Single family offices unlikely to flock to Singapore equities until market returns pick up: industry watchers

CHANGES to tax incentives for single family offices (SFOs) will draw attention to Singapore equities, industry players said, but fund flows will still depend on the market’s ability to deliver returns.

Much also depends on the family offices’ investment strategy, said market watchers. They pointed also to the local market’s lack of liquidity and depth, and suggested SFOs might prefer private assets.

“Family offices are no different from any other investor – we want to make money without taking too much risk,” said Bryan Goh, chief executive of the Tsao Family Office.

He expects the changes will have some influence, but the extent of this influence is still hard to gauge at this point.

The Monetary Authority of Singapore (MAS) had earlier this month announced changes to the tax incentive scheme for SFOs in Singapore, to encourage them to invest more in the Republic.

SFOs are entitled to a tax exemption on income from investments managed in Singapore provided they meet some criteria, one of which is a minimum investment in Singapore.

Among other things, MAS said it will tweak the criteria such that funds invested in Singapore-listed equities and eligible funds will count twice for the purpose of meeting these investment requirements.

There are still many ways of fulfilling these requirements, though. And market players said SFOs are unlikely to change tack so easily.

A lot more needs to be done to make the Singapore Exchange (SGX) an attractive destination for investment, said Mahesh Asrani, founder and chief executive of Collab Consultants, which works closely with several family offices.

“Just the tax incentives are not enough for investors to put their money in the companies,” Asrani said, adding that the equity scene has not kept pace with the strides made by Singapore in other economic activities.

Lim Kexin, tax partner with PwC Singapore’s entrepreneurial and private business team, said more time is needed to grow the depth of the Singapore equity market.

“Family offices are now mainly relying on other options, such as funds distributed by licensed financial institutions, to meet their commitments,” Lim said.

UOB’s head of private wealth Chew Mun Yew said many of the bank’s clients would look towards non-listed Singapore businesses and private debt instead.

These areas have traditionally attracted greater interest from family offices compared with listed equities, Chew said. He also noted that his family office clients tend to favour sectors such as medical technology, clean energy, healthcare, pharmaceuticals and biotechnology.

Pearlyn Chew, partner with the family office and private clients team at KPMG in Singapore, said SFOs may choose to divert more money into funds distributed by Singapore-licensed fund managers, although this is still largely dependent on their portfolio allocation strategies.

The degree to which the family offices invest in Singapore also hinges on prevailing market conditions, said Samuel Wong, trading strategist at OCBC.

Wong noted that geopolitical risks have lowered the average turnover for the Straits Times Index in the past decade, while geopolitical uncertainty and inflationary pressures have also lowered the risk appetite of SFOs.

Apart from meeting the local investment requirements, family offices have to consider their financial objectives, market performance and return on investment when allocating portfolio, said Carolyn Leng, managing director at Bordier & Cie Singapore.

Making SGX a preferred destination for major companies to list can thus contribute to the country’s attractiveness, Leng said.

Leng suggested Singapore find new ways to encourage leading Asian tech companies to list here.

“This could be a good way for Singapore to carve out a niche and, eventually, be the go-to market for South-east Asia’s technology-led entrepreneurs,” she said.

There may, however, be some pockets of the local market that attract SFOs.

OCBC’s Wong noted that SFOs tend to take a defensive investment stance and may seek out low beta stocks with large cash positions with long histories of paying out dividends – characteristics that real estate investment trusts have.

Tareck Horchani, head of dealing of prime brokerage at Maybank Investment Banking Group, also expects there will greater interest in regional and globally focused companies that are listed in Singapore, and SFOs may try to gain exposure to them through locally listed exchange-traded funds.