Investments by family offices are helping to shape a better future for the world, Professor Denise KENYON-ROUVINEZ says.

With the announcement in early 2023 of new measures designed to attract and support family offices, Hong Kong demonstrated its intention to strengthen its attractiveness for this sector amid increasing competition from other global financial centers.

The latest incentives, which were outlined at the city’s high-profile Wealth for Good summit, include a revamped investment-migration scheme, which will now include RMB-denominated assets, as well as ready access to art storage facilities at the airport.

The goal is to see at least 200 family offices – the private companies used by high-net-worth families to manage their investments and philanthropic interests – based in Hong Kong by the end of 2025.

There is also a broader aim to showcase the city’s range of wealth management services and expertise and to reinforce its position as Asia’s pre-eminent financial hub.

“There are many types of large family businesses around the world. According to research, in a number of countries, up to half the listed companies are family-owned or governed, many of them having their own single family office,” says Switzerland-based Professor Denise Kenyon-Rouvinez, a member of the World Economic Forum Expert Network and the Principal Program Director of Family Office programs at the Wealth Management Institute in Singapore. She visited Hong Kong in 2023 and conducted a seminar hosted by the School on the challenges and opportunities facing family businesses and family offices.

“Family businesses and family offices need a proper governance system, and a succession plan for the transfer of ownership and leadership. The family office holds a special place. It is there to manage private wealth and make investments, which can provide for future financial needs and enable the family’s philanthropic activities,” says Kenyon-Rouvinez.

Harmony is difficult to achieve

Managing a family office is less straightforward than it might sound. Even in the most harmonious situations, deciding on the right structure, timing, mandates, locations and professional advisers usually requires protracted discussions. Members of the first generation, which founded the business that underpins the family’s fortune, don’t always see eye to eye with later generations on how to proceed.

The notion of a “shared dream” tends to change over time. The relative merits of new investment opportunities, often tied to the latest technologies, may divide opinion. There may be conflicting views on whether to focus investments closer to home or embark on a more global approach. What one person sees as tax efficiency might look like an unnecessary flirtation with risk to another.

“At the outset, there are many questions to consider,” says Kenyon-Rouvinez, who has worked extensively with leading families over the last 30 years, helping them to resolve complex governance and wealth management issues. “In Asia, there are many types of family offices and multiple ways of managing them. At that level of private wealth a bespoke approach is needed. A successful business usually has a very clear structure for governance, based on a unique culture and its own clear way of doing things, forming an important part of its competitive advantage. A family office needs a similar approach to defining its strategy,” says Kenyon-Rouvinez.

How to design an effective structure

Designing the right structure involves identifying needs, considering options and possibilities, defining the family’s values and listening to the views of all those involved. Those inputs are essential ingredients of the design. Regulatory factors must of course be factored in and ensuring that everyone feels listened to requires a touch of diplomacy.

A company founder may have a clear vision – often strongly influenced by his or her personal values – as to how accumulated assets are to be held, invested and passed on, and how the returns should be allocated and utilized. That vision is likely to evolve with each new generation, and may sometimes need to change more abruptly in today’s world of ever-shorter business cycles and increasingly rapid scientific developments.

In this context, it is important to ensure that tech- savvy members of the next generation are ready to step up and play their part. They must be taught, groomed and prepared for roles and responsibilities that enable them to preserve, develop and allocate the family’s wealth in an economic, technical, social and family environment which is itself in constant evolution.

Put the right people in place for transition

“The best gift the older generation can give the next generation is to ensure the right people are in place — people with the drive, flair and knowledge to direct the family’s investments to best effect for the future,” says Kenyon-Rouvinez. “Of course, each family has its own culture and values. In Asia, I’ve worked with some families who were very open to empowering and grooming the next generation. In more traditional families, it can be considered disrespectful to talk about succession and wealth. Or they simply turn to the first-born son. The ideal successor is one who exhibits good doses of passion, talent and competence.”

The designing of a family office must not be rushed. It is best to consult a specialist with diverse expertise before deciding on its governance, the composition of the portfolio and the main strategies to pursue, Kenyon-Rouvinez says.

In terms of risk, families may opt for radically different strategies. If a family is still actively involved in running a successful and growing business, that will tend to be where they will take risks. They may have limited time for family office matters, which is likely to lead to a more conservative approach.

But if the main business has been sold or is being managed by non- family managers, or if the family is large enough to have family members focusing on the business while others focus on the family office, the strategies might become more entrepreneurial and adventurous.

Make sure to cap the risks

“Define the objectives, the geographic areas and the industry sectors, and most of the rest will follow,” Kenyon-Rouvinez says. “But wealth can be lost very quickly, so knowing and managing the risks is crucial.”

Increasingly, she notes, the choice of asset classes is not always the sole or even dominant factor in investment decisions. Instead, concerns about climate change and other large-scale challenges are shifting the focus to the positive impact family wealth can have.

“We need to find ways to curb emissions, have clean water, healthy soil for agriculture, food security, green industries, and better health care,” says Kenyon-Rouvinez. “The solutions exist, or they are being developed by someone who needs investors. The family office can be an ideal base for investing responsibly, achieving good returns by supporting the new technologies and solutions we need for the future.”