When ultra-wealthy Chinese entrepreneurs started moving to Singapore en masse in 2019, investment firms were salivating at the chance to manage billions in new money. So far, it hasn’t quite happened.
Hedge funds, banks and private equity firms say few of their recent meetings with Chinese tycoons in the city-state have brought in business beyond basic custodian deals, even as the new arrivals spend lavishly on mansions, luxury cars and golf club memberships.
A senior executive at one of Singapore’s largest hedge funds described it as one “big zero.” Another money manager — among the more than 10 interviewed — said none of the handful of inquiries has resulted in fresh funds to manage. They declined to be identified discussing private matters.
Investors “are not coming with a bunch of cash in suitcases,” said Emmanuel Pitsilis, co-head of Asia-Pacific at Partners Capital Investment Group, adding that the new arrivals already have global investments in place so any cash flowing into the country isn’t automatically being deployed to local capital markets.
The relative pittance of new business from super wealthy Chinese emigres is becoming a hot-button topic and possible prelude to social discord as lawmakers seek answers from the government. When tax exemption programs were changed to attract family offices, part of the pitch was that the new money would boost investments and spark a wave of employment. Instead, Singapore is mostly seeing higher prices for everything from condos to cars.
To be sure, plenty of cash is coming in and family office assets at the city’s banks are on the rise. But money managers say very little of that cash is being invested in funds or private equity firms that would generate the hefty fees needed to create a flood of jobs.
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Finance executives cite two main reasons for the reluctance, even as outflows from China reach at least US$150 billion ($199.8 billion) annually, according to Natixis SA. The capital markets in Singapore and Southeast Asia are tiny by Chinese or Hong Kong standards, and it takes time for these tycoons to feel comfortable with advisers they barely know.
Pitsilis said the newcomers have global allocations in place and the region represents a new, unfamiliar market full of potential pitfalls. Asian clients in general take longer to trust money managers compared with counterparts in the US, where a whole ecosystem of advisers and data providers make the decision easier, he said.
“Just because they’re changing location,” doesn’t mean they’re suddenly going to alter everything else and their investments, said Pitsilis, whose firm manages US$48 billion for family offices, endowments and other investors.
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Low Liquidity
The local bourses meanwhile lack the liquidity and high-profile names on the scale of New York and Hong Kong. Hong Kong's total stock market value is more than 10 times higher than Singapore, according to data compiled by Bloomberg, while daily trading dwarfs its rival hub. That leaves private equity and venture capital across the greater Southeast Asian region, which remain relatively small compared with China and Silicon Valley.
“All of Vietnam had a couple of billion dollars in PE investment in 2021,” Pitsilis said, citing a report from Bain & Co. “That’s the same size as some of these family offices.”
The limited investment is surprising given there’s plenty of evidence the Chinese tycoons are setting up bases and spending loads of money on other things.
The Monetary Authority of Singapore last year estimated there were about 700 family offices at the end of 2021. Industry experts say the current estimate is more like 1,400, with mainland Chinese the biggest drivers of growth, according to service providers. The backlog alone of single family offices applying for tax incentives and pending approvals is around 200, according to Senior Minister Tharman Shanmugaratnam.
Signs of Chinese wealth are easy to spot in Singapore. Many of the city’s historic black and white bungalows - newly converted to private bars for wine and whisky connoisseurs – are popular among Chinese billionaires. The price of golf memberships for expats at the exclusive Sentosa Golf Club surged last year to $840,000 as more Chinese join, according to brokerage Singolf Services.
The nation’s real estate market has defied a global slump as newcomers snap up luxury condos, driving prices higher for 12 straight quarters. High-end residential rents in the fourth quarter of 2022 were up 28% compared with a year earlier, helping the city push New York off the top spot for gains. Retail sales surged almost 13% in February, while license fees for cars are hitting fresh records of almost US$90,000.
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Even the city’s palate is changing, according to Sing Tien Foo, NUS Business School professor of real estate. A rising number of restaurants offer more hotpot items from Sichuan province and spicy lamb skewers favored in Beijing to cater to the arrivals. Visitors to Chef China Hua Chu restaurant are welcomed by a black-visored astronaut sporting a Chinese flag.
