Singapore family office scene set to soar in sophistication 

INTEREST in setting up family offices in Singapore has soared in recent years, driven by increasing global uncertainty and geopolitical risks, as well as the country’s reputation as a safe haven for wealth and attractive tax incentives. The number of family offices here jumped fivefold between 2017 and 2019, and almost doubled from 400 at the end of 2020 to 700 a year later.

A few months ago, the Monetary Authority of Singapore announced stricter criteria around assets under management, local investments and business spending for family offices to qualify for tax incentives.

Given the level of commitment required as a result of these changes, we believe that the quality and sophistication of the family offices here will improve. For one, there will be increasing professionalisation of the family office as they hire more full-time expertise, invest in technology, risk management and governance.

On top of that, we see 3 key trends – private capital markets, sustainable investing and philanthropy – to watch as the industry here is poised to develop further.

Tapping into private capital markets and deals 

We expect increasing interest from family offices in exploring private deals, including private equity and private debt as well as investing in Series B and beyond plus pre-initial public offering (IPO) rounds, due to increased turmoil and volatility in public markets and higher uncertainty in a rising interest rate environment. Companies are also turning towards family offices as a source of funding, and investors continue to be interested in deploying patient capital when there is good value, especially with the rationalisation of valuation.

According to last year’s global family office survey by Citi Private Bank, the allocation to direct private equity and debt investments continues to increase substantially. Around 44 per cent of all family offices respondents reported that over 25 per cent of their portfolio was assigned to direct investments.

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Family offices based in the Asia-Pacific region appear to invest a significantly larger portion of their portfolios in direct investments to amplify returns, with nearly 62 per cent reporting greater than 25 per cent of their portfolios allocated to this asset class. This contrasts with 45 per cent in Latin America, 42 per cent in Europe and 39 per cent in North America.

We also notice family offices refocusing on traditional industries with strong fundamentals and proven business models that can generate positive cash flow, such as healthcare and real estate.

Another trend to watch in this space is an expected increase in merger and acquisition activity related to consolidation and succession as families look to re-evaluate the future and legacy of their businesses. Families with companies in expansionary mode will look to grow via acquisition, capitalising on current cheaper valuations, while others that have been adversely affected by Covid-19 and economic stresses are considering potential exits to redirect the family’s wealth into investments and philanthropy.

The rise of sustainable investing

Traditionally, families prefer separating philanthropy and wealth creation. Now, an increasing number of families are taking a more holistic approach to seek value alignment and leave a legacy by embedding sustainability and impact into family businesses, investment portfolios and philanthropic activities.

We see a variation of degrees to which the families wish to achieve their financial goals and sustainability objectives.

Results of a recent survey by the Family Office Association Hong Kong show that 85 per cent of family offices are expected to raise their allocation to ESG (environmental, social and governance) or impact investing. Among this group, 64 per cent expect an allocation increase of more than 10 per cent, with the remaining 36 per cent planning an allocation increase of over 20 per cent.

Family offices are well positioned to drive and accelerate sustainable development. They have the ability, flexibility and willingness to invest in innovative sustainability solutions with their patient investment capital, human capital and intellectual capital. In many ways, this makes them more similar to institutional investors.

This gives family offices access to innovative financing models that can make their investment capital catalytic. For example, they can create value and impact through blended finance to unlock pools of capital from different players, as well as motivate other investors through their influence.

Increased interest in philanthropy 

As the family office evolves to look beyond investment, one key focus area will be philanthropy, and we anticipate this to gain prominence in the next few years.

Family offices in Asia have increasingly devoted a portion of their assets to philanthropy. This was evident during the pandemic years from 2020 to 2022, which saw an uptick in charitable giving, including donations and volunteering, and we expect this trend to continue.

Within this space, we are seeing a trend of more women setting up family offices and being in charge of their own philanthropic initiatives. Women already control US$11 trillion in assets, and by 2025, an estimated 60 per cent of billionaires will be women, up from 11.9 per cent in 2019. And this will grow further as women are forecast to inherit 70 per cent of intergenerational wealth transfers. As this trend evolves, we note that women tend to donate to a higher number of charities versus men – meaning that while they give more in total, the size of their individual gifts is, on average, smaller.

We should also see a rise in trust-based philanthropy, which is based on a set of values that help advance equity and build mutually accountable relationships. Such an approach can address the power balance between donors and not-for-profits, and with a disciplined approach, it can lead to accelerated positive outcomes.

Through our interactions with more than 300 family office clients in Asia, we can see that Singapore family offices are increasingly focused on thoughtful wealth planning, revisiting portfolio allocation strategies for patient capital into private deals, exploring sustainable investment opportunities as well as achieving impact through philanthropy and new funding structures such as trust-based giving.

With the recent changes in tax incentive regulations, we believe this is the next step in the evolution of family offices in Singapore – not unlike what we have seen with family offices in the US, where they have evolved into mostly larger and more sophisticated entities.

The writer is head of family office advisory for Asia at Citi Private Bank.