Fast becoming the Monaco of the East, Singapore is luring global UHNWIs to set up family offices here due to its wealth-friendly tax and regulatory regime, and its position at the global economic growth epicentre.
Sergey Brin (net worth: US$104 billion). Google’s co-founder and the world’s ninth-richest person set up a branch of his single family office (SFO), Bayshore Global Management, in Singapore to manage his local assets late last year.
Ray Dalio (net worth: US$17 billion). The investment management company Bridgewater Associates founder announced last November that he is similarly opening a Singapore wing of his Dalio Family Office as a launchpad for running his regional investments and philanthropic activities.
James Dyson (net worth: US$26.5 billion). The British inventor incorporated his SFO, Weybourne Group Ltd, in the city state in 2019. As did Zhang Yong and his wife Shu Ping, Sichuan hotpot mega-chain Haidilao founders (combined net worth: US$19 billion); the China-born, naturalised Singaporean couple founded theirs, Sunrise Capital Management, under the wife’s sole directorship in the same year.
So what is it about Singapore that attracts the global super-rich to establish their SFOs here?
Singapore: What’s the attraction?
An SFO is an advisory firm set up for, or on behalf of, a wealthy family to manage their private wealth, and is wholly owned or controlled by members of the same family.
It handles investments, taxes and legal matters for the family, and usually comes with institutionalised frameworks that cover succession planning, employment standards for family employees, philanthropy and other issues. SFOs’ level of sophistication can rival that of third-party investment funds, and are often run by professionals.
The Monetary Authority of Singapore (MAS) noted that the number of SFOs has increased five times between 2017 and 2019. Since then, other estimates say that the number has doubled, totalling at about 400 currently. Most of these appear to capture flows external to Singapore and, in particular, from North Asia, according to a The Business Times article.
Nikkei further reported that the foreign money inflow increased 20 per cent year-on-year between January 2020 and January 2021, with total deposits of residents outside Singapore at the nation’s financial institutions reaching S$64.2 billion, the highest ever. The article goes on to point out that year-on-year deposits in April and May 2020 jumped over 40 per cent, just before a sweeping Hong Kong security law took effect.
While Singapore has enhanced its attraction as a safe haven, a key wealth management hub London has had its business severely curtailed by the economic uncertainty brought about by Brexit in 2020.
Such political risks, lack of secure long-term property rights in the region, and Singapore’s good control over the ensuing Covid-19 pandemic are some reasons for the affluent to move some of their wealth – and sometimes, families – to Singapore.
And they often park part of this money in real estate, such as bungalows and penthouses. While properties can be purchased without a family office, certain trust structures make it easier to do so confidentially. By establishing a family office, the wealthy also put a foot in the door for obtaining permanent residency, creating an escape route in times of social or political unrest, or a safe space to ride out the pandemic. Through its Global Investor Programme, Singapore fast-tracks permanent residency to families if they establish a family office here with at least S$200 million in assets.
Global banks from UBS to Nomura have been expanding in Singapore to provide private banking services to these well-heeled households. For instance, last month HSBC launched a new institutional family office service in Singapore that will cater to SFOs in Asia, providing them with access to its team of investment banking specialists.
In another The Business Times article, UBS Asia Pacific president Edmund Koh revealed that Singapore is attracting as much of the new assets in the region as Hong Kong today; just five years ago, Hong Kong’s share was three times larger.
This came as the Republic has benefited from the “phenomenal” wealth growth coming from new companies in South-east Asia. In particular, SFOs are “big business” for the bank, making up less than five per cent of its wealth management clients in Asia Pacific, but bringing in an expected 30 to 40 per cent of investment assets.
The Singapore Exchange’s (SGX) recent consultation on special-purpose acquisition companies (SPACs) has also brought buzz to the SFO space. If SGX gives the SPAC framework the go-ahead, more SFOs may be established here to take advantage of this hot new listing trend, which has raised some US$70 billion through issuances on Wall Street this year.
Being at the epicentre of global economic growth is just building on the foundation of Singapore’s traditional wealth-friendly regulations: capital gains are not taxed, estate duty has been abolished, family offices are subject to a corporate tax rate of 17 per cent and personal income tax rate maxes out at just 22 per cent, far lower than in long-established wealth management cities in Europe and the United States. It also boasts of a sound legal system, a stable currency, low crime rates, almost non-existent corruption and political dependability.
Can Singapore continue to win the race?
Singapore has been boldly pushing forth laws to enhance the country’s corporate regulatory structure for investment funds. In mid-January 2020, it established the variable capital company (VCC) framework. This encourages the expansion of wealth management businesses, including hedge and property funds. By September 2020, more than 120 VCCs have been incorporated, with a large number of VCCs catering to the wealth management market. The MAS is also covering some of the costs of setting up VCCs until 2023, in hope to encourage wealth transfer from tax havens such as the Cayman Islands and Mauritius to Singapore.
However, under current regulations, SFOs can only operate a VCC if they have a Singapore asset management licence or if they use a licensed platform. In an AsianInvestor article, an investment manager revealed that many SFOs wish to set up VCCs without acquiring a licence, because they only manage money on their own family’s behalf, and prefer to retain privacy. He adds that the MAS is considering amending the VCC framework to suit SFOs – but reforms may take a year or two.
Another area of concern is the locals-first policy arising from the Covid-19 pandemic as Singapore battles with keeping domestic employment up, putting a dampener on the country’s attractive employment policies, which made it the choice destination for Western expatriates, especially in the banking and finance sectors. As a result, Singapore’s pool of expert financial, legal, tax and accounting professionals that helm the burgeoning wealth investment sector here could take a hard talent hit.
A further question mark hangs over the recent hints that some form of wealth taxes and estate duties may be re-introduced to replenish Singapore’s reserves drained by Covid-19-related support handouts. While the uber-wealthy say that it is the nation's forward-thinking government and excellent infrastructure that attracted them to set up SFOs here, the low tax rate is certainly still a large factor for their move. A re-introduction of wealth taxes could cause Singapore to lose its lustre. However, if countries the world over are going to raise taxes to, among others, pay for their pandemic response – and the US President is already looking to raise corporate income tax rates and capital gains taxes on the wealthy – then Singapore’s fiscal moves may not be out of place.
It is tempting to view this sudden influx of cash and investments as Singapore’s success story in building a thriving wealth management centre. But the inconvenient – and unspoken – truth is more nuanced: Singapore benefits from the political or economic uncertainties in the larger world. It must continue to adapt and adjust its laws and regulations to attract UHNWIs in anticipation of, and in response to, geopolitical and economic shifts as they develop. Some fancy footwork is called for if Singapore wants to retain its pole position as the global UHNWI’s destination of choice.