Sing co-authored a paper in 2020 that showed Chinese foreign buyers with high spending power tend toward ‘conspicuous consumption’ and properties with visible features of luxury such as penthouse apartments. His research showed they also like to create their own enclaves and social networks in places like Sentosa, where foreigners are often granted exceptions to rules preventing non-citizens from buying mansions.
“We can’t stop this trend – more and more foreigners will find Singapore a very livable country so they’d like to move over here and the government is trying to attract the talent,” he said. “They have to manage the sentiment properly – I think it’s a very sensitive social issue.”
Yet this flood of Chinese money hasn’t done as much for the financial services sector — and some lawmakers are wondering why not. Over the past seven months, politicians from the opposition parties and even the ruling People’s Action Party have asked the government for more details on whether the surge in wealth will effect the income gap, what rich immigrants have been investing in locally, and what impact Chinese non-residents have had on property prices and rents.
The government has taken notice. Alvin Tan, minister of state for trade and a former banker at Goldman Sachs Group, told Parliament in October its agencies had set up “Deal Fridays” sessions to encourage more investment and interactions. Singapore increased luxury taxes amid a surge in prices for high-end property and cars to reap more from the rich without driving them offshore.
The Economic Development Board said that 24,699 jobs were created in a range of roles including software engineers, researchers and public relations between 2011 and 2022. Family offices also generate jobs indirectly through external finance, tax and legal professionals, according to a spokesperson for the development agency.
Singapore also changed the conditions for family offices seeking tax exemptions a year ago, introducing higher minimum asset management standards and local investment requirements. Just last month it ramped up employment and investment thresholds for applicants to its Global Investor Programme. That’s a pathway to citizenship for people so rich that the application itself – with no guarantee of success – requires that S$10,000 be wired to a government account at Deutsche Bank AG. Around 200 applicants have been granted permanent residency through the program in the three years through 2022.
But capitalism is wily. One family office executive said their firm aims to meet the higher local spending requirements by booking their fund purchases with the locally-licensed arm of a Swiss bank rather than the overseas unit. Such a shift may boost assets – the industry reached $5.4 trillion in 2021 — but not create more jobs.
Even local banks attracting deposits from rich Chinese may not reap the higher profits that come from trading and margin loans. Oversea-Chinese Banking Corp., United Overseas Bank and DBS Group Holdings all posted lower fees from managing rich clients’ funds for the fourth quarter. That’s even after the DBS chief executive officer said the bank had opened almost half of all new family offices in Singapore over the past few quarters.
While philanthropy would be another way of alleviating resentment among Singaporeans, some local charities say they’ve had limited support from the wave of rich Chinese migrants.
As CEO at the National Volunteer and Philanthropy Centre until late 2022, Melissa Kwee helped encourage the city’s rich and powerful to give back, boosted by her own experience as a member of one of Singapore’s wealthiest clans. She says the city’s well-heeled immigrants should do more for charities and small businesses.
“One of our national issues is really social cohesion, which is the flip side of social inequality,” said Kwee, whose family manages hotels and commercial properties across the region. “The suspicion of and resentment of foreigners coming here to just use Singapore leaves a bitter taste in people’s mouths because of conspicuous consumption.”
For Kwee, encouraging the recently-migrated Chinese to do more philanthropy and volunteering is key to making them feel connected to their new home. Outside of investing in money managers, they could partner with local businesses trying to go abroad, she added. The Asian Philanthropy Circle - an invitation-only platform for wealthy givers - is launching a sub-group designed to engage Chinese donors while the Asian Venture Philanthropy Network frequently holds events.
Over time, the effort of starting family offices, moving relatives to Singapore and living in the country will spark more local investments, said Crossinvest (Asia) COO Lucy W. Gao-Azak, whose firm also helps single family clients establish their own operations. But she warns it won’t be the tsunami some had hoped for.
“It’ll never be the home market for Chinese investors and they’ll always invest in what they’re familiar with,” she said. “Investors will rarely sacrifice and compromise performance of returns for any regional bias.”
