Singapore has rapidly emerged as a global hub for family offices, thanks to its favorable regulatory frameworks and attractive tax incentives from the government. As per the MAS (Monetary Authority of Singapore), the number of single family offices in Singapore has surged from 400 in 2020 to 1,650 by August 2024. This exponential growth demonstrates how the country appeals as a destination for wealth management for affluent families.
Since 2023, wealth management AUM (assets under management) have recorded more than 8% growth. Interestingly, the wealth management sector in Singapore has achieved a CAGR of approximately 10% in the last five years. This impressive performance speaks for the increasing diversification of family office portfolios, with PE (private equity) emerging as a prime asset class.
Private Equity Takes Center Stage Amidst Global Shift
Globally, private equity has overtaken public equities as the leading investment choice for family offices. In 2023, PE investments accounted for 30% of the average family office portfolio, compared to 22% in 2021. Interestingly, public equities, that were once the dominant asset class, witnessed a decline in share from 34% in 2021 to 25% in 2023.
Some notable reallocations took place in 2024 from cash to fixed income and from public equity to PE. Currently, 43% of family offices have exposure to PE, rising marginally from 38% last year.
This trend is particularly evident in the APAC (Asia-Pacific) region. Here, nearly half the family offices are planning to increase their PE allocations over the next five years. Besides aiming to capitalize on high-growth opportunities in this region, these offices are also diversifying into developed markets with fixed income, equities, and alternative investments like hedge funds.
What makes Private Equity Ideal for Family Offices?
1. Long-Term Wealth Preservation
Family offices specialize in managing wealth across generations. Their prime goal is to establish long-term investment strategies for wealthy families. The extended investment cycles of private equity seamlessly complement these goals. Family offices can directly participate in growth as they invest in private equities, benefitting from the value appreciation of these businesses.
Private equity also allows families to leave a lasting legacy. They tailor investments based on the values of wealthy families, like supporting sustainability or innovation, or investing in industries that share the same vision as theirs. This approach helps in building wealth while reinforcing the principles of such families.
2. Potential for Higher Returns
Over the last 25 years, private equity has consistently outperformed public markets. These investments offer superior results, thanks to strategic interventions and active management. PE firms focus on enhancing the value of their portfolio companies through mergers, acquisitions, improvements in operations, and innovative governance strategies.
These high-growth opportunities, particularly at early stages, help family offices create significant value. This access to lucrative private markets often surpasses the returns public equity investments deliver.
3. Better Portfolio Diversification
Diversification is the key to effectively manage wealth. Private equity offers investors an avenue to create value in addition to traditional asset classes like equities and bonds. PE investments tend to have lower correlations with public markets, which help them stabilize portfolios during periods of volatility or uncertainty in the market.
Many family offices leverage their entrepreneurial backgrounds to identify and invest in niche sectors or industries where they have deep expertise. With this targeted approach, they mitigate risk and open up the doors for significant returns.
4. Active Involvement and Control
The level of control and influence private equity investments offer is rarely available in public markets. Family offices can directly invest in their portfolio companies and participate in their strategic decisions. This involvement often includes representation in boards or close collaborations with their management teams.
While investments in public markets are standardized, private equity brings in tailored investment structures. PE deals can also be customized to align with the specific needs and goals of a family office.
5. Access to Exclusive Opportunities
Family offices often benefit from access to exclusive investment opportunities unavailable to the broader market. Take the instance of co-investment deals, where family offices invest along with institutional players. These arrangements come with lower management fees, which enhance the overall returns.
Family offices frequently tap into proprietary deal flows through their extensive networks. These off-market opportunities provide a competitive edge, which allows them to invest in high-potential ventures before they become widely accessible.
6. Preserving Wealth Amid Inflation
Professional Consultation for Family Offices in Singapore
While private equity appeals to investors, family offices in Singapore encounter several challenges including the illiquidity of investments and high risk profiles. Along with this active portfolio management has its own set of operational demands.
Working in close coordination with established advisory service providers like the IMC Group, family offices can combat these challenges. These experts provide comprehensive guidance on how to setup single family offices in Singapore, and have a proven track record of providing tailored investment solutions. With a professional edge from these advisors, family offices can align investments to the goals of investors as they stride ahead to their long-term financial goals.
