Cheers to a New Era: The Development of Singapore as an ASEAN Asset Management Hub

Singapore City, Singapore - June 1, 2014: View of Merlion statue, symbol of Singapore, with famous Marina Bay Sands hotel in the background.

Singapore is a great place for investors because of the country’s good legal and political environment. Like Luxembourg, it has a stable political and social environment and a strong economy and can regulate its investors in a responsive and experienced manner. However, in Asian countries, the differences are distinct economically – from the GDP per capita in Singapore being more than 50 times greater than some of its neighbouring states, to the vast size of Indonesia’s growing middle class and economic output, and the double digit growth of Philippines and Myanmar.

 

After news broke out that Singapore plans to unveil their country as an ASEAN Asset Management Hub, investors and entrepreneurs are rampant on starting their businesses in the country (in addition to their high ranking for ease of doing business).

Not only is Singapore among the top countries leading the world in information and communications technologies (ICT)1, but companies that would want to start their business in Singapore can also enjoy its economic strength.2  “Singapore is already very prominent in asset and wealth management across the region and continues to grow from strength to strength. Singapore has strong institutions to promote business in general and for asset & wealth management in particular, regulators are taking steps to further increase Singapore’s attractiveness – not only in ASEAN but globally,” said Armin Choksey, Asia Pacific Asset & Wealth Management Market Research Centre Leader of PwC Singapore.

For Deloitte Singapore Global Lead for Wealth Management Group, Mohit Mehrotra, Singapore is a great place for investors because of the country’s good legal and political environment. Like Luxembourg, it has a stable political and social environment and a strong economy and can regulate its investors in a responsive and experienced manner.

According to PwC, some European asset managers have been acquiring wealth managers as they seek to control distribution and the customer relationship.3 With the impact of Brexit as well, UK asset managers find a hard time in gaining and attracting European fund clients.

In a survey conducted by Ernst & Young Global Ltd. (EY) of 55 asset and wealth management groups, which are firms that manage in excess of €25 trillion globally, a little over half (51 percent) of respondents are working on or planning to establish entities in Europe, compared to 35 percent from the survey undertaken in 2016.