Singapore family office flood could ebb in Hong Kong’s favour
Hong Kong may have lost some of its lustre among Chinese family offices, whose numbers have mushroomed in Singapore in the past two years — but the growth of the Southeast Asian city-state’s family office sector hasn’t come wholly at Hong Kong’s expense.
In fact, according to sources involved in setting up and running family offices, Hong Kong may find increasing favour with Chinese family office investors as the city puts in place tax breaks and other measures designed to woo them, and as Singapore seeks to channel the growth of the booming sector.
Last December, a bill providing tax concessions for single-family offices went before Hong Kong’s legislature that would exempt eligible single-family offices from profits tax, so long as the value of their assets exceeded HK$240 million ($30.6 million).
The measures will be retroactive from April 1, 2022, meaning that they will cover the entire Hong Kong 2022-23 tax year.
“That bill is going through the approval process and is expected to be approved very quickly,” Michael Marquardt, Asia chief executive at IQ-EQ, an investor services firm that sets up family offices, told AsianInvestor.
“I think that’ll make Hong Kong more competitive with Singapore because the rules will be clear around tax concessions, which is a good thing that I think will push up family office activity in Hong Kong.”
TAX FACTOR
Kia Meng Loh, co-head of the private wealth and family office practices at Singapore “Big Five” law firm Dentons Rodyk, said Hong Kong’s proposed tax-focused drive to attract family offices would have considerable appeal, thanks to how much easier it would be than current Singaporean procedures when it comes to obtaining tax incentives.
“For MAS [the Monetary Authority of Singapore], when I'm applying to qualify, I’ve got to say, ‘Hey, MAS. I've got this client, this structure, this is how much they're going to invest. Can I get approval for tax incentives?’” he told AsianInvestor.
"Hong Kong’s [proposed] law basically says you don't have to get preapproval – you just run your family office, and if you fulfil the requirements, just bring in your tax filings. If you qualify, you’ll be given the tax exemptions. That’s very practical, very competitive.”
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Another lever authorities in Hong Kong are considering pulling would facilitate visa issuance for high-net-worth individuals (HNWI) such as the owners of family offices.
EXTENDED INCENTIVES
The city-state’s efforts to promote the development of its family office sector received a further boost last month with the extension for a further two years of rules designed to foster the adoption of variable capital company (VCC) structures, under which several investment funds can operate within the ambit of a single corporate entity while remaining ringfenced from one another.
“The number of VCCs has gone up quite exponentially,” Loh said. “We have around 700 of these businesses set up in Singapore — that's basically one starting up every two business days since the scheme was introduced in 2020."
Hong Kong unveiled its open-ended fund company structure, an arrangement similar to the VCC, two years ahead of Singapore’s introduction of VCCs.
PROFESSIONAL DEVELOPMENT
If some regulations in Singapore have served to boost its family office sector, others have sought to tame it and direct its development, such as regulations introduced last April mandating minimum levels of assets under management (AUM), minimum levels of investment in Singapore businesses, and the hiring of professional asset managers.
Marquardt welcomed Singapore authorities’ efforts to channel the development of the country’s family office sector in the direction of greater professionalisation.
“What we've seen following those changes is an increase in the size, complexity, and quality of family offices. I was originally concerned the regulations would lead to fewer family offices, but putting in thoughtful requirements has actually pushed up the bar and pushed up the activity in the sector," he said.
TRADITIONAL CHOICE
Hong Kong has traditionally been the jurisdiction of choice for Chinese family offices setting up shop, but Singapore’s surge in family office numbers — from just 50 in 2018 to an estimated 1,500 at the end of last year — has been helped along by wealthy Chinese bypassing the territory in favour of the Southeast Asian city-state.
This development may not have seen a net reduction in family office numbers in Hong Kong, but it is clear that the territory has lost some family office business to Singapore.
“There has been a drain of some talent from Hong Kong to Singapore,” Iu-Jin Ong, the Singapore-born founder of Hong Kong-headquartered single-family office Ambitum Capital, told AsianInvestor.
“But among established Hong Kong second- or third-generation family offices — of which there are plenty — I don’t necessarily see any saying they're leaving Hong Kong to go to Singapore.”
Loh and Ryan Lin, a director at Singapore firm Bayfront Law, said, however, that a number of “first-timer” Chinese family offices were being set up in Singapore rather than Hong Kong, as their owners bypassed the territory.
HONG KONG COMEBACK
Given the levelling of the playing field that appears to be under way between the two family office hubs — including cost of living, which Ong said had “completely flipped” to a level much closer to that of Hong Kong — and the Hong Kong government’s long-awaited lifting of Covid control measures, could the territory regain lost ground among Chinese family office investors?
Loh thinks so. "...What Hong Kong is doing in terms of tax is very interesting, and I’d be very, very keen to see whether there's a clawback and some fund flows from Singapore back there — that data point for 2023 will be interesting.”
Lin and Ong echoed that sentiment, with Lin saying: “My personal view is that the flow will likely go into reverse. With the opening up of China [post zero-Covid], the Chinese will gradually become more comfortable putting their money there. Hong Kong is closer to them, they understand the financial markets in Hong Kong better than those in Singapore, and their investment managers are also more accessible.”
AsianInvestor will be hosting its Family Office Briefing on March 28 in Hong Kong, which will bring together a select group of family offices. For more details, click here.