HSBC Private Banking, Essence of Enterprise Report 2017 Private Banking | Family Enterprise Succession Services | 7 Attitudes Towards Change Are Diverse

FAMILY ENTERPRISE SUCCESSION SERVICES

Private Banking Private Banking | Family Enterprise Succession Services | 1 2 | Private Banking | Family Enterprise Succession Services Contents

Our Approach 04

HSBC and Family Businesses 07

Our Capabilities 13

Enterprise and Wealth Transition 14

Passing on the Family Business to the Next Generation 17

Exiting the Family Business and Preserving the Family’s Wealth 21

Managing your Family’s Wealth 25

Investing your Family’s Wealth 26

Creating a Family Office to Protect your Family’s Prosperity 28

Private Banking | Family Enterprise Succession Services | 3 Our Approach

Business can be difficult. Families can be difficult. With our help, family businesses don’t have to be.

Entrepreneurs and business responsible for a business and a owners need a banking partner family, how the two are intertwined, with one foot in their world and and how you need to balance the one foot outside of it: someone needs of one with the other. who understands their vision for their wealth and for what they We recognise that the balance is hold dear, and connects them with in constant motion, as both your opportunities and insights they business, your family and the world wouldn’t have access to. HSBC itself evolves. is here to help you advance your prosperity for both your personal No matter how alarming change and business needs, now and can be, it’s best to start on the into the future. front foot. We encourage business families to make plans for the HSBC works closely together to future they want and can assist support our clients from different them in making the difficult countries and walks of life as they conversations easier today, grow, manage, preserve and pass so that the difficult decisions on their wealth. are easier tomorrow.

Every day we work with successful We’re here to help you manage business owners and entrepreneurs and maintain continuity in times of from all over the globe, so we change. understand what it feels like to be

Change is inevitable.

Ever since we started financing Selling is uppermost in the mind trade between Europe and Asia of UK entrepreneurs – with 58% over 150 years ago, we’ve been saying this is their objective – but working with family-owned far from front of mind in either businesses across the globe. Hong Kong (30%) and even less so in mainland China (14%). We know that they represent a There are similar variations across large part of the world’s economy, the continents – in Europe selling but also that at one point every the family business is more entrepreneur will move from common in Germany (46%) than in running the family business to either France or Switzerland (37%); attending to the business of the same in the Middle East, with the family. the UAE showing 30% with Saudi Arabia reporting only 17%. Yet in Our research1 suggests that Australia (49%), Singapore (49%) almost 40% of business owners and the USA (43%) selling is a anticipate ownership transition of more popular route. their business in the next 5 years, whether to the next generation or through an exit, but we see differences across countries.

1 HSBC Private Banking, Essence of Enterprise Report 2017 Private Banking | Family Enterprise Succession Services | 7 Attitudes towards change are diverse.

We know business owners from Culture has an impact too. all over the world and we see how Business ownership in the UK, they come in all shapes and forms, US and France tends to be high well beyond the conventional way frequency, with success measured that society looks at them. in terms of the wealth generated. In the Middle East, mainland With many nations now having China, Hong Kong and Singapore one-fifth of their populations over success is more likely to be judged the age of 65, a golden retirement by the scale of the enterprise that is being replaced by a sense of the entrepreneur has built. active ageing. In the US 25%2 of all start-ups were headed by The factors that inspire entrepreneurs aged between 55 entrepreneurs to start their and 65, up from 14% in the 1990s. businesses will, in time, affect In the UK one-sixth of start-ups the type of business owner they are headed by people over the become, the economic and age of 50. corporate success they achieve and the influence they have on the At the other end of the spectrum next generation of their family. millennial entrepreneurs evidence different motivations too. The younger generation are more likely to want to leverage their networks and collaborate, where their predecessors tended to prioritise self-reliance. Younger entrepreneurs are also more focused on how they can benefit the broader community as they build their wealth.

