(By Caixin journalists Yang Min in Singapore and Zhou Wenmin in Hong Kong)
Hong Kong and Singapore are both known as wealth management centres in Asia. For years, they have been rivals to be the first choice for China’s “new rich” to set up overseas family offices. The battle is heating up. And the big prize will be lucrative clients from the rapidly growing generation of the “tech rich”.
Dai Le, a 29-year-old financier who started a family office business in Singapore amid the pandemic, said the new wave is coming from Chinese tech giants such as Alibaba Group, Tencent Holdings and ByteDance that have quickly grown into the world’s most valuable companies.
“The rapid development of Chinese tech companies and their option incentives has given birth to a new generation of wealthy people,” Dai said. “In any Chinese tech giant with a market value of more than US$10 billion, there are probably hundreds of employees with net worths exceeding US$10 million. Once the companies sell stock abroad, there is an immediate need to manage overseas assets.”
The fledgling business is expected to benefit local economies by bringing in massive amounts of capital, creating new jobs and luring fresh funding support for local entrepreneurs.
In the past two years, Dai has been travelling back and forth between China and Singapore, keeping in close contact with the new tech rich.
“These people have not yet established a concept of wealth, lack professional financial knowledge, or simply have no time and energy to manage wealth personally at this moment,” Dai said. “Wealth management services are urgently needed.”
The rising rich and their growing demands for wealth management services are creating opportunities for professionals in Asian financial hubs like Singapore and Hong Kong, analysts said. The fledgling business is expected to benefit local economies by bringing in massive amounts of capital, creating new jobs and luring fresh funding support for local entrepreneurs.
At stake is hundreds of billions of dollars managed by family offices. According to the Legislative Council of Hong Kong Special Administrative Region, the number of single family offices in Asia surged by 44% to 1,314 between 2017 and 2019, with average assets of US$600 million under management by each institution.
The Hong Kong and Singapore governments have rolled out policies in the past few years to compete for the wallets of rich Chinese in the tech sector and beyond in hopes of attracting more capital and resources to local markets. Ultimately, it’s a contest over which venue can provide more resources for entrepreneurs and build a more viable business environment.
Fat wallets of the ‘new rich’
The idea of a family office became popular in China in the past few years. Behind the trend is the accumulation of huge wealth among Chinese entrepreneurs, rapid change in business environments and more recently, cross-generational wealth transfer in rich families. How to manage and pass on wealth has become a challenge for Chinese with ultra-high net worths.
Members of the young generation of rich Chinese have a higher acceptance of family offices, said Gao Hao, director of the Global Family Business Research Center at the School of Finance jointly set up by Tsinghua University and the Chinese central bank. Entrepreneurs in high-tech sectors of the new economy create wealth at a rapid pace and on a large scale, he said, but at the same time, the industry is defined by intense competition, big risks and high returns.
According to Singapore’s Economic Development Board, the number of family offices in Singapore increased fivefold between 2017 and 2019.
In Asia, family offices can be divided into single family offices (SFOs) and multi-family offices (MFOs). SFOs serve only one family, while MFOs serve two or more families. SFOs are in the mainstream currently. Typical functions of family offices include professional investment management services, inheritance and estate planning, philanthropy, legal and accounting services, centralised management of family daily affairs and customised housekeeping services.
According to Singapore’s Economic Development Board, the number of family offices in Singapore increased fivefold between 2017 and 2019. As of the end of 2020, there were 400 SFOs in Singapore, and the number continues to grow. There is no official data regarding the amount of wealth managed by the SFOs.
MFOs are more attractive for the newly rich with less time and energy to spend. Dai runs an MFO for newly wealthy Chinese from the tech industry with a net worth of US$10 million to US$100 million. Her business takes on ICONIQ Capital, a US wealth management and investment firm, which provides wealth management services for ultra-high net worth clients such as Mark Zuckerberg, founder of Facebook; Sheryl Sandberg, chief operating officer of Facebook; Jack Dorsey, co-founder of Twitter; and Jeff Weiner, former CEO of LinkedIn.
“These customers have already reached the threshold of private banks but cannot get the service they want,” Dai said. “Private banks’ products and services are too sales-oriented.”
Zhou Xiaohong, a Chinese tech entrepreneur, handed over his fortune to a Singapore-based MFO in 2021.
Compared with an MFO, building a SFO from scratch is much more complicated, which requires professional knowledge, including talent recruitment, application and structure-building, which are time-consuming and laborious, Zhou said.
Zhou said many of his friends have recently considered setting up family offices in Singapore, but they are still in the research stage.
“There is a need to manage overseas assets,” Zhou said. “In terms of the tax environment and corporate structure, Singapore is indeed a good choice.”
