China's wealthy families see 'push-pull' factors to diversify to Singapore
Singapore is seeing an influx of ultra-wealthy families from China looking to protect their wealth, as they seek safe harbour from geopolitical uncertainties and implement strategic asset diversification.
Single-family offices in Singapore managing have climbed to 1,100 in 2022, up from 700 in 2021 according to the Monetary Authority of Singapore (MAS). This figure likely undercounts the true number of family offices in Singapore, given the rapidly growing multi-family office space as well.
MAS does not compile statistics of inflows according to country, but industry experts noted that Chinese inflows have been a significant contributor to the family office explosion.
There are both “push” and “pull” factors at work here.
PUSH FACTORS
“Singapore has emerged as a focal point for affluent Chinese families seeking both diversification and long-term growth,” said Manish Tibrewal, co-founder of Singapore-based multi-family office Farro Capital.
Farro Capital
Some of that interest has arisen because of the glum prospects of China’s economy. “As 2023 unfolded, the initial optimism surrounding China’s market reopening transitioned to a more measured and cautiously optimistic outlook in the near- to medium-term,” said Tibrewal.
Part of this is due to limited Chinese policy action to support domestic businesses and ongoing regulatory uncertainty in a variety of previously ‘hot’ sectors such as technology, he noted.
“This combined with subdued performance over the last two years has prompted many investors to explore other Asian markets outside of China in the near term.”
The city-state’s political stability, transparent legal system, and efficient regulatory framework provide a sense of security for investors, making it an attractive destination for preserving and growing wealth.
In addition, Singapore provides the “perception of asset security and diversification of asset booking,” said Angel Chia, chair of the Family Office Association Hong Kong (FOAHK) and founder-CEO of NexGenerator Pte Ltd, a family office accelerator in Singapore.
“As an independent sovereign jurisdiction governed by the rule of law, where the Mandarin language is commonly used, makes it the only easily accessible diversification destination for Greater Chinese families outside of home territories,” she said.
CLOUDED OUTLOOK
FOAHK
Beijing’s crackdowns on tech billionaires have led to an erosion of trust in government on private property rights and “there is a paradigm shift in how the likelihood of conflict is perceived, with the possibility of a war involving China, including Taiwan, shifting from being highly improbable to now being a real possibility” one family office executive, who declined to be named, told AsianInvestor.
China is expected to lose the largest number of dollar millionaires this year due to migration, when compared to any other country, according to a report by investment migration consultancy Henley & Partners in June 2023.
Data from the firm showed that a net of 10,800 high-net-worth individuals migrated out of China in 2022, and another 13,500 are expected to leave this year.
Possibly caught by surprise with the surging family office numbers, Singapore recently tightened the rules with higher minimum capital and hiring requirements for family offices.
The Monetary Authority of Singapore in July also initiated a public consultation on a framework to control money laundering risks in Singapore's single-family offices.
PULL FACTORS
On the “pull” side, Singapore’s position as a launch pad to explore Southeast Asia opportunities is reeling in family office interest.
“Singapore’s strategic location in Southeast Asia provides access to dynamic markets across the region, allowing investors to tap into growth opportunities in neighboring countries,” said Augustus Xu, CEO of Franklin Medici, a multi-family office in Singapore and Hong Kong.
Franklin Medici
“For Chinese families that have built up their wealth in a wide range of traditional sectors like industrials, manufacturing, agriculture, and real estate – often with business connections across Southeast Asia – the region offers a welcoming and familiar investment landscape," Farro Capital’s Tibrewal said.
"This goes far beyond just public equity and bond investments to include private equity allocations and inorganic growth opportunities for operating companies that may have pan-regional ambitious.”
While ASEAN's traditional sectors is expected to continue attracting investments from more savvy Chinese families, there is an unmistakable shift towards even "new economy" industries, propelled by accelerating digitalisation and decarbonization trends, said Tibrewal.
FOAHK’s Chia noted that some Chinese families also entertain various forms of private credits opportunities (like trade finance), given multiple gaps in the local banking and financial systems to provide funding for local growths on the micro level.
Still, it is important to noted that “trust” is highly valued in Chinese culture, she said, and “is usually the single deciding factor to originate any investment in ASEAN, a region in general still out of the comfort zone for Chinese families compared to their home turf.”
For now, setting up a family office in Singapore is an initial step towards diversifying tax or legal jurisdictions and asset booking centres beyond the home market, said Chia.
“The level of active investment deployment by newly incorporated Greater Chinese SFOs remains to be seen," she added.
"Ultimately, the viability and scope of family office investments depend on whether there is a cost-effective arrangement in place, striking the balance between sourcing, discharging, and monitoring investments, with having the proper professionals in place to do so."