8 | Private Banking | Family Enterprise Succession Services 2 2015 Kaufman Index You started your business with a plan. Make sure you leave it with one.

The saying ‘shirtsleeves to Our view of how this can be tackled shirtsleeves in three generations’ requires families to demonstrate appears in so many cultures and urgency, planning and preparation languages and is backed up by ahead of generational transition research3 showing that a significant and change. proportion of family businesses fail to survive generational transition. Research5 into family wealth Communication breakdown (60%) transition suggests the pre-requisites and failure to prepare heirs (25%) to success typically include total are cited as the two biggest factors family involvement, a process that behind these business succession integrates the decision made by failure statistics. the family and the learning and practising of certain skills (including Our research4 shows that even communication, openness and for families working on an trust, accountability, team agreed wealth transition between consensus building, shared values the generations, perceptions and unifying behind a common of the quality and clarity of vision) in the family setting. communication vary significantly: while parents believe they are Understandably this is likely to clear on their goals and how to get become a greater challenge as there – the next generation doesn’t the family grows and the family always agree. business passes down through the generations.

3 Williams and Preisser, 2003 4 HSBC Family Enterprise Forum, November 2016 5 Williams and Preisser, Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, 2003 Private Banking | Family Enterprise Succession Services | 9 10 | Private Banking | Family Enterprise Succession Services Generational transition – the family journey

From as far back as William find its own way, having to chart Shakespeare’s play “As You Like its own path, without the additional It”, literature, thinking and research inter-generational challenges, has identified that our lives follow whether that be trying to find a series of stages, with transitions the balance between freedom occurring as we move between and responsibility for the next them. generation or having multiple generations under one roof, let In families this is made more alone dealing with the sorts of complex as the different challenges thrown up by the rapid generations are not only passing changes in technology. And as well through their own life stages and as planning for how we deal with transitions, but each generation the inevitable life events, some of comes with a different view on us will have to deal with unplanned the world. The senior generation or unforeseen events – family and baby boomers are being disputes, divorce and incapacity. succeeded by Gen X, Gen Y and the teenage Gen Z. With all of this to take into account, it’s no wonder that each It sometimes feels enough of a family is unique. challenge for each generation to

Private Banking | Family Enterprise Succession Services | 11 Generational transition – the business journey

Family-owned businesses have through exit and re-generation their own growth and transition by the next generation. path too.6 The business roles and leadership A first generation business start- dynamics are different too. up by a single, controlling owner Leadership roles in family from a nuclear family will grow businesses tend to be for much in two generations through longer terms than in large, publicly sibling partnership to a cousin’s owned companies, offering consortium; perhaps supporting a greater stability on the one hand, network of families, and it may well but perhaps frustrating personal have expanded internationally or growth and development on through acquisition, or alternatively the other.

For years you’ve run the family business, now it’s time to attend to the business of the family

Families planning enterprise and Those families that choose to take wealth transition are embarking in a more proactive approach to these two revolutions at once, and it may challenges – acting with clarity be tempting to postpone critical and purpose, communicating decisions but let’s face it: the openly and building trust – are awkward conversations will only more likely to build continuity in ever get more awkward. times of change and create firm foundations for their family’s future What you don’t talk about will create prosperity. confusion, misunderstandings and disharmony as every person within the family and the business will have a different interpretation of the decisions not yet taken.

6 K. Gersick, J. Davis, M. Hampton, I. Lansberg, Generation to Generation Lifecycles of the Family 12 | Private Banking | Family Enterprise Succession Services Business, Boston 1997 Our Capabilities⁹

At HSBC Private Banking we dedicate the time required to learn about you, your business, your family and your plans.

We’ll build a relationship with you, because it’s the only way to have honest conversations about the most important and intimate decisions of your life, and to identify the right solutions at the right time.

On the next pages you’ll learn how to make sure that your succession plan is a success.

