How do Singapore and Hong Kong compare as family office hubs in the region? There’s an informal consensus that Singapore has the edge. It’s traditionally seen as more of a private bank centre and in recent times, with Hong Kong’s struggles in dealing with the pandemic and concerns about personal freedoms, that position is only strengthening.
As competition intensifies, a new study from UK-based recruitment consultancy Agreus Group has taken input directly from family offices, advisers, and official sources at both centres. Its conclusion is: “There is one clear winner” — and that’s Singapore.
“Singapore and Hong Kong are both extraordinary landscapes that have an incredible amount to offer family offices,” Tayyab Mohamed, co-founder of Agreus, told AsianInvestor. “Hong Kong has a deep-rooted talent pool, it boasts the richest family office ecosystem in the entire Asia Pacific — boasting over 5,000 ultra high net worth families — and it is ultimately the gateway to China.”
“But as we have discovered through the creation of this report, Singapore holds the key. It is well-regulated, transparent, and a magnet for prosperity," he said.
The INSEAD business school recently rated Singapore first in the world for political and operational stability, ease of access to professional services, and breadth of investment opportunities.
However, both rival centres face a challenge in training people to serve the family office market.
As Chi Man Kwan, chairman of the Family Office Association Hong Kong (FOAHK), said, “For the family office industry, talent is one of the most fundamental building blocks, crucial to the long-term development of the industry. But the truth is, we are facing a talent gap. Family offices need specialised talent, those who are passionate and dedicated to the family office and their operations.”
In March 2019, the Monetary Authority of Singapore (MAS) and the Economic Development Board jointly established the Family Office Development Team to lead and coordinate initiatives that will enhance Singapore’s position as a family office hub in Asia.
Last year, the Hong Kong government identified the need to compete more proactively in the space, and its foreign direct investment arm, InvestHK, created a specialised team to support the setup of family offices.
They rolled out a red carpet for family offices by legislating limited partnerships, a popular format for family offices. The FOAHK was launched on the back of Hong Kong’s initiative, and was swiftly followed by the launch of the Global Asia Family Office Circle in Singapore.
GOES WITH THE TERRITORY
“Hong Kong has always long been viewed as the gateway to China and continues to hold this mantle,” said Andrew Ho, head of private wealth at Singapore-based consultant IQ-EQ.
“Hong Kong has a territorial basis of taxation, where carrying on business and deriving Hong Kong-sourced profits would be chargeable to Hong Kong profits tax.”
Ho said that to achieve a tax-neutral position, the typical family office activities would have to be performed outside of Hong Kong, in order for the income not to be taxed in Hong Kong.
Singapore also has a territorial basis of taxation. However, Singapore’s government has introduced a number of incentive schemes, specifically sections 13D, 13O, and 13U of the Income Tax Act, which allow for family investment vehicles to enjoy tax exemptions from income derived from designated investments.
Patricia Woo, family trust and tax expert at Squire Patton Boggs, told AsianInvestor that families are now more open to exploring Singapore, as Hong Kong is seen as comparatively unstable: "We are creating more 13X structures for our clients in Singapore."
As reported by AsianInvestor, family offices are largely unperturbed by recent budget announcements in Singapore, which are set to impose new wealth and property taxes.
Research firm Wealth-X estimates that $1.9 trillion worth of wealth in Asia will be passed on to the next generation in the coming decade. They estimate that more than one third of family offices in the region already have $1 billion in assets under management (AUM), and nearly a quarter have more than $5 billion.
While the government of Hong Kong is certainly welcoming family offices with attractive taxation and legislative policies to match, Mohamed concludes that it cannot match the global investment and attention being awarded to Singapore.
“In a time of uncertainty, political instability, and impending regulation, Singapore offers the perfect blend of protection and opportunity,” he said.