According to the UBS/PwC Billionaires Insights 2019, over the past five years until 2018, the “billionaire effect” has been evident. The aggregate wealth of billionaires at end 2018 is over a third higher than five years ago, with a margin of $2.2 trillion USD. The billionaire population has increased by 38.9% with 589 individuals who became billionaires for the first time. Amongst these, entrepreneurs from China have quickly risen to become the world’s second largest billionaire group and nearly one-eighth of global billionaire wealth is from China. Given the growing wealth in Asia, it is not surprising that Asian families are planning ahead and starting to institutionalise the management of their family wealth. The topic of setting up a family office has now moved from dinner conversations to actual set ups.
Traditionally, families have held their investments through holding companies or special purpose vehicles (SPVs). Many times this was driven by the need to maintain confidentiality, the perceived simplicity of setting up in offshore jurisdictions, and to achieve ring-fencing through separate SPVs. Increasingly, families have found that the use of complex structures involving multiple SPVs in different jurisdictions makes management unwieldy and inefficient. It also brings about challenges of tax reporting and increasing negative attention from the media and tax authorities.
There could be many reasons for setting up a family office but one we see increasingly is that families are looking to in-source the fund management function or at the minimum be more involved in the management of their financial assets. Many times, the investment team may also include the next generation family members who not only want to manage their own wealth but also gain experience and build a track record with a view of managing third party wealth in the future.
The setting up of a family office is typically coupled with the setting up of a family fund. The set-up of a family fund institutionalises the holding structure for the family’s assets, facilitates succession planning and creates a more efficient and transparent structure.
In today’s world, simpler and lean structures are generally more favoured. Hence, wealthy families are increasingly moving towards setting up a “super” holding company (or a family fund) which houses all their financial assets and SPVs. In many cases, the SPVs are entirely subsumed within the family fund thereby leaving fewer or no SPVs.
Singapore has increasingly become the jurisdiction of choice for the set-up of a family office and family funds. It meets the criteria that many families are looking for, including:
The trend of family offices is only expected to grow and Singapore is well poised to be home base for these family offices. The simplicity, efficiency, clarity of succession and cost reduction associated with setting up a family office isn’t just for billionaires.
Given the worldwide development on tax transparency and increasing scrutiny over structures in offshore jurisdictions, it is essential that families (especially those with assets exceeding $100 million) start considering whether they would need to institutionalise the management of their family matters and investment management through a family office structure. In considering the above, families should consider these 3 “Rs” as next steps: (i) Revisit family values and objectives as guiding principles in the family structure / constitution, (ii) Review the family governance process, as well as (iii) Review of existing structures.
Partner, Asset & Wealth Management Tax Leader, PwC Singapore
Tel: +65 9671 0613
Tax, Director, PwC Singapore
Tel: +(65) 9639 4203