SINGAPORE ROUNDTABLE: It’s not all about China (part 1)

Singapore is a major rival to Hong Kong and Shanghai for dominance as an asset management hub. But, Funds Global finds that for the government and the industry, it is not just China that is driving development. Singapore_roundtable Lester Gray (Schroder IM)
Gopi Mirchandani (Fullerton Fund Management)
Siew Cheong Kong (Lion Global Investors)

Tony Lewis (HSBC Securities Services)
Patrick Corfe (Aberdeen Asset Management)
Funds Global: What are the drivers for international asset managers to set up their regional hub in Singapore? Lester Gray, Schroders: While the domestic market in Singapore is small, it is central to South East Asia and a credible gateway to all Asian markets. There is a growing pool of qualified and experienced financial services staff particularly in middle and back office roles. There is however a shortage of experienced staff in some specialist areas, which is also the case in most financial centres around Asia. The quality of life here in Singapore is extremely high, which is important for senior executives who often have their families in tow. Singapore offers high quality international education, health care, accommodation and security. This is something the country has focused on as a competitive advantage over many years. Gopi Mirchandani, Fullerton Fund Management: There are also legal and tax incentives. Singapore has identified wealth management as a key growth area and the Monetary Authority of Singapore, which is responsible for regulation and financial promotion, has launched a range of initiatives. It has made it easier for people to set up asset management hubs here. One good example are tax breaks, which lower the corporate tax rate from 17% to 10%. When asset managers consider where to set up shop, such incentives make a difference. In Asia generally the number of high-net-worth individuals as well as the wealth management industry as a whole has grown massively. Some of the latest reports show the growth of assets in Asia has even surpassed that of Europe. There has been a growing trend of private banks setting up offices here. Many of them have set up Asian headquarters in Singapore. Although Singapore might be small, the very fact that a growing number of private banks are situating offices here means there is a large enough pool of assets they can tap into from Singapore.  In general Asian clients are more comfortable with investing in Asia and this has been a trend observed over the last four or five years, a trend that has been accelerated by the financial crisis. This has resulted in Asia becoming the world’s wealth management place to be. From a business perspective, it makes sense for wealth managers to set-up regional centres in Asian to provide Asian investment solutions to Asian clients. Tony Lewis, HSBC: Singapore’s approach to encouraging and fostering business here is important and has benefited companies. The government is incredibly proactive in terms of providing financial support for education and deepening the talent pool. As another example, beneficial tax rules and incentives are a considered approach to establishing Singapore as an international financial centre within Asia.  Singapore’s efforts to improve its business environment have been formally recognised by the World Bank. In Doing Business 2011: Making a Difference for Entrepreneurs, co-published with the International Finance Corporation, it stated that Singapore heads the world when measured for ease of doing business, for the fifth year running. The conditions are encouraging both asset managers and individuals to relocate. Siew Cheong Kong, Lion Global: Both the regulator and the government have established a strong partnership. Together they have created a framework that supports the growth of Singapore’s wealth management industry. In terms of private banks, Singapore is second only to Switzerland and some surveys even suggest it will soon overtake it.  The same may be true for family offices and there is plenty of evidence they are establishing themselves here. There are also quite a number of hedge fund managers here, although I am not sure how many will survive. The wealth management industry is growing because of this strong partnership. Singapore is an international financial gateway to opportunities in Asia. The authorities should be credited with building it into a well established, diversified financial sector, whether it is banking, insurance, investment banking, treasury and, of course, asset management. Funds Global: Singapore’s authorities appear to prefer that asset managers have a significant on-the-ground presence, while those in Hong Kong seem comfortable with just a sales presence. Is this a problem for asset managers? And where does Singapore sit as a gateway to China? Gray:  Singapore does not discourage asset managers from setting up business solely focused on sales. However, attracting the investment arm of the business is part of Singapore’s strategy to deepen its role as a financial hub. Historically Singapore has been more proactive in promoting itself as a regional hub to asset managers than Hong Kong.  However, we saw a more proactive approach from the Hong Kong authorities last year as they positioned themselves as the natural offshore renminbi centre. I doubt Singapore considers itself as being able to compete with Hong Kong as the gateway to China given Hong Kong’s historical ties with China. It can however be a second Asian centre for offshore renminbi as well as providing a more independent gateway to China for those that need it. Lewis: An interesting counter to that is that some customers like Singapore as a location because it is not so orientated and focused on the China story. Clearly, China is hugely important to all of our organisations in terms of strategy, product and access. Being in Singapore, we can clearly see there are a lot of opportunities closer to home in south-east Asia for law firms, accountancy firms, securities services providers and asset managers. In Hong Kong, China is at the top of everybody’s list
