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28 March 2019

Luxembourg builds reputation as family office hub  

Billionaires are on the up, in total wealth and numbers. China, which has the second highest number of extremely rich people after the US, produces two new dollar billionaires a week. Globally, the firms that protect and manage their family fortunes are booming too.

Definitions of the world's ultra-high net worth individuals vary, but the upward trend is clear as the world's wealth gap ever widens. Research firm Wealth-X says the numbers of individuals with more than $30m in net worth grew nearly 13% in 2017 to 255,810 individuals, while their combined net worth rose 16.3% to $31.5trn.

The number of UHNWIs in Asia is increasing more than twice as fast as in Europe and, as China's media note with satisfaction, the country overtook Japan in the ultra-rich stakes 10 years ago.

Strength in flexibility

Not surprising then that family offices, which offer a range of personal services as well enhancing the investment wealth and wellbeing of the extremely rich, and, increasingly, the moderately rich as well, are also prospering.

Again, there is no universal definition of what constitutes a family office - one of their strengths is flexibility - but broadly, as trusted advisers, they manage money, administer assets and sort out taxes, as well as tackling longer-term issues such as succession planning and philanthropy, and dealing with tricky moments like divorce and pre-nuptial agreements. Fixing limos, yachts and holidays may also be part of their remit.

As with UHNWIs, the number of family offices is rising globally. Campden Wealth, producer of the annual Global Family Office Report with UBS, says that of the 311 family offices taking part in its latest survey, more than two-thirds have been established since 2000.

Campden estimates there are about 5,300 single-family offices, usually created by a family business and dedicated to its members, of which around 75% are located in North America and Europe. They exist alongside multi-family offices that operate as multi-client businesses, and may be part of a larger financial network,

Increasing competition, increasing demand

Asia has lagged in the past, but now it is catching up with other parts of the world in encouraging the establishment of new family offices and attracting existing ones, led by Singapore, where the government has eased regulatory formalities. Family offices in the US may be benefiting from outflows of capital from Venezuela and Colombia, while many rich Asians are also seeking a foothold in North America.

Competition is intense in Europe too, with London and Switzerland traditionally serving as havens for those seeking discretion, privacy, favorable tax regimes and generally agreeable locations in which to work and live. But Luxembourg is coming up fast.

Building on its reputation for wealth management, Luxembourg passed the Family Office Act in 2012, establishing a legal and regulatory regime aimed principally at multi-family offices, which has facilitated its emergence as a hub for the sector.

Tailored banking services

Several Luxembourg private banks have set up dedicated divisions to provide services to family offices. KBL epb provides tailored solutions for individuals, as well as institutions, family offices and external asset managers that share the goal of growing wealth across generations.

Members of the sector say Luxembourg's growing reputation as a family office hub benefits not only from the country's central location in Europe, but also from advantageous tax rules, political and economic stability, and legal certainty, as well as the local presence of a wide range of financial institutions and a private banking industry that over the past decade has pivoted toward UHNWI clients while embracing new international standards of transparency on cross-border tax matters.

While London, Monaco or Geneva remain popular as a choice of residence for UHNWIs, they often have structured family businesses in the grand duchy. As well as the country's strengths in traditional banking and financial services, Luxembourg family offices have become known for their expertise in philanthropy and mediation.