🐧 How to invest in Singapore as an expat (part 2)

Tips & hacks on ESOPs, alternatives (PE/VC/Angel), crypto
February 19, 2023

Today in 10 minutes or less, you’ll learn:

  • 🇸🇬 How to invest in Singapore as an expat (part 2)
  • 💎 Tips & hacks on ESOPs, alternative assets (PE/VC/Angel), crypto
  • 🧠 Best (and worst) performing private assets in the last 15 years

🇸🇬How to invest in Singapore as an expat (part 2)

Second post of a two-part series: first post covered stocks, bonds, and real estate

💎 How to invest, plus tips & tricks, by asset class

🚀 Company Equity

Company Equity = stock options, shares, RSUs that you receive from a company you worked for or started.

How to invest:

  • Work for a company. Receive equity as a part of your comp. Public companies may offer employees the option to purchase stock at 5-15% discount.
  • Start a company. Bootstrap the business to own 100% of your equity. Or raise funds from family, friends, angel investors, and/or VCs to trade long-term equity for short-term cash.

Tips:

  • View equity through a risk-reward lens. I received equity at 3 startups over 9 years with varying outcomes: 1 IPO payout, 1 in-progress, 1 acquisition where my exercised stock went to zero (fortunately, I didn’t pay much to exercise). There’s a wide range of possible outcomes.
  • Use a scenario planner. Here’s two US-based examples: SecFi’s Exercise Planner and Compound’s Equity Planner. (DM me if you know of similar global tools)
  • Watch out for foreign taxes on your equity. If the entity issuing your equity is based in a different country, you might be subject to that country’s taxes. Check with your employer & tax professionals.
  • Prepare budget for deemed exercise rule. When you cease employment in Singapore as a foreigner, you may still be required to pay an “exit tax” on unvested ESOPs, unexercised ESOPs, and ESOPs where selling restrictions yet to be lifted (IRAS details).

🐳 Alternative Assets (Private Equity/VC/Angel)

Alternatives are wide-ranging, but we will focus on:

  • Private Equity (PE) is capital invested into privately-held company as equity or debt. Includes areas like venture capital, growth equity, and buyouts.
  • Venture Capital (VC) is a type of private equity investment in early-stage startups.
  • Angel Investing is where an individual acquires shares of ownership of a startup with their own money.

Who is it for: Accredited investors (assets > $1M SGD) who want exposure to uncorrelated assets like private companies for the goal of higher risk-adjusted returns, less volatility, and diversification.

⚠️ Caution: PE, VC, and Angel Investing are high-risk and very illiquid (lock up for 5-10 years). You have the chance of losing all your invested capital. Don’t invest more than you can afford to lose.

How to invest:

  • Invest via fractional alternative asset platforms. Stashaway Reserve, Endowus Private Wealth, ADDX. Designed to lower barrier to entry, but may charge additional fees. Min. check size: $5k to $50k+ USD
  • Join as a Limited Partner (LP) of PE/VC fund. LP = you are a third-party investor in the fund. Min check sizes:
  • PE: $10k to $30k USD. “[In the US] Accredited Investor fund minimums seem to be in the $10k-$30k range. Qualified Purchaser fund minimums are mostly $100k+.” - American expat in Singapore
  • VC: $30k to $100k USD. “Individual market standard = $50k - $100k. Lowest I’ve heard is $30k.” - VC investor in Singapore
  • Depending on the fund, you might contribute the full amount upfront or partial amounts over a few periods.
  • Angel invest via angel syndicate: Angel syndicates are groups of angel investors that pool their capital together to invest into deals. One popular SG syndicate: Hustle Fund’s Angel Squad (I’m an active member in AS & other syndicates). Min. check size: $1k+ USD
  • Angel invest directly into startups: Reach out to founders to get on their cap table (I do this with founders I believe in.) Min. check size: $5k to $10k+ USD

Tips

  • Factor fees into your returns. Typical funds charge 2% of assets annually and 20% of profits. Gross returns might look promising before fees, but it’d be a mistake to not factor in fees. eg 12% gross returns - 2% fees = 10% net returns (breaking even with 10-year S&P 500 returns)
  • For VC/angel investing, beware of:
  • Power law effect. Cambridge Associates reported since 2010, the top quartile VC funds generated 15-27% annualized return compared to 10% for S&P 500, while the bottom quartile underperformed. Pick the top funds.
  • Demo day effect. “If you’re investing in accelerator / first-check in funds, be a bit skeptical of the gross Multiple on Invested Capital (MOIC), because it’s always inflated [from demo day effects.]” - VC investor in Singapore
  • On-paper returns =/= actual cash returns. Even if a VC fund has a great on-paper return (TVPI), actual cash distributions (DPI) may be less due to potentially overvalued investments. See how the gap between on-paper returns (grey) and actual cash distributed (blue) widens starting with 2011 funds, which may be explained by needing time to bear fruit or potential overvaluation:

🏴‍☠️ Crypto

Crypto is a digital asset that exists on a distributed network of computers. I treat it as a separate asset class that’s highly correlated with tech equities:

Who is it for: Degens 🐵

⚠️ Caution: Crypto is high-risk, high-volatility, and less regulated. You have the chance of losing all your invested capital. Don’t invest more than you can afford to lose.

How to invest:

  • Invest via a centralized exchange. eg Coinbase. Trade cryptocurrencies including stablecoin. Stake and lend to earn interest.
  • Invest via your self-custodial wallet. Similar options but less exposure to risk of centralized exchange going down like FTX. (I hold a bit of BTC/ETH in 3+ wallets).

Tips and hacks

  • Use USDC for cross-border transfers.USDC transfers is one of the use cases on the rise. For expats with domestic crypto accounts and bank accounts, sometimes they will transfer USDC to themselves in another domicile and cash out.” - Coinbase APAC employee
  • Save fees using stablecoin FX trading.Though not on Coinbase for now, keep a look out for on-chain FX trading on the XSGD/USDC pair. XSGD and other Singdollar-stablecoins are getting bigger and may save on conversion fees.” - Coinbase APAC employee
  • If you’re American, prepare for complicated tax reports. I use Koinly to aggregate my wallets and generate a US tax report.

(Note: Coinbase in Singapore is limited to cards-only, but working on local rails.)

👨‍👩‍👧‍👦 Bonus: Family Office

Family offices are privately-held companies that handles investment and wealth management for ultra-high-net-worth families.

CNA reported that SG had ~700 family offices in 2022, up 75% from about 400 in 2020.

Who is it for: Ultra-high net worth individuals and families (assets >$10M SGD)

Why open up a family office:For us, [the considerations] were 1) geopolitical risk, 2) livability and lifestyle, 3) tax incentives, 4) access to capital or deal flow, 5) proximity to family or home country.” - Australian expat in Singapore

🧠 Insightful Bites

📕 Read

90% of active mutual funds underperform the market, suggesting skill does not correlate with performance for mutual funds. In contrast, for alternative assets, there seems to be a stronger correlation between fund manager skill & performance.

Private asset allocation quilt chart from the past 15 years. Insight: In the years following the 2008 recession, VC performed relatively worse than other private assets, while private debt performed relatively better:

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Dexter Zhuang

Dexter is the founder of Money Abroad, a website and newsletter on building wealth for global professionals. Over the last 10 years, he's been a product leader, product manager, consultant and coach at companies like Dropbox, Xendit, and growth-stage startups across the US, Asia Pacific, and Latin America. His work has been featured in global publications like Business Insider, CBS, US News & World Report, and Tech in Asia. He graduated from Dartmouth College.

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