Rich Chinese splashing out on luxury have yet to invest big in Singapore

SINGAPORE – 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 has not quite happened.

Hedge funds, banks and private equity (PE) 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 Mr 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 is not automatically being deployed to local capital markets.

The relative pittance of new business from the super-wealthy Chinese arrivals is becoming a hot-button topic and possible prelude to social discord as lawmakers seek answers from the Government. When tax exemption programmes were changed to attract family offices, part of the pitch was that the new money would boost investments and spark a wave of employment.

To be sure, plenty of cash is coming in and family office assets at the country’s banks are on the rise. But money managers say very little of that cash is being invested in funds or PE firms that will generate the hefty fees needed to create a flood of jobs.

Finance executives cite two main reasons for the reluctance, even as outflows from China reach at least US$150 billion (S$200 billion) annually, according to Natixis. The capital markets in Singapore and South-east Asia are tiny by Chinese or Hong Kong standards, and it takes time for these tycoons to feel comfortable with advisers they barely know.

Mr 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 United States, where a whole ecosystem of advisers and data providers make the decision easier, he said.

Just because they are changing location does not mean they are suddenly going to alter everything else and their investments, said Mr Pitsilis, whose firm manages US$48 billion for family offices, endowments and other investors.

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 that of Singapore, according to data compiled by Bloomberg, while daily trading dwarfs its rival hub. This leaves PE and venture capital across the greater South-east 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,” Mr Pitsilis said, citing a report from Bain & Company. “That is the same size as some of these family offices.”

The limited investment is surprising, given that there is 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 country’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.

Newcomers have snapped up luxury condos. High-end residential rents in the fourth quarter of 2022 were up 28 per cent compared with a year earlier, helping the city push New York off the top spot for gains. Licence fees for cars are hitting fresh records of almost US$90,000.

Even the city’s palate is changing, according to Provost’s Chair Professor Sing Tien Foo of the Department of Real Estate at the National University of Singapore Business School. A rising number of restaurants offer more hotpot items from Sichuan province and spicy lamb skewers favoured 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.

Prof Sing co-authored a paper in 2020 that showed Chinese foreign buyers with high spending power tend towards “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 cannot stop this trend – more and more foreigners will find Singapore a very liveable country so they would 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 is a very sensitive social issue.”

Yet this flood of Chinese money has not 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 affect 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. Minister of State for Trade and Industry Alvin Tan, 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 (EDB) 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 an EDB spokesman.

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. This is a pathway to citizenship for people so rich that the application itself – with no guarantee of success – requires that $10,000 be wired to a government account at Deutsche Bank. Around 200 applicants have been granted permanent residency through the programme in the three years to 2022.

But capitalism is wily. One family office executive said the firm aims to meet the higher local spending requirements by booking 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. OCBC Bank, UOB and DBS Bank all posted lower fees from managing rich clients’ funds for the fourth quarter. This is even after DBS chief executive Piyush Gupta 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 have had limited support from the wave of rich Chinese migrants. As CEO of the National Volunteer and Philanthropy Centre until late 2022, Ms Melissa Kwee helped encourage the country’s rich and powerful to give back, boosted by her own experience as a member of one of Singapore’s wealthiest clans. She said Singapore’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 Ms 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 Ms 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 can 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) chief operating officer Lucy Gao-Azak, whose firm also helps single family clients establish their own operations. But she warns that it will not be the tsunami some had hoped for.

“It will never be the home market for Chinese investors and they will always invest in what they are familiar with,” she said. “Investors will rarely sacrifice and compromise performance of returns for any regional bias.” BLOOMBERG