SINGAPORE: Family offices are emerging as a significant force among investors in Southeast Asia, fuelled by the region’s strong economy and a growing number joining the ranks of the super rich.

Family offices set up by the wealthy make up a third of the region’s investors in June 2024, compared with a fifth in 2020, Preqin data showed.

The provider of alternative markets data said Singapore and Hong Kong play host to almost half of them.

The two cities have different fund structures to attract more wealth, competing with traditional offshore centres like the British Virgin Islands, Mauritius and the Cayman Islands.

Singapore established the variable capital company, a flexible corporate structure designed for investment funds.

It has been popular with family offices as it offers various advantages from cost efficiencies to tax incentives.

Hong Kong offers an open-ended fund company structure which allows investment funds to be established in a corporate form.

Both structures are designed to facilitate investment management and provide flexibility for family offices, but they have distinct features and regulatory requirements.

At the end of 2023, Singapore had 1,400 single-family offices while Hong Kong was estimated to have 2,700, according to a Deloitte report.

Preqin data also showed that Southeast Asia-based investors are increasingly putting money in private markets – investments in debt and equity instruments that are not traded on public exchanges – which have delivered higher-than-expected returns.

New research by global consultancy firm Bain & Co projected that private market assets under management will reach a range of between US$60 trillion (RM261 trillion) and US$65 trillion by 2032, a pace that is more than twice the growth rate of public assets.

Bain expects private markets to account for 30 per cent of assets under management by 2032, underpinned by potentially higher yields, diversification and, in cases such as real estate, a hedge against inflation.

Fewer companies are going public too, with global initial public offerings falling 45 per cent from 2021 to 2023 due to increased regulation and higher costs, Bain said.

Preqin data showed that four in 10 family offices in the region plan to increase their exposure to alternative investments in search of higher yields, diversifying from conventional portfolios that are built around stocks, bonds and cash.

Southeast Asia’s sovereign wealth funds, too, have been driving the growth of private capital markets.

Singapore’s Temasek, with a net portfolio value of S$389 billion (RM1.3 trillion), has increased its allocation to unlisted assets to more than 50 per cent from about 20 per cent over the past two decades, it said.

Malaysia’s Khazanah Nasional Berhad has consistently allocated around 20 per cent to private markets between 2018 and 2023, with the share increasingly going to global private markets in recent years.

“In addition to family offices and sovereign wealth funds, there have been more corporate investors, asset managers, banks and insurance companies actively investing in alternatives in Southeast Asia,” said Ms Valerie Kor, lead author of the report at Preqin.

“As these investors aim for long-term risk-adjusted returns, they continue to drive private capital growth both locally and globally.”

Ms Kor added that while private equity valuations have fallen and exits seem uncertain globally, the proportion of Southeast Asia-based investors that are putting their money in private equity and venture capital has risen to more than 30 per cent in the first half of 2024, from 18 per cent in 2022.

Compared with 2023, a slightly higher percentage of Southeast Asian investors reported that they were investing or considering investing in real estate.

More are also keen on investing in infrastructure, notably in emerging markets, Preqin data showed.