Singapore’s diversified financial services, strong public health system, sound supervision, trust and tax legislation, high level of quality of life, and open economy with free flow of information and capital make it an attractive ecosystem. - Zhang Shuguang, Ernst & Young executive for family businesses in the Asia-Pacific region
Rich people from other parts of the world also find Singapore attractive as a location for family offices. Billionaire James Dyson, the founder of household appliances giant Dyson, and Ray Dalio, founder of the Bridgewater hedge fund, announced the establishment of family offices in Singapore in 2019 and 2020.
Singapore’s diversified financial services, strong public health system, sound supervision, trust and tax legislation, high level of quality of life, and open economy with free flow of information and capital make it an attractive ecosystem, said Zhang Shuguang, Ernst & Young executive for family businesses in the Asia-Pacific region.
“Family offices have become an important ecology in Southeast Asia,” said Wang Feng, founder of a venture capital firm in Singapore. “It not only brings money to this region but also provides vast Chinese resources, which can bring business ideas and models. The dividends of China’s internet industry may have plateaued in China, while Southeast Asia is still in its early stage, growing faster than China, and will soon enter its golden age. This is one of the reasons why many Chinese internet tycoons set up family offices in Singapore.”
Wealth and discretion
In Causeway Bay, the bustling commercial core of Hong Kong, an MFO called Blue Pool Capital just moved in. Located in a posh office building without a single company logo on its walls, the family office was set up by some of the best-known of Chinese tech entrepreneurs — Alibaba founders Jack Ma and Joseph Tsai.
Like Blue Pool Capital, family offices generally keep a low profile. But their power grows over time.
In the past, a family office was a way to deal with the overall management of a complete balance sheet for ultra-high net worth families, said the Global Family Business Research Center’s Gao, but now they “manage and govern a family’s major strategic issues." Besides meeting financial needs, a family office also covers other important functions such as next-generation education, family governance, risk management and charity, Gao said.
Family offices are essentially the most innovative and creative entrepreneurs, especially the founders from high-tech fields in the new economy - Annie Koh, a finance professor at Singapore Management University
In some developed countries, family offices can also help create a “firewall” around the super rich’s family wealth and sometimes take it out of the official scope of supervision.
Family offices are also playing an increasingly important role in the local economy. Annie Koh, a finance professor at Singapore Management University, said ultra-high net worth individuals who set up family offices in Singapore will invest in local start-ups and create new employment opportunities in the region.
“Family offices are essentially the most innovative and creative entrepreneurs, especially the founders from high-tech fields in the new economy,” Koh said. “From a macro perspective, money follows people, and family offices are in essence the highest level of competition in the business environment of all countries and regions worldwide.”
Gao said family offices manage the “long money” passed down from generation to generation and can withstand a longer investment cycle, higher investment risk and greater uncertainty, such as investment in hard technology industries including semiconductors, new energy and biopharmaceuticals. Family offices can thus play an important role in a country’s technological innovation, industrial upgrading and social progress that cannot be replaced by other investors. This effect has been reflected in the development of other countries.
Hong Kong vs Singapore
Hong Kong and Singapore have long been embroiled in the battle for Asian family offices and wealth management centres.
“In 2018, Hong Kong was definitely the first choice for the rich in the Chinese mainland to set up overseas family offices, but the trend has changed dramatically in the past two to three years due to internal and external factors,” said one family office researcher.
“Among the super-rich I am in contact with, at least six or seven have moved their family offices from Hong Kong to Singapore.” - Wang Feng, founder of a venture capital firm in Singapore
A recent Deloitte report shows that the scale of cross-border wealth management in Hong Kong has grown strongly over the past decade due to its proximity to the mainland and importance as an offshore RMB centre. However, from 2017 to 2020, the growth of cross-border wealth management in Hong Kong slowed while that of Singapore accelerated.
“Among the super-rich I am in contact with, at least six or seven have moved their family offices from Hong Kong to Singapore,” said Singapore venture capitalist Wang.
“The Covid-19 pandemic has accelerated the development of wealth management and family office industries in Singapore,” Koh said, and the increase in virtual currency assets further fanned the trend.
Singapore's government is actively promoting the development of the family office industry as it seeks to make wealth management a pillar for national development. The government is pushing the overhaul of industrial policy, tax policy and the immigration system to support the development of the wealth management industry.
The Economic Development Board and the Monetary Authority of Singapore established the Family Office Development Team (FODT) in March 2019. In October 2021, the Global-Asia Family Office Circle was launched to provide a platform for cooperation and sharing among industry participants. In addition, the Singapore government in collaboration with banks, financial institutions and other industries launched a blueprint for family office skills to actively cultivate professional talent capable of serving family offices and providing relevant training resources and guidance.
Hong Kong has also taken steps to support the family office industry. In June 2021, the government’s InvestHK department set up the FamilyOfficeHK Team to provide one-stop free consulting services for family offices. The city has also offered tax incentives benefiting family office businesses.
