Singapore dangles 'carrot' for fund managers

SINGAPORE is attempting to entice more foreign funds away from Hong Kong by trebling the amount of government money it places out for private management.

The Government of Singapore Investment Corp (GIC) will raise the amount of funds available to private managers to S$35 billion from $10 billion over the next three years. However, only firms with offices in Singapore will be eligible to apply.

Another condition is that foreign fund managers receiving mandates from the corporation will be expected to bring in additional funds of their own to manage in Singapore, thus helping meet the Monetary Authority of Singapore's ambitious market development targets.

"Our vision is to develop Singapore into the premier fund management hub in Asia over the next five to 10 years," said Deputy Prime Minister and authority chairman Lee Hsien Loong.

The government also announced a host of initiatives to liberalise the unit trust industry and streamline its austere regulatory regime.

Mr Lee said these market-boosting moves would not only bring long-term benefits, but also help cushion its beleaguered fund management industry from the recent collapse in the East Asian financial markets.

Addressing the Investment Management Association of Singapore yesterday, Mr Lee said: "The total volume of funds managed out of Singapore will probably not expand much over the next year or two.

"But the incentive of additional funds from GIC should encourage firms to shift funds to Singapore and moderate any downturn."

GIC began placing funds to private managers with offices in Singapore in 1994, and as a result has persuaded international fund management firms to move to Singapore, largely at Hong Kong's expense.

A string of tax incentives have also been offered with more expected to be announced in today's budget.

As a result, funds under management in Singapore have rocketed from $18 billion in 1990 to $123 billion at the end of last year.

The number of fund management companies has tripled over the same period from 58 to 157.

However, Singapore's fund management industry is still only a third of the size of Hong Kong's and it is desperate to catch up.

Speaking ahead of the budget, Mr Lee strongly hinted that further tax incentives could be in the pipeline.

"We already have various tax incentives . . . but they can be further improved and enhanced," he said. "When we decide on any changes, we will announce them."

Foreign fund managers receiving GIC mandates will not necessarily have to manage all the funds from their Singapore offices.

However, they would be expected to bring in talent to Singapore and build up a team of Singaporean fund managers.

Those receiving global mandates would be expected to involve their Singapore-based managers in the global investment process, and give them responsibility for the Asian investment portfolio.

The GIC aims to farm out up to 50 per cent of its Asian portfolios to private fund managers.

Other initiatives announced yesterday included further liberalising the Central Provident Fund unit trust scheme to encourage more Singaporeans to invest their compulsory monthly savings in fund-approved unit trusts.

This is expected to increase the pool of domestic funds available for professional management.

Approval procedures for new unit trusts will be streamlined and made more transparent, cutting processing time to four to six weeks.

It now takes two to three months to process applications to launch units trusts in Singapore, longer than in Hong Kong.

Restrictions on unit trust savings plans will be scrapped. There will no longer be a minimum monthly amount a regular saver must contribute, thus opening the door for lower-income investors.

The authority will also cut the stringent criteria for obtaining investment advisers' licences, which are said to have been preventing smaller but well-managed fund management companies from setting up in the republic.

Mr Lee said: "This is especially to help some of our indigenous boutique firms to grow.

"In time a few may develop into larger players. Perhaps not on the scale of Alliance Capital, Templeton, Fidelity or Warren Buffet's Berkshire Hathaway, but those too all started off as small firms."

He also unveiled plans to enhance distribution channels for unit trusts, encourage independent financial advisers, and further develop Singapore's equity and bond markets.

Unlike Hong Kong, retail customers in Singapore do not have access to independent unit trust advice.

Mr Lee said: "These initiatives to promote the fund management industry are designed to bear fruit over the next five to 10 years.

"We must not underestimate the current difficulties in the region. But the region will recover, and long-term investors will come back.

"When they do, we will be well positioned to ride the next wave."

 Published in the South China Morning Post. Feb 27, 1998