Singapore’s single family offices likely to merge, find alternative models

WHILE Singapore remains an attractive global financial hub, wealthy families are now considering other options besides setting up their own single family offices (SFOs) here to better suit their needs.

Industry players noted that SFOs in Singapore are likely to merge or find alternative models amid the rising cost of operations.

“The trend of setting up a family office just as a fashion statement will likely come down,” said Sanjay Guglani, founder and chief investment officer of Silverdale Funds, and chief executive officer of Silverdale Capital.

Guglani said that since the third quarter of 2023, the fund manager has received more queries from clients to set up bespoke funds than the whole of 2021 and 2022 combined.

Among the queries are those from existing family offices in Singapore wanting to fold their operations and convert into a bespoke fund, as well as those considering consolidation.

The consolidation comes amid stricter scrutiny and restrictions on the SFO sector.

In July 2023, the Monetary Authority of Singapore (MAS) updated conditions for SFOs to receive tax incentives. This included raising the minimum fund size for the smallest of SFOs to S$20 million, and mandating the hiring of at least one non-family member investment professional. (*See amendment note)

MAS also said in December 2023 that it will tighten checks for tax incentive approvals, following the bust of a S$3 billion money laundering ring last year.

Amid this scrutiny, it may take more than 18 months before fund operations can commence, said Han Junwei, business tax and Deloitte Private director at Deloitte Singapore.

“This could impact fund operations, as investment deals are often time sensitive,” Han added.

Meanwhile, operational costs in Singapore – such as cost of living, rentals, salaries and professional services – are also typically higher than many other jurisdictions.

To qualify for tax incentives, SFOs must also commit S$10 million or 10 per cent of their AUM, whichever is lower, to Singapore.

Guglani said: “It’s not that they can’t put the money in Singapore – they don’t want to because they want to test the jurisdiction before they commit.”

He added: “They may not want to commit to local investments when they don’t understand them; and the cost of hiring local professionals is not cheap.”

Better quality families

Industry players viewed the stricter restrictions as a benefit for the Singapore wealth space as a whole.

Guglani said the move fends off tourist investors, who may have eyed Singapore simply to make offshore investments or save on taxes.

These investors typically saw family offices as investment holding companies, instead of using them for wealth preservation.

“If Singapore wants to maintain its pristine, elevated status, it is very important to make sure the quality of family offices that come to Singapore is better,” Guglani said.

The rules are unlikely to deter legitimate families from setting up family offices in Singapore, said Anuj Kagalwala, partner specialising in family office and private wealth tax at PwC Singapore.

Kagalwala expects the additional time needed will deter rogue elements from establishing their presence, which should be just as crucial to legitimate families.

“Such additional scrutiny should be embraced as a necessary step in upholding the integrity of the system as well as the wealth management industry as a whole,” he said.

As a result, industry players expect that wealthy families will share resources, or look for cheaper wealth management options to establish themselves in Singapore.

Hemant Tucker, chief executive of multi-family office Farro Capital, expects wealth to flow towards multi-family offices, especially for smaller families, in search of expertise and depth.

“I think it is not so much Singapore versus other jurisdictions, but SFOs versus multi-family offices,” he said.

Families may also set up their own bespoke funds, which typically have a shorter time-to-market of less than a month, under the variable capital company (VCC) structure.

The VCC is a fairly new legal entity that is flexible in the issuance and redemption of its shares. It can be formed as a single standalone fund, or as an umbrella of several sub-funds.

Guglani said the VCC structure is a “very big game changer”, given that families do not need to meet requirements under the structure to receive tax incentives.

Among the private banks, DBS has seen an increase in the assets under management (AUM) that larger family offices are willing to commit in Singapore, said Lee Woon Shiu, group head of wealth planning for family office and insurance solutions.

Meanwhile, families who are committing a smaller AUM, or who have no desire to deploy human capital in Singapore, are pivoting to other more cost-effective expressions.

DBS, which operates its own multi-family office using the VCC structure, has seen strong interest from clients in that space, Lee said.

Bank of Singapore’s Guo Jiawen, who is head of family office and structuring solutions, said the bank has engaged with families that may not meet the higher thresholds, to look at alternative options.

“Families now consider their long-term plans and viability of the SFO structure more carefully, given the greater commitments required under the newer regimes,” she said.

“This in turn will hopefully translate into more high-quality family offices that are aligned with the families’ objectives and needs,” she added.

Regardless, wealthy families who see the need to set up family offices will continue to do so.

Kevin Teng, chief executive of Wrise Wealth Management Singapore, noted that VCCs can be a more cost-efficient method, but it would also depend on the amount of resources that the family is going to put in Singapore.

“Ultimately, it’s not just about a sub-fund under an umbrella VCC. It’s about the operating distance of the family and its long-term investments as well,” he said, adding that rising costs is a common trend that is not just prevalent in Singapore, but worldwide.

PwC’s Kagalwala added that rising costs should be seen in the context of the overall scale of operations and the value that a presence in Singapore can bring.

“A holistic evaluation can ensure informed decision-making regarding establishing and running a family office in Singapore,” he said.

*Amendment note: The article has been edited to accurately state the criteria for single family offices to receive tax incentives in Singapore.