but in Singapore, there are other counter-balancing priorities. Kong: A lot of people focus on Hong Kong and China. Singapore is also a natural choice as a base to service South-East Asian investors – like the Indonesians, Indian investors and also for the Middle East. Lewis: As a bank, HSBC’s regional centre is Hong Kong. That said, we are creating and locating some regional roles and regional functions in Singapore just to give our business a different balance and also to provide new and different opportunities for people who want
to live and develop their careers with HSBC in Singapore. We are seeing some distribution of regional activities between Hong Kong and Singapore. Gray: It’s not necessarily Singapore or Hong Kong, it’s likely to be both. We established in Hong Kong 40 years ago, in Singapore 30 plus years ago; it just so happens over that time we have decided that the regional hub is Singapore. However, we have some very important functions in Hong Kong as well, so we split asset management between the two. Patrick Corfe, Aberdeen Asset Management: I think everyone has moved beyond that parlour game of: “Where’s the regional financial centre?” The answer is, they are complementary. Each is a distinct market, but also keep one another on their toes. Funds Global: What distinguishes Singapore from its regional rivals in the wealth management industry? Tax differences between Hong Kong and Singapore are fairly flat, so beyond tax, how can the latter distinguish itself? Mirchandani: It comes down to a very deliberate policy initiative to drive wealth management in Singapore, and that’s been evident for the last couple of years from the Monetary Authority of Singapore. With respect to regulating the more boutique-like fund managers, they’ve adopted a lighter touch, which is commensurate with the risk and the type of customers these companies have. If you talk about really what distinguishes Hong Kong from Singapore, it comes down to the Monetary Authority of Singapore. They’ve been strategic in trying to encourage fund managers, wealth management hubs and service providers to situate their operations here in Singapore by tax initiatives and generally having a more sensitive approach towards different clientele, different types of businesses. Corfe: When we talk about wealth management we are basically talking about an offshore business. In that sense there is a very distinct bifurcation between the onshore and the offshore. The way Singapore has finessed things, vis-a-vis European regulation – and attracted money out of Switzerland – has been very far-sighted. In terms of the infrastructure, it’s been strategic in developing the educational background, whether it’s the National University of Singapore or the Singapore Management University setting up the Wealth Management Institute, for instance. Gray: When you think about what is needed to be to be a successful wealth management hub, you’ve got to think from a client’s perspective. Where do clients want their money domiciled? You are going to look for a location with a very stable political system, independence, strong legal infrastructure, strong regulatory regime and access to all of the service providers that you need such as trust companies, lawyers, fund service providers, investment managers. Singapore has these attributes and hence is extremely well positioned versus other Asian centres. Kong: When you talk about regulations, one other example is banking secrecy. Recently, you found that this was being severely tested in Switzerland. Over here in Singapore we also have similar laws to protect investors, and these ensure them that their money is safe here. There are safeguards put in place to make sure that these are not being tested just by any whim or fancy of foreign governments as part of tax phishing. That has been key factor in attracting the wealth of the high-net-worth individuals from Europe into Singapore. Funds Global: What range of product diversity is available to Singapore-based investors? And how is product innovation fostered? Gray: I can’t imagine that there are many products available in Europe or in the US that aren’t available here in some form. The large institutional clients in Singapore are heavily courted by every international asset manager and hedge fund so they have access to all of
the products. Kong: After the global financial crisis we find that we tend to adopt more risk management techniques into the design of our products to reduce risks to investments and hedge out volatilities. Customers want to see more certainty in their investment returns, they want to see something which is less volatile. Some want to use derivatives to either hedge out volatility or enhance some kind of returns. Those are some innovations we get to see. I’m not quite sure whether you call it innovation but certainly risk management is now playing a significant part in portfolio management. Gray: Investor demand has changed. Asian investors have traditionally had a barbell approach where the money they put into risk assets really was focussed in the highest risk and return areas. Now that game has changed. In the high-net-worth private banking segment there’s still some demand for very specialist higher risk products as part of an overall portfolio strategy, but in mass retail the demand has moved to lower volatility strategies that provide income. We have also seen a significant fall in the number of new fund launches across Asia which is partly due to clients seeking established funds with strong track records but  is also due to the regulators being much stricter in terms of the type of fund they are now willing to approve. In a number of countries outside of Asia mutual fund sales are driven largely through retirement savings plans which are often tax advantaged, whether that’s superannuation in Australia, or ISAs [individual savings accounts] in the UK. We don’t have these in Asia to anything like the same degree and therefore the money people have traditionally put into mutual funds has sought short-term returns as opposed to long-term retirement wealth building. Over time this will change as societies age and people get more familiar with these products. End of part 1 ©2011 funds global

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