Hong Kong still has an advantage as a wealth management centre in Asia due to its close ties with the tech sectors and financial market on the mainland, said Dixon Wong, head of financial services and head of the family office of InvestHK. According to his office, the city has 42,000 wealth management professionals, 45,000 CPAs and 13,000 lawyers who can serve the family office business
Before setting up her family office business in Singapore, Dai Le said she compared Hong Kong and Singapore. Hong Kong’s talent pool, vibrant capital market and proximity to the mainland are all advantages, she said. But she chose Singapore for the family office enterprise and Beijing for her research and marketing team, partly reflecting cost concerns.
“The labour and rental costs in Hong Kong are nearly 20% higher than in Singapore,” Dai said. “Hong Kong is relatively conservative when it comes to supervision and is not as open and efficient in dealing with many issues as Singapore. In addition, many people still feel that the future of Hong Kong is uncertain.”
“With the increasing proportion of digital assets in the asset allocation of various institutional investors around the world, Singapore is likely to take the top spot.” - Gao Hao, director of the Global Family Business Research Center at the School of Finance jointly set up by Tsinghua University and the Chinese central bank
Gao of the Family Business Research Center agreed with that assessment and said Singapore’s future seems bright.
“Singapore’s capital market is relatively small, but it has shown strong innovation ability in emerging areas such as financial technology, digital assets and green finance, which Hong Kong has yet to further develop,” Gao said. “With the increasing proportion of digital assets in the asset allocation of various institutional investors around the world, Singapore is likely to take the top spot.”
Tan Zimin, assistant professor of finance at Singapore Management University’s Lee Kong Chian School of Business, said Singapore needs to develop innovative products including cryptocurrency to meet the needs of family offices. Singapore aims to become a global cryptocurrency centre and has the potential to take the lead in the field. Cryptocurrency assets allocated by family offices average 10 percentage points, the venture capitalist Wang said. Tech tycoons including Alibaba’s Tsai have publicly expressed their support for virtual assets.
In Gao’s view, choosing the location of a family office is not a single-choice question. For example, even if a large family office moved its headquarters from Hong Kong to Singapore, it could still participate in Hong Kong’s capital market.
Whether in Hong Kong or Singapore, the bottleneck for future development of family office businesses still lies in talent. Such professionals usually work in New York and London, with few willing to move to Asia. It is generally difficult for Asian family offices to provide such workers with matching salaries and room for advancement, Dai said.
Family office policies: Hong Kong vs Singapore
In February 2019, Singapore announced in its annual budget that the tax exemption policy related to qualified funds — those managed by Singapore fund managers — would be extended to 31 December 2024, while the coverage of the tax exemption policy was also expanded. Under the policy, applicants can set up two companies in Singapore: a fund company that holds family assets and a family office that manages the funds. The applicant applies to the Monetary Authority of Singapore, the island country’s central bank, for financial license exemption and tax exemption based on different conditions such as place of fund registration, investment entity and investment scale.
Approved family offices do not need to hold a financial license, and the specific income obtained from the designated investment will maintain their tax-exempt status. Applicants can apply for long-term work visas in Singapore, while their spouses and children can apply for dependent visas before seeking permanent resident status in the country.
The Singapore Economic Development Board’s Global Investor Programme provides easier access for higher-profile entrepreneurs. According to a policy implemented 1 January 2020, family office principals who increased their annual turnover from S$50 million to S$200 million (US$37 million to US$148 million) in the past three years and have at least five years’ experience in entrepreneurship, investment or management, can directly obtain permanent resident status and receive tax exemption for certain income.
The monetary authority said that although a SFO does not manage third-party funds and is not required to hold a financial license, it is still required to comply with Singapore’s Anti-Money Laundering/Combating Terrorism Financing standards and other capital control requirements.
Hong Kong has gradually introduced targeted measures to attract family offices. Since 31 August 2020, when the Hong Kong government implemented the new Limited Partnership Fund Ordinance, more than 360 limited partnership funds have been registered in Hong Kong, providing more investment opportunities for family offices. The introduction of the Limited Partnership Fund structure in Hong Kong is conducive to the settlement of private equity funds and the expansion of investment channels for family offices.
In April 2021, Hong Kong introduced a preferential tax policy to provide tax relief for carried interest (a percentage of investment return) distributed by qualified limited partnership funds operating in Hong Kong. In addition, legislation for offshore fund redomiciling in Hong Kong went into effect Nov. 1, 2021, exempting the stamp duty in the transfer process, to attract more offshore funds to reregister in Hong Kong.
In June 2021, the government’s InvestHK set up the FamilyOfficeHK Team to provide one-stop free consulting services for family offices.
(Dai Le, Zhou Xiaohong and Wang Feng in this article are pseudonyms.)
This article was first published by Caixin Global as "In Depth: Singapore, Hong Kong Vie for Billionaires’ Bucks". Caixin Global is one of the most respected sources for macroeconomic, financial and business news and information about China.
Related: Rich China tycoons park family offices in Singapore | Southeast Asia: A hotspot for Chinese enterprises in the post-pandemic era? | Singapore a popular base for China tech firms | Southeast Asia a contested venue for telecommunication superpowers building 5G networks