Singapore family offices look to consolidate amid regulatory pressures
Singapore family offices (FO) are assessing sharing operational resources or mergers after stricter tax and anti-money laundering regulations were imposed in July by the Monetary Authority of Singapore (MAS).
Family offices boomed during the pandemic, with the number of Singapore-registered firms jumping from 50 in 2018 to 1,100 at the end of 2022.
However, a $2 billion money laundering case that emerged -- the largest money laundering case that Singapore has ever seen -- put several wealthy individuals and family offices in the spotlight for their alleged involvement.
TRIGGER TO MERGE?
Single family offices, especially, came under scrutiny for the role they are alleged to have played in the scandal.
Some of the accused may have been linked to such entities that were awarded tax incentives, Singapore Minister of State Alvin Tan said in parliament recently.
Tan also added that the MAS would begin reviewing its internal incentive administration processes, and tighten them where necessary.
That changing regulatory landscape could force more consolidation in the family office industry in Singapore.
“Mergers and acquisitions (M&A) in the family office space have already begun but we will really see things ramp up in 2024, particularly with the recent changes in requirements for FOs in Singapore to qualify for tax incentives and the increase in regulatory scrutiny,” Cameron Harvey, CEO of Landmark Family office an Asia focused multi-family office, told AsianInvestor.
Mohini Singh, vice president at Silverdale Capital, a fund management company headquartered in Singapore and working with Singapore-based family offices echoed that sentiment.
Silverdale Capital
“We have witnessed several single family offices closing. The onset of large mergers in industry is likely imminent. Acquisition in the family office space is not common,” Singh told AsianInvestor.
But she did note that with M&A comes challenges.
“There is no synergy benefit except for economies of scale. So, the challenge comes to ensure there is sufficient segregation of assets such that one family’s assets don’t contaminate others,” she said.
OPTIONS AND CHALLENGES
As a result, alternate models are also coming into play.
Effie Vasilopoulos, Hong Kong-based partner and leader of the APAC investment funds group at Sidley Austin, a law firm, shared that “it’s rare to see M&A in the family office space as these businesses are typically family-owned and jealously guard their independence.”
The law firm works with Singapore-based family offices.
Instead, she is seeing a growing trend that involves pooling operational resources for better economies of scale. This collaboration includes sharing investment research, networks and operational infrastructure such as legal, human resources, administration, and investment professional support.
“Family offices are also creating common investment structures for joint investments, aiming for enhanced efficiency and cost management in portfolio activities”, she added.
Harry Pang, founder of Fountainhead Partners, a Singapore-based multi-family office also does not see much scope for M&A.
“Family offices are all different with different personalities, preferences, and aversions. Only MFOs with a clear vision and investment capabilities will survive in this prolonged down market, while smaller ones based on trading commission sharing will have a difficult time,” he said.
DIGGING DEEPER
The obvious question as consolidation emerges is who is the acquirer and what entities are being taken over.
Sidley Austin
”Potential acquirers will typically be multi-family offices but could also include traditional asset managers and even smaller private banks looking to increase their assets under management. The types of entities to be acquired will include smaller single- and multi-family offices that are perhaps looking to reduce costs, require liquidity due to higher borrowing costs, or have decided it may be more efficient to be managed by an operation with larger scale and resources”, according to Harvey.
“We may have seen a couple of deals happen already, but most would be kept private given the nature of the family office industry and their wish to keep a low profile”, he added.
Singh noted: “Single family offices from regions or countries that initially sought Singapore for tax advantages are currently facing pressure. It is estimated that less than 5% of family offices have availed the recent zero-tax benefits.”
She highlighted the case of a Chinese family office, initially aimed to establish a wealth center in Singapore, closing recently.
“There were two main reasons to close - cost control and also the slowdown in the Chinese economy, which exaggerated their underperformance,” she said.
“Due to the anti-money laundering case in Singapore, family offices need to be extra careful of compliance. Those who came to Singapore from countries with less regulatory hurdles are finding it difficult, as every single remittance requires supporting documents that they are not used to”, Singh added.
Vasilopoulos underlined another nuanced dynamic where FOs are engaging in M&A, or asset disposals where the focus is on expanding their family-owned businesses.
“This trend is prominent, especially among sprawling multinational family corporations, with Singapore serving as a thriving hub for such activities. The choice of targets for family offices aligns with the primary focus of the family business. Family offices often exhibit a tendency to "invest local", contributing to the stability and loyalty of capital in their base jurisdiction, thereby fostering liquidity and momentum within the local business community.”