9 Not all of the capabilities listed are available in all jurisdictions. Please contact your Relationship Manager for more information. Private Banking | Family Enterprise Succession Services | 13 Enterprise and Wealth Transition

Succession planning is not going to go away. But if you don’t do it, your business might.

Enterprise and wealth transition are too many siblings are eager to the issues that should always be take on the company, and they discussed before they become want to avoid the rivalry and an issue. disappointments that would disrupt the family. We’ve seen how They can be approached together balancing fairness and meritocracy or separately, but they both require can feel like an impossible preparation and dialogue. equation, but trying not to hurt feelings can hurt the business. At first glance, business ownership transition is a simple choice That’s why it’s important to make between two options: passing plans in advance, and design a the family business on to the next framework for decision-making generation or selling it to a third that both the business and the party. Whatever your preference family can recognise. Doing that at is, it’s important that it remains a the right time and in the right way choice, and not an inevitability. will not only give the family more options in times of change, but Some business owners find also make it easier to manage themselves forced to exit the their future and their wealth down business for a lack of successors. the line.

Others end up in the same situation for opposite reasons:

Planning strategically in business and the family’s wealth is such a often comes naturally, even challenge. And that’s before the when there’s the added focus question of the family’s legacy over and pressure of it being a family- the longer term is considered. owned business. The same level of strategic thinking is not so For those who want to grow the often applied to the development family and the family business of families and family members, together, planning starts earlier and which tend to follow or be takes longer. Sharing the passion organised around a series of life and drive that the family has for the stages – the early years, primary family business tends to happen and secondary education, within the family from when the university, and then the children next generation are quite young. leaving the family home or nest to For family businesses to succeed develop the path of their own lives. over long periods of time, the Very often the aim of parents is to generations need to have a shared support their children in developing sense of purpose and vision for their own sense of purpose to the future. pursue what really interests them.

So it’s not surprising that combining strategic business planning with strategic planning for the family

Private Banking | Family Enterprise Succession Services | 17 HSBC Private Banking Capabilities

Our family governance and Formulating the family vision wealth planning specialists »» Establishing and recording the family’s agreed have considerable experience shared goals and objectives working with multiple »» Articulating the family’s shared philosophy, generations of families to assist values and culture them in developing their own »» Creating the family’s vision for the future of the perspective, as well as a wider family business and wealth family perspective, to support the continuity of the family and Developing a family governance framework the family business through the generations. »» Strategic analysis of your family’s situation, current ownership structures and governance practices

»» Preparation of a family governance blueprint covering the structures through which the family business and wealth is held

»» Assistance in drawing up family governance documentation and advice on the establishment and operation of such committees, bodies or structures as required under the governance framework

Building a succession plan for the management, ownership, and governance of the family business

»» Inter-generational succession planning for the family business and wealth

»» Fostering family communication and unity

18 | Private Banking | Family Enterprise Succession Services Family wealth structuring Philanthropy

»» Assistance with wealth planning and structuring »» Help you to establish and grow strategic advice across jurisdictions and generations philanthropic structures and approaches in support of the causes that matter to you and »» Help with the implementation of your chosen your family solutions to enhance your family’s control over your financial position and facilitate its orderly »» Provide support at every step from initial vision succession, as well as protecting the safety, and planning through to the implementation security and confidentiality of your assets and ongoing management of your philanthropic structure

Financial planning

»» Help to identify and formulate your personal goals, assessing a wide range of options that will meet your financial and wider goals

»» Produce a personalised strategy for your wealth

»» Advise you how to hold, protect, manage and transfer your wealth in line with your goals and as efficiently as possible

Investment strategy and portfolio construction

»» Assistance for you and your family in the management of the proceeds of your financial assets

Private Banking | Family Enterprise Succession Services | 19 20 | Private Banking | Family Enterprise Succession Services Exiting the Family Business and Preserving the Family’s Wealth.

