Asia family offices can use Covid pause to solidify foundation

Edith Ang June 15, 2020 07:56

Asia’s family offices will be ready to seize post-Covid-19 opportunities if they make the most of this break from normality to reinvigorate key systems and structures.

For months, family offices have been prioritizing wealth preservation and realigning investment strategies. But there’s lots more to do than to just ride out the storm. Use this unprecedented period to fortify your business. Think of our current climate as the chance to realize long-needed home renovations.

In the case of the family office, this involves conducting a frank analysis of the governance framework in place and making improvements where needed to create a more coherent and agile operation better able to capitalize on the opportunities that will arrive with the global recovery.

The involuntary Coronavirus slowdown has freed up capacity that can be used to run deep diagnostic tests to isolate weak or underdeveloped systems and protocols, enabling management to reinforce existing processes or install new, more effective systems.

Covid-19 is a real-life stress-test for Business Continuity Plans (BCP). With a large proportion of staff working from home, family offices have a chance to optimize security, efficiency and remote communication. Cyber defenses and IT infrastructure are particularly important when almost all business -- from strategy meetings to invoice control -- is being carried out over the internet.

Covid has created the space to review and clarify decision-making structures: the informal and loosely defined systems that can serve to maintain family harmony in normal times can quickly become a liability in a crisis, when the ability to move fast and decisively to avoid crashes on the downswing and seize opportunities in the recovery is at a premium. So consider inserting an emergency protocol that could be activated when quick, effective responses are needed.

This is also an opportunity to codify both which family member is in charge of which aspect of the portfolio, and to ensure that the crucial dividing line between personal assets and family assets – a perennial source of stakeholder friction – is clear and undisputed. Wealth structuring can become a complex process to navigate but engaging third party experts including legal and tax advisors could make it less painful.

The sudden paralysis brought on by Covid-19 has prompted some family firms to seriously consider the benefits of setting up more than one family office in the region. This could suit an enterprise that predominantly serves Asian markets or European and American family offices with the capital pool and interest to access multiple markets. They may choose to have family offices in both Hong Kong and Singapore to diversify and reap the benefits of both cities.

In the coming months, wealth preservation and stability are likely to remain the top priority. A comprehensive risk register can identify hidden pitfalls before they become real liabilities by creating a comprehensive dynamic record that can be used to track any risks attached to the business or individual family members.

Once the business’ structures and processes have been fortified, family offices can use the Covid pause to bring family members together to re-examine two of the most important -- and most difficult -- issues: future investment priorities and succession planning.

Some families are using stock dips to double down on their core businesses by buying more shares, others are conserving or raising cash to buy into new growth areas. Both are valid responses, but increasing market volatility and accelerating cycles of uncertainty mean that portfolio balance and future investment plans need to be reassessed at shorter intervals.

Succession planning is always a fraught exercise, and it is particularly fraught within the context of most Asian cultures. But in the short run it will instill confidence among stakeholders and in the long run, it is vital to preserving a multi-generational legacy. We have seen many struggle with initiating discussions on succession, but shelving the inevitable only leaves the business exposed and unprepared for sudden retirements - which can happen.

Future planning does not stop at naming an heir or even charting a path to leadership. It goes beyond succession to identifying new areas for the business to explore such as philanthropy, entrepreneurialism, and perhaps even burgeoning sectors, like say, AI and digital healthcare.

Ultimately, family firms can emerge from Covid-19 like the phoenix from the ashes – stronger than ever. Family offices can make this happen by helping them achieve consensus on future aspirations and reinforcing governance practices. The business will then be positioned to not just recover from the current crisis but to rebound with strength, speed and direction.

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Edith Ang

Co-Head of Family Office Advisory and Senior Family Governance Advisor, Asia Pacific, HSBC