The Change that is Family Office

I am a champion of setting up family offices to allow one’s interests to be represented well and also the idea of setting these family offices up in Singapore. In my previous article published about 18 months ago, I explained the reasons why we chose to establish a presence in Singapore.

With the ongoing COVID-19 outbreak, many questioned whether Singapore’s attractiveness as a location to setup family offices will be impacted? My short answer is no, in fact, I strongly believe that the family office space, in Singapore and as a whole, will continue to grow. Am I being overly optimistic? In my conservative view, no. Everything is evolving so rapidly, the financial landscape is not spared, hence, sitting still and not doing anything is our greatest opponent.

The Financial Landscape has Evolved

As our newly-appointed Strategic Advisor, Mr. Simon Lints, pointed out in his recent interview, clients expect their advisors to go the extra mile, and look at how to manage their portfolios more holistically. This means looking at issues from a wider perspective, zooming into their current family situations, their roots and backgrounds, and take into consideration what their aspirations and goals are. Certainly, the industry has evolved and family offices are well-positioned in these aspects.

However, the cost of running a family office is high. There are operational costs, the salaries of professionals in various asset classes, compliance officers and legal counsels to take into account for. As a result, the magic number is to have a liquidity of US$100 million. Anything below that, it simply does not make sense to set up a family office because the cost will kill. Therefore, a family office is not for everyone.

The value of Raffles Family Office, with our infrastructures firmly in place and sunk costs invested, this significantly reduced the marginal cost of onboarding another client or family. As a result, this also reduces the barrier of entry, which in turn allows the market to be opened up, allowing us a bigger share of the pie.

A Shining Little Red Dot

On the backdrop of these trying times, our current and prospective clients have pointed out to me that they were impressed with how Singapore is handling of the COVID-19 crisis. The country was even lauded by the World Health Organisation (WHO) and I believe that after this crisis subsides, Singapore’s position as a family office hub will be further reinforced, resulting in more resources being deployed here.

Riding on the Wave

Last year (2019), the Economic Development Board (EDB) rolled out the Global Investor Programme (GIP) and the Monetary Authority of Singapore (MAS) rolled out tax incentives such as the 13R and 13X to welcome the influx of wealth flowing into Singapore. Typically, the family sets up a family office to manage the asset in the fund and charges a fee for the service.

What’s more. On 15 January 2020, with the new Variable Capital Companies (VCC) regulation in Singapore, families are allowed to invest through a VCC fund and appoint a Singapore-licensed entity as fund manager of their family office.

With the VCC, the family can setup a sub-fund under the VCC fund and appoint a Singapore-licenced entity as the fund manager and their family office. In fact, in December 2019, Raffles launched its own financial ecosystem called RafflesTech within the Raffles Group.

The new VCC framework will encourage the consolidation of fund domiciliation and fund management activities in Singapore, creating a full-service fund ecosystem in Singapore while maximising the benefits of a full fund management value chain.

Additionally, the VCC presents another avenue of account opening for clients. Traditionally, investors open accounts with private banks. With the VCC, investors can look at setting up a fund structure. Those with existing multiple private banking accounts and investments can consolidate, transfer their Asset Under Management (AUM) and set up a brand new VCC or sub-fund with another custodian bank.

2020: The Past & The Future

Prior to 2019, offshore centres and family offices were in vogue. From 2020 and beyond, I believe that this VCC structure within a family office is the way to go.

Singapore, being transparent, and politically and financially stable, is positioning and gearing itself as a leading asset and wealth management hub globally.

In Mandarin, the word for crisis is called 危机 which makes up of two nouns – danger and opportunity. Whenever there is a crisis, there are always opportunities. Hence, this crisis has shown that the need to create buffers in our lives and the call for family offices could not be more relevant.

Posted by Jaydee Lin