Why are more family offices setting up in Singapore?

Hong Kong’s Li Ka-Shing — the investing maverick so praised for his Midas touch — is the latest tycoon to make public his plans to set up a family office in Singapore this year. He joins high-profile names such as Ray Dalio and Sergey Brin in planting fresh roots here.

Singapore has emerged as a key beacon attracting ultra high net worth individuals who are hunting down deals scattered throughout Asia.

A Bloomberg report late this month said family offices trying to secure for tax exemptions here are now waiting at least eight months, double the time from just a year ago. Bloomberg cited fresh statistics showing that Singapore has approved more than 100 family-office applications in the past four months alone.

As at end-2020, there are an estimated 400 single family offices (SFOs) operating in Singapore, doubling from just a year before. The Monetary Authority of Singapore (MAS) says having these SFOs set up here is a testament to Singapore’s stability, competitive business environment, the availability of talent, as well as the breadth and depth of investment opportunities out of this international financial centre. 

But just what is a family office? And why are more wealthy families setting up one here?

What is a family office?

Wealthy families are advised to set up a family fund, which puts proper and institutionalised structures in place to determine how family assets should be recorded. A family fund brings more transparency and more efficiency to the financial planning of family wealth. 

All in, having a family trust helps to bring about smoother estate planning. This is critical, with the largest intergenerational transfer of wealth of our time to take place in the next decade or so. Credit Suisse has reported that wealth valued at more than $8 trillion will be transferred between generations from now until 2029. Yet, a recent whitepaper found that seven in 10 wealthy families are not prepared for intergenerational wealth transfers.

Once a family fund is set up, a family office is created to effectively manage the money flowing through the family fund. This allows the families to bring in-house expertise, and exert more control over the family’s wealth and how it is being built for the next generations. It can also be a platform for next-generation family members to build experience in deal sourcing and the related due diligence, giving them a perspective on cutting business deals.

Why set up in Singapore?

The number of Asian billionaires has surpassed that of North America, which speaks to the growing wealth in this region alone. 

Amid this, Singapore is rising in greater prominence as a private wealth management hub. In 2020, it saw its asset management industry controlling some US$3.5 trillion out of Singapore. Of that amount, close to 80% of assets under management (AUM) was sourced from outside Singapore.

To add, nearly 70% of the AUM was invested in Asia Pacific in 2020. Southeast Asia or Asean was the top destination, making up a third of investments into Asia Pacific. These figures suggest that the region is flush with deals that have piqued the interest of savvy rainmakers in well-heeled families.

Observers note that Singapore offers a strong regulatory framework, and provides access to a wide range of investment opportunities through various financial institutions. 

There are tax incentives for funds managed by family offices, such that they are exempted from tax on a broad range of income. These include Non-Resident Fund Exemption (13CA), Resident Corporate Fund Exemption (13O, formerly known as 13R) and Enhanced Tier Fund Incentive Schemes (13U, formerly known as 13X). The exemption schemes are currently available until Dec 2024, but as long as the fund is approved for the tax incentive schemes by that date, it can continue to enjoy the exemption for the life of the fund. 

For multi-family offices and other licensed managers, they have also found benefits from applying to the VCC regime. VCC, short for variable capital company, is a structure that offers some tax exemptions, and flexibility in how the fund distributes capital. To be clear, the VCC regime remains under review for SFOs as of May 2022.

Who can apply, and how is it done?

A typical SFO structure would involve a holding company, or investment vehicles held directly or via a trust, and the family office would serve as the fund manager of the investment vehicles.

An SFO that only manages the funds for a single family can apply to be exempted to hold a capital markets service licence for fund management. 

Endowus can serve as an independent wealth advisor and investment platform for the family office after it is set up. Family offices can leverage our Investment Office’s expertise, portfolio construction capabilities and access to institutional quality investment products at a low cost.

Endowus can also offer access to a growing suite of alternative funds at lower costs as compared with offerings from the private banks. 

Endowus has a private wealth arm that can cater to your family office needs — be it through bespoke portfolio construction to cater to various goals and life priorities, or being able to exclusively access more investment products (including alternative investments), many of which are only available to accredited investors. Contact us today for a consultation.

Next on the Endowus Fin.Lit Academy

Read the next articles in the curriculum:

• Personal finance: Why do habits matter?
• Retirement: Plan for retirement in Singapore with this simple checklist
• CPF & SRS: Making our first CPF contributions
• Basics of investing: Unit trusts vs ETFs

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