Singapore looks set to strengthen its position as a choice location for wealthy families looking to set up family offices in the city-state, judging from recent numbers from the Economic Development Board. As of the end of 2020, Singapore has some 400 single family offices, compared with a single-digit number a decade ago.
‘We have seen families from all over the world with investable assets of US$20m to several billions setting up Singapore family offices,’ says Anuj Kagalwala, asset and wealth management (tax) leader at PwC Singapore.
Singapore now has some 400 single family offices, compared with a handful a decade ago
The Singapore government has played an instrumental role in kickstarting that development. First, it has built the city-state into Asia’s leading private banking and wealth management centre, and is now developing it as a hub for family offices.
A key reason for Singapore’s success is that it is one of the few locations in the world that allows the setting up of both family offices and investment holding companies and even a trust, according to Kagalwala. ‘That goes back to Singapore’s traditional strengths: the availability of local and foreign talent, and the high standard of living and safety, which may attract family members to move here,’ he says.
The availability of different legal structures including companies, limited partnerships, variable capital companies and trusts puts Singapore in a position of strength. There is also a strong regulatory framework and the rule of law, along with the government’s pro-business policies and lack of foreign exchange controls.
How it works
Wealthy families that have chosen Singapore for their family offices are mostly focused on the fund management function, according to Kagalwala, and look to insource the fund management function or at least be more involved in the management of their financial assets.
The family office structure therefore usually consists of at least two entities: a family office (the fund management company that hires the investment team) and an investment holding company (which holds the investment assets). More entities, including a trust, may be involved, depending on the needs of the family.
‘With anything less than S$50m, it is not viable to hire your investment professionals’
As well as providing for succession planning and asset protection, a family office is a structured way to invest, according to Teo Wee Hwee, head of real estate and asset management (tax) at KPMG Singapore. In addition to the investment vehicle, family offices typically set up a separate entity for investment advisory.
The size of the assets under management (AUM) will determine how many people would be hired for the investment management company, says Teo. ‘That is when the AUM makes the difference. If the AUM is too small, it becomes commercially and economically not viable to hire people to do it for you. I would say anything less than S$50m [US$35m] is not worthwhile or economically viable to hire your investment professionals.’
The needs of family offices are often complex, so the family office ecosystem needs support from investment professionals, accountants, tax advisors, auditors, bankers, lawyers and trustees.
Professional services are wide-ranging from advising on the rules in Singapore for setting up and running a family office structure, as well as undertaking investment management activities such as portfolio allocation, target identification and due diligence, and risk management. Other professional support involves obtaining government approvals, drafting documents, opening bank accounts and ensuring ongoing compliance.
Teo points out that working with family offices is very different from working with institutional clients. ‘Soft skills are trickier,’ he says. ‘It all depends on how sophisticated the family offices are. In Europe they have a lot more experienced staff, whereas the family office is a pretty new phenomenon in Asia that has sprung up only in the last five to 10 years.’
‘Singapore goes the extra mile to develop the skill level locally’
However, Singapore has a wide and deep talent pool of professionals to service family offices, and the government has been working to strengthen that expertise by developing suitable training courses.
The Monetary Authority of Singapore (MAS), in collaboration with the Institute of Banking and Finance (IBF), has organised a series of courses aimed at family office professionals. In November 2021, the MAS and IBF also co-launched two skills maps for family office professionals. The resource also serves as guidance to family offices on the skills and competencies expected of family office professionals.
Kagalwala says: ‘Singapore is not a jurisdiction which limits itself to offering vehicles and structures. It also goes the extra mile to develop the skill level locally so that family offices can operate through substantial operations here.’
According to Teo, most of the family offices in Singapore are predominantly Asian with many hailing from mainland China, Indonesia, Hong Kong, Japan and South Korea. To those who have set up family offices in Singapore, the concept is still relatively new in the region compared to Europe and North America where affluent families have managed their wealth for decades.
It’s a win-win for both the city-state and wealthy families, adds Kagalwala. ‘Families gain from a credible location to manage and hold their assets, while Singapore benefits from economic spin-off, including greater employment opportunities.’
The rise of family offices has raised the level and organisational efficiency of philanthropic activity, according to PwC’s Kagalwala.
The larger offices tend to appoint a dedicated team to look into philanthropic activities or set up a foundation to support certain causes.
The structures used are also highly dependent on the objectives of the family, according to Stephen Banfield, head of family office and private client at KPMG Singapore.
He says: ‘If their objectives are charitable, and there are some benefits to the community in Singapore, then a charity may be formed, which may involve employing staff directly.
‘Locally based employees who are focused on philanthropy are employed within the family office. Their costs may be charged either to the Singapore or offshore entities involved in grant-making or direct philanthropy. Often, however, there is little benefit in accumulating funds within such structures, and philanthropy is funded as and when from the main asset-owning structure, which is managed by the local family office.’