Selling the family’s business can but also often with business be an investment in your family’s associates or communities you future. have worked with and within for a long time, whilst also looking to the Many paths lead to the eventual future. All of this can be mixed with exit from a business. For some the uncertainty of a sale process the exit is a natural transition after that may or may not complete. many years or generations building and investing in a business. For Additionally, a large number of others the exit is planned from the business sale processes start for outset. And the journey beyond unplanned reasons, whether that the exit is equally varied, with be due to a family situation, an some business owners looking to issue between business partners, retirement, some starting up new concerns about future trading ventures, and others looking to a prospects or even an unexpected new or different role, for instance, offer for the business. as an angel investor or working in the charitable sector. With the experience we have gained through working with a Exiting from a business that you large number of entrepreneurs our have built is a difficult process that approach is to start the planning requires preparation on both the and preparation early, being ready business and personal levels. for the unexpected or expected It involves a simultaneous process challenges alike. of letting go, not just personally,

Private Banking | Family Enterprise Succession Services | 21 HSBC Private Banking Capabilities

Our wealth and financial planning Preparing for the sale of your business specialists have deep experience in supporting business owners and »» Having worked with many entrepreneurs their families through the exit from looking to exit their business we can help you to understand the varied factors that should be their business. They will help you considered as you plan your next steps to take a step back and consider matters through a personal »» We will share the experiences and perspectives and family lens, evaluating and we have gained regarding the preparations entrepreneurs undertake reflecting on what matters most to you and your family, and then »» And help you to develop plans for yourself and putting in place the necessary your family, getting the balance right between your head and your heart as you work through steps to realise your plan. the questions that need to be answered

Global Solutions Group (GSG)

»» GSG can provide access to HSBC’s strategic advisory services globally which may be able to provide transaction support in business valuation, sell-side advisory including buyer identification and buyer financings

Family wealth structuring

»» We can assist you with wealth planning and structuring advice across jurisdictions and generations, and also help with the implementation of your chosen solutions

»» Wealth structuring and planning can help you enhance your family’s control over your financial position and facilitate its orderly succession, as well as protecting the safety, security and confidentiality of your assets

22 | Private Banking | Family Enterprise Succession Services Financial planning Commercial banking support for new ventures

»» Help to identify and formulate your personal »» In many markets we can introduce your new goals, assessing a wide range of options that business to HSBC’s Commercial Banking will meet your financial and wider goals (CMB) to see whether they are able to support your needs in transactional banking, hedging, »» Produce a personalised strategy for your wealth working capital, asset financing and liquidity management »» Advise you how to hold, protect, manage and transfer your wealth in line with your goals and »» If you allow it, we can facilitate the opening of as efficiently as possible a relationship with CMB by using our existing knowledge of you and your source of wealth. This is just one way of benefitting from your Philanthropy existing Private Banking relationship; others can include cross-collateralisation of credit facilities »» Help you to establish and grow strategic from personal assets or future dividends philanthropic structures and approaches in support of the causes that matter to you »» Through CMB you may also be able to access and your family business education and networking seminars

»» Provide support at every step from initial vision »» Your Relationship Manager will be able to check and planning through to the implementation on CMB’s market coverage and eligibility of and ongoing management of your philanthropic your business structure

Private Banking | Family Enterprise Succession Services | 23 24 | Private Banking | Family Enterprise Succession Services Managing your Family’s Wealth

It’s time to go from investing in your family business to investing in your family’s wealth.

Whether you are looking to you saw as commonplace you grow, manage or preserve it, might see as uncomfortable. your approach to your family’s Or alternatively as you look to the wealth should start with a deep longer term preservation of your understanding of your goals. wealth you are looking for more In other words, what’s the sophisticated opportunities to purpose of your wealth? diversify your family’s wealth.

This can sometimes feel hard to Your view of the purpose of your determine and even harder to wealth will also be a reflection of articulate – perhaps it differs from your values and beliefs, perhaps other members of your family or influenced by the generations of because you are in the growth your family that preceded you, in phase for your wealth – but doing the same way that your values and so can help you to separate the beliefs are likely to influence your conflicting emotions that arise next generation. when family, business and wealth are so closely entwined. Your wealth will take a number of different forms over your lifetime Your view of the purpose of your – family businesses, property or wealth changes over the years financial assets – or indeed be a as your life and the lives of those mix of these. Understanding how close to you develop and change. the forms in which your wealth And so will your attitude to your is held relate to the purpose of wealth – opportunities that you your wealth can help to clarify the see as very exciting in your earlier objectives specific to each as well years, may seem adventurous as to your overall wealth goals. sometime later, a level of risk that

Private Banking | Family Enterprise Succession Services | 25 Investing your Our approach Family’s Wealth

With a clear understanding of the »» We favour investing for broader purpose of your wealth, the long run and remaining the role it plays in your life and invested what you need it to do for you, we will open up opportunities that can »» Our long-term investment support your financial goals – view supports a diversified a mix of the level of return you investment approach wish to see, the level of risk you are comfortable with and are able »» The anchor for your to withstand, and the degree investments should be a of liquidity you need in your strategic asset allocation that investments. on the one hand optimises the highest level of expected return for a given level of risk appetite, whilst on the other achieves diversification across asset classes and geographies

»» This is not meant to be a straitjacket. It allows you to decide the level of involvement you wish to have in the management of your investments and alongside your core investment approach you can build in satellite themes to exploit tactical opportunities or secular themes

»» And of course we will build in your requirement for liquidity to satisfy your shorter-term cash flow needs

26 | Private Banking | Family Enterprise Succession Services HSBC Private Banking Capabilities

Our investment capabilities are designed to suit your individual needs and requirements.

Advisory Services Managed Solutions

»» Allow you to retain control across all investment »» Allow you to delegate the management decisions, supported by our advice on portfolio of your investment portfolio to dedicated construction and investment opportunities specialists, taking advantage of our global expertise and reach without the need to »» Provide guidance to help you develop an asset be involved in the day-to-day management allocation strategy and investment guidelines of your investments tailored to your needs, goals, time horizon and risk/reward expectations »» The investment solutions you choose will be tailored to your specific circumstances, »» Monitor your portfolio and inform you when investment objectives and risk tolerance relevant opportunities arise or portfolio adjustments seem appropriate »» Include Discretionary Wealth Management Solutions and Alternative Investments (Private »» Provide wide access to all asset classes: Equity, Hedge Funds, Real Estate) and Mutual Funds »» Equities »» Fixed Income »» Funds Credit Advisory »» Structured Products »» Alternative Investments »» Capital Markets Solutions including »» Provision of a full range of credit solutions to derivatives, foreign exchange and allow the efficient use of your personal wealth precious metals to maximise returns, including:

»» Lending against financial assets, including Self-Directed Investments stocks, bonds, and funds »» Real estate financing »» Single stock lending »» Allow you to make your own investment »» Specialised asset financing decisions and have full control of your portfolio »» Life insurance premium financing

Themes and Ideas

»» From seminars to asset allocation views, to portfolio considerations, ad hoc market commentary and high conviction themes, our aim is to keep you up to date

Private Banking | Family Enterprise Succession Services | 27 Creating a Family Office to Protect your Family’s Prosperity

At the heart of the decision to But family offices are complex Once the family reaches an create a family office is whether organisations operating in a agreement on this, it can move on the family wishes to invest sophisticated and demanding to what vehicle is best suited to the together, today, tomorrow and into environment, often involving delivery of their objectives for the the future. For families who do, a significant regulatory and reporting management of their wealth, from family office provides a number of requirements, and cross-border a dedicated, single family office, potential advantages and benefits, legal and tax planning. So beyond to a multi-family office or even a over and above the aim of the the central decision of whether the “virtual” family office involving a long-term growth and preservation family wishes to invest together, mix of in-sourced and out-sourced of the family’s prosperity, including: there are a number of further provision. questions that will need to be »» Dedicated staff providing a answered: However, if family members have highly tailored service different views or objectives for »» What is the range of services their wealth or are not comfortable »» Confidentiality of the family’s that you expect your family in answering the many other affairs office to provide? questions, then the creation of a family office may not be the right »» Control over the processes »» Is the family’s wealth and the solution. level of return that can be »» Aligned interests in the generated at a sufficient level management of the family’s to justify the expense? wealth »» Does the family have the time and expertise to create and oversee the family office and be involved in the investment process, now and into future generations?

»» Can the family recruit and manage a team of trusted advisers in whom they will place the management of the family’s wealth?

28 | Private Banking | Family Enterprise Succession Services HSBC Private Banking Capabilities

We have considerable experience in designing and administering ownership structures adapted to the needs of international families with diverse assets.

Setting up a family office Customised Credit Solutions

»» Supporting the design and assisting in the »» In addition to real estate financing and Lombard implementation of a family office lending we can provide clients with customised credit solutions for their personal and corporate »» Assisting in the creation of the ownership investment vehicles including leveraged structure for the family office acquisition finance, strategic equity financing and specialised asset financing »» Ensuring that management and control of the family office is integrated into the wider governance for the family Global Liquidity and Cash Management Services

»» Assisting in the design of the process for »» Enable clients to maximise control of their selecting advisers and service providers payments and cash flows in addition to providing yield-enhancing solutions for the surplus liquidity Capital Raising and Investing in Equity and Debt Issuance Global Solutions Group (GSG)

»» Support clients with the capital requirements for their corporate entities through debt and equity »» GSG provides selected suitable clients with 10 raising in the private and public markets opportunities to invest directly in real assets , which can include real estate, whole businesses »» Provide sophisticated clients with the or stakes in businesses. These opportunities opportunity to participate as investors in debt are sourced through the HSBC franchise. We issuance in public and private markets also provide buyside advisory and financing for real assets that clients may have identified from other parties Global Custody Solutions Support for portfolio businesses »» Designed for clients who require institutional- level Custody, Investment Administration and »» In many markets we can introduce your Asset Financing services, Global Custody portfolio businesses to HSBC’s Commercial leverages HSBC Securities Services, one of the Banking (CMB) to see whether they are able world’s largest securities services providers with to support needs in transactional banking, over $6.6trn of assets under custody, and has a hedging, working capital, asset financing and network covering 89 markets liquidity management

»» Global Custody allows clients to consolidate all »» CMB may also be able to assist with a strategic their assets with one Global Custody bank while review of the balance sheet and look to support maintaining relationships with multiple brokers equity and debt issuance and leveraged and asset managers acquisition finance

»» Your Relationship Manager will be able to check on CMB’s market coverage and eligibility of your business

10 The services listed are not available in all jurisdictions. Please contact your Relationship Manager for more Private Banking | Family Enterprise Succession Services | 29 information. 30 | Private Banking | Family Enterprise Succession Services How can we help?

HSBC Private Banking helps the various factors you need to individuals and families who have consider and help you to plan your accumulated wealth through next steps. Working through the enterprises to grow, manage, and questions you need answered, preserve their wealth. We believe we can help to get the balance today’s entrepreneurs need a between what your head and your banking partner who shares and heart are telling you. understands their vision for their wealth—and HSBC is that partner. To learn more about the ways HSBC Private Banking can support Whether you are just beginning to you during the planning, execution contemplate family enterprise and and subsequent management of wealth transition or whether you your family enterprise and wealth are ready to move forward with transition, please contact your it, we can help you understand Relationship Manager.

www.hsbcprivatebank.com

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32 | Private Banking | Family Enterprise Succession Services