The increasing threshold for setting up new family offices and the rising operating costs may lead to a reshuffling of the family office landscape in Singapore. Single-family offices may merge to form joint family offices or manage wealth through other business models.
At the same time, the Hong Kong government has been aggressively targeting the family office market over the past year. Local family office operators have received more inquiries about setting up family offices in Hong Kong, which is expected to impact the prospects of the family office sector in Singapore.
In an interview with Lianhe Zaobao, Liu Jiaming, a senior partner and chief operating officer at Dentons Rodyk & Davidson LLP, pointed out that some single-family offices may find that managing family wealth through this model is not economically efficient, especially those that were set up before the threshold was raised. When they were established, the scale of asset management may have only required SGD 5 million.
Over the past two years, the Monetary Authority of Singapore (MAS) has raised the threshold for family office asset management twice. The first time was on April 18, 2022, when it was stipulated that the application for setting up a family office under the 13O scheme of the Income Tax Act requires at least SGD 10 million in asset management, with a promise to increase to SGD 20 million within two years. There was no minimum asset management scale before this. On July 5, 2023, the authorities raised the threshold again, increasing the asset management scale at the time of application from at least SGD 10 million to at least SGD 20 million.
Liu Jiaming said, "These family offices also need to meet the minimum expenditure requirement of SGD 200,000 per year. It would be better to manage investments through private banks."
He noted that the situation of managing wealth through other models has arisen. For example, some clients manage investments by setting up private investment companies. Although they cannot receive tax incentives, they do not have to meet the higher requirements for setting up a family office.
Joint family offices will become a trend
Liu Jiaming believes that setting up joint family offices will become a trend. In an environment where costs are rising, combining single-family offices can achieve economic benefits in terms of compliance, personnel, salaries, information technology, and other service fees.
Another recent trend in the family office sector is the Hong Kong government's active expansion of the family office market, sparking more interest from the wealthy in setting up family offices in Hong Kong.
Over the past year, the Hong Kong government has introduced several measures to attract overseas family offices to set up in Hong Kong. Among them, the Financial Services and the Treasury Bureau and InvestHK just hosted the second "Prosperous Hong Kong" Summit on March 27, inviting about 400 family heads and their professional teams from Hong Kong, Mainland China, North America, Europe, Asia, and the Middle East to attend, far exceeding the scale of last year.
More wealthy people are interested in setting up family offices in Hong Kong
Lim Wei En, director of Bayfront Law, which provides advisory services for family office applicants in Singapore, said the company has received more inquiries about setting up family offices in Hong Kong, with the number increasing by 15% to 20% this year compared to the same period last year.
He said, "These clients are mainly from Europe and Asia, and are high-net-worth individuals with mature businesses. They come from the UK, Ireland, Germany, Mainland China, Taiwan, India, Indonesia, and Thailand, most of whom are setting up family offices for the first time."
However, he noticed that Chinese tycoons generally choose to spread their wealth between Hong Kong and Singapore, partly because they are familiar with investment managers in Hong Kong, and partly because they consider Singapore a haven for wealth.
Lau Ming Yeung, Deloitte's Head of Private Enterprise and Private Client Services in Hong Kong, also said that after the Hong Kong government announced its policy manifesto on the development of the family office business in March, the company received more inquiries from high-net-worth individuals and families about setting up family offices in Hong Kong. Since Hong Kong implemented tax incentives in May last year, the company has helped more than 30 family offices settle in Hong Kong.
The results of a study commissioned by InvestHK and conducted by Deloitte show that as of the end of last year, there were more than 2,700 single-family offices in Hong Kong. The Hong Kong government's goal is to attract at least 200 large family offices to settle by the end of 2025.
Currently, the Hong Kong government stipulates that family offices must employ at least two full-time employees and the annual operating expenses cannot be less than HKD 2 million, but there is no minimum investment amount in Hong Kong.
By contrast, Singapore has stricter requirements for business expenses and several employees of large family offices locally. Under the 13O scheme, at least one of two local professional investors hired by a family office must be a non-family member. Under the 13U scheme, at least one of the at least three professional investors hired by a family office must be a non-family member.
Under the 13O scheme of the Income Tax Act, the application for setting up a family office requires an asset management scale of at least SGD 20 million. Under the 13U scheme, the asset management scale threshold remains at SGD 50 million.
Deputy Prime Minister and Finance Minister Heng Swee Keat revealed in Parliament in early March that as of the end of last year, about 1,400 single-family offices in Singapore had received tax incentives. Although this is a significant increase from 700 in 2021 and 1,100 at the end of 2022, the number of family offices is still lower than in Hong Kong.
The number of new family offices in Singapore may decrease, but the quality is higher
Despite facing greater competition and other challenges, market players generally believe that Singapore still has appeal for the wealthy seeking stability and wealth preservation. The number of new family offices set up in Singapore may decrease, but at the same time, their quality is higher.
Chen Xuebin, chairman of the local joint family office Wrise, believes that the family office sector is expected to face more intense competition, which will make this sector more vibrant, as operators must find a unique positioning through innovative strategies and customer-centric services.
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