HKUST Business School Magazine

Establish a governance framework UBS, the investment bank, polled 230 of its global clients with an average net worth of US$2.2 billion, between January and March 2023. 4 It found that only 42% of the family offices surveyed had a wealth succession plan or governance framework. Even among the larger family offices, with assets over US$1 billion, only 43% had a wealth succession plan and 66% a governance framework. Only 21% provided family education, development and mentoring sessions organized by the family office. 5 While family offices have significant regional differences in their style of investing and approach to generational change, the Asian family business model contributes to a unique importance for the family office beyond simply managing investments. The family office is obviously a western construct, but it can provide the stickiness or glue that keeps the family together and supports wealth preservation over the long term. First-generation wealth creators in Asia, with their deep background of Confucian values and attitudes, value not only the preservation of wealth but also the preservation of legacy and family harmony and unity. These three “Ps” may not be so different from the values of other societies, but particularly in the Sinosphere – China, Hong Kong, Singapore, and to some extent Japan, Vietnam and Korea – the family office is often engaged in charitable work and respect for family tradition. One Hong Kong family, now in its third and fourth generation, uses their family office to organize social gatherings around special events in the Chinese calendar such as grave sweeping. Hong Kong recently acknowledged the importance of philanthropy to family offices by allowing charitable entities to have up to 25% equity in the investments of the family office. 6 This makes it possible for the family to have the equivalent of an endowment for a specific charitable entity, such as a foundation that will implement family philanthropy over time. Asian family businesses have a particular experience because of the incredible speed of economic growth, particularly in China. While Hong Kong experienced a boom in the 1960s and 1970s, when many of the well-known Hong Kong tycoons got their start, the equivalent in China is the boom of the 1990s and beyond. The business cycle has been extraordinarily short, with families experiencing the same kind of transition between the founder generation and their heirs as is normal in Hong Kong and elsewhere in the Sinosphere between the third and fourth generations. A recent survey by Shanghai Jiaotong University showed that 80% of the “rich second generation” were unwilling to take over running the family business, partly because they have advanced degrees and occupy a special status within their companies. Their circle of friends is outside the family business, and they are little interested in the details of operating a business, according to Professor Yu Mingyang. Instead, they want to jump straight into financial business, using their assets to invest in funds or private equity. The exit from the original family business represents both a liberation and a challenge Biz@HKUST 9