25 July 2022

Asian family office surge shows no sign of slowing down as Singapore attracts new business

The growing number of high net worth individuals (HNWIs) in Asia, particularly in China, is leading to Singapore's continuing emergence as a jurisdiction of choice for wealth management services and advice, according to Rachel Yao, head of Carey Olsen's trusts and private wealth practice in Asia.

Speaking during the firm's latest 'A Word on Trusts' event alongside Siobhan Riley, head of Carey Olsen's trusts and private wealth practice in Jersey, Rachel explained that, with research[i] placing the total size of China's investable assets at US$40 trillion at the end of 2021, Chinese HNWIs were now fully aware of the need for comprehensive and diversified asset allocation.

"HNWIs understand the urgency and importance of their children's education and own business succession," said Rachel.

"Their needs have extended from personal needs to family, corporate and social needs so they will have increased requirements for external advisory services and expect to have a one-stop shop experience. For wealthy inheritors we understand that they start with property and insurance, and then gradually expand to family trusts."

Rachel added that it was often Singapore that newly rich Chinese HNWIs would look towards for this wealth management advice and structuring, particularly with the tax incentives and exemptions available to single family offices set up under Sections 13O and 13U of the Singapore Income Tax Act.

"Singapore is definitely a rising star in the Asia private wealth market. It benefits from a central location in Asia, good infrastructure and business connectivity, strong rule of law, sophisticated and highly regulated financial market infrastructure, and first-world standard of education and living."

Rachel explained that the number of new family offices established in Singapore had increased significantly in the past three years from 27 to 2018 to 453 in 2021.

"Even though Singapore has recently tightened its family office rules, I haven't really seen a lot of impact on any family offices as a result of these additional measures. For a lot of our clients, when they set up a family office in Singapore, their aim is to diversify their wealth with onward investment out of this region so, to the extent that they decide to make asset investments, they tend to cast their net quite wide and invest globally."

Siobhan said family offices had been a theme in Europe and the West for many years, with some already existing for several generations.

"They have probably evolved in perhaps a more advanced way just because they are now on the second or third generation of family office in some cases. I think they can be a really useful platform, if properly structured and managed, to help bridge generations in particular and the lines of communication within a family, particularly where the wealth is managed under one structure or with a single concentrated asset (such as a family business)."

However, she did believe that they could face further regulatory pressure in the short term with Archegos Capital Management being a recent high-profile scandal to hit the family office sector. A US$10 billion family office (of sorts), Archegos failed to meet margin calls, prompting a US$20 billion fire stock sale as investment banks that acted as prime brokers for the family-owned investment company rushed to sell off its position so that it could pay what was owed. Archegos founder Bill Hwang has subsequently been charged by US prosecutors with 11 criminal counts, including racketeering conspiracy, market manipulation and securities fraud.

"Despite Archegos, I think family offices are here to stay. They will face more scrutiny, but I see them as a very important part, if well run, of a family managing communication, managing the risk around tax compliance and supervising regulatory compliance of a family's interests and affairs. I believe we'll continue to see more of them in Europe and the West just as you are seeing people establish them in Singapore, but I do think there will probably be increased scrutiny over how they are run, where they are based and who is permitted to manage their operations."

The 'A Word on Trusts' webinar, which is still available to view and listen to, also saw Rachel and Siobhan cover other topical private wealth issues, including the enforceability of pre-nuptial agreements in China, forced heirship rules, homemade wills, charitable and philanthropic giving, and the use of Asia-based trustees as part of Channel Islands trusts.

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[i] Research by China Merchants Bank and market research firm Bain & Company

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