlook. Now, after a couple of decades of living, working and studying all around the world, Chinese families can see the benefits of some form of internationalism and are comfortable using Hong Kong or Singapore as conduits to reach the rest of the world.
Furthermore, the maturity of the jurisdictions and a growing Asian market are driving HNWIs to look closer to home, contributing to the mounting popularity of structuring through firms locally.
The majority of trust work is still won through referrers and business partners as clients look for high-quality solutions with service providers that have international footprints. However, there is an increasing trend for some mid- to large-sized family offices (FOs) sourcing and engaging their trust and corporate service providers directly.
An increasing number of companies are looking to launch IPOs through Hong Kong, while greater numbers of HNWIs and single FOs are looking to Singapore as a solid base through which to structure entities, hold assets and implement operational FOs.
It should be said that the HKEX has worked hard to facilitate IPO business, introducing listing reforms in 2018 and making a further recent change to expand the use of dual-class shares. This allows corporate shareholders, as well as founders and key managers, to own shares with more voting rights than other shareholders.
Singapore, meanwhile, has made recent updates to its Global Investor Programme to attract a greater number of HNWIs and family businesses to Singapore as a base for their regional and global operations.
As the relationship between clients and their trustee will typically be longstanding, cohesive and supportive (as opposed to a transactional relationship), clients from the region and around the world typically select their trust service provider in a jurisdiction that maximises and fits their own cultural nuances. Hong Kong shares a cultural outlook with China, which appeals to the older generations or those with more traditional Chinese/Confucian values. Singapore, on the other hand, though slightly further away from China culturally, is still beset with Confucian values, allowing it to attract clients from a broader range of jurisdictions such as south-east Asia, India, as well as internationally from Europe and the Middle East.
Recent changes to tax residency requirements in India have driven demand for setting up trusts elsewhere and Singapore is looking to be one of the major beneficiaries of this new market.
A longer-term view of wealth
Longer-established wealth for some HNWIs and their families, coupled with long-term thinking from others, is impacting the demand on wealth managers in the region. The preservation phase, though just beginning for some of the younger HNWIs, is over for some of the older generations who are now looking towards a more structured and formal process for succession planning.
Succession planning is always, to one degree or another, influenced by age and family dynamics. Any patriarch or matriarch will be considering how to pass on their wealth and interests and these conversations have certainly increased as the level and sophistication of wealth has gone up. At the same time, family members are increasingly internationalised with a wide and varied spread of interests that may not necessarily be aligned with the patriarch’s or matriarch’s wealth-generating business or vision. Other factors influencing the discussion include wealth transfer, liquidity and business succession.
Regulatory nuance in Singapore
Singapore’s trust laws are founded on common law. Therefore, there are nuances that need to be considered when establishing a trust in the jurisdiction.
The first is the perpetuity of a trust which, in Singapore, is valid for a maximum of 100 years. Though a 100-year perpetuity period is generally sufficient, this presents some challenges for familieswho may prefer a perpetual structure for dynastic succession planning; though alternative structures may be considered in consultation with legal counsel.
The second is that there is no facility to structure an all-purpose trust based on Singapore law. Any trust established under Singapore law has to be for the benefit of its beneficiaries (with the exception of charitable purpose trusts), which somewhat restricts the use of trusts governed by Singapore law in both the private wealth and capital markets sectors.
It is hoped that a legislative review of these nuances will further enchance the attractiveness of Singapore as a jurisdiction of choice when establishing a trust.
Alice Lau and Nicholas Tan, ‘Business is booming’, STEP Journal Plus (October 2020)