April, 2021

Author: Dominik Stuiber

The growth of family offices has been strong globally and particularly in Asia where a large percentage of private sector businesses are family-owned. Many of the successful businesses are still managed by first generation founders, often the family patriarch. As these businesses have matured and grown, there has been an increasing need to protect the core business assets as the families’ wealth.

Hong Kong holds the key attributes to serve as an attractive hub for families in the region: its financial markets are deep, mature and sophisticated; and its proximity and close ties with Mainland China provides a gateway into and out of the Mainland.

Hong Kong caters well to traditional wealth management of family offices. At the same time Hong Kong has adapted to current trends of new money family offices and has seen a related shift in behaviour, mentality, and risk appetite to:

• More diversified and direct investments, private equity, venture capital and other alternative investments;
• Focus on wealth growth instead of wealth preservation;
• Co-investment activities by and across family offices and their networks;
• Increased investment in sectors such as technology and cryptocurrency; and
• A focus on issues of sustainability and impact investing.

A family office generally represents a platform whether as a separate entity, or a unit within a family business, to deal with the financial and other matters of an ultra-high net worth family. Depending on the actual needs of the family, a family office can be structured with different vehicles. A trust has been one of the traditional family office vehicles. The choice between using a service company or a private trust company as the family office vehicle depends on numerous factors. Both forms of vehicle have their own merits, and one is not better than the other.

Investment-centric family offices may benefit from having a service or advisory company. Its primary function is to provide management or advisory services to the family with respect to its investments through private banks, asset managers and fund of funds. A private trust company, as a trustee of one or more family trusts dedicated to the family, does not only focus on the investment functions. With a private trust company as the family office vehicle, as opposed to a service company, the family has more control and flexibility over the type of assets to be held under the family trust, its management and administration.

A private trust company however still works best when it receives guidance and support and uses services provided by professional trustees. An independent trustee can add value to the operation of the private trust company and thus the family office by assisting with the compilation of trust accounts and various kinds of reports and other general administrative duties of the family office. A family office with a close working relationship with an independent trustee will benefit from the steady availability of market, regulatory, law, tax intelligence, updates on disclosure requirements, and referral of a ready and tested network of professional practitioners.

SFC licensing carve out of family offices

In its January 2020 circular, the SFC clarified its position on licensing of family offices in relation to family offices established as trusts: “[…] in cases where a family appoints a trustee to hold its assets of a family trust, and the trustee operates a family office as an internal unit to manage the trust assets, the family office will not need a licence because it will not be providing asset management services to a third party.

Similarly, if the family office is established as a separate legal entity which is wholly owned by a trustee or a company that holds the assets of the family, it will not need a licence as it will qualify for the intra-group carve-out as full discretionary investment manager of the securities or futures contracts portfolio. The family office is not required to be licensed for Type 9 regulated activity if it provides asset management services solely to related entities, which are defined as its wholly-owned subsidiaries, its holding company which holds all its issued shares or that holding company’s other wholly-owned subsidiaries. […]”

For more information about family offices and private trust companies, please contact us at intray@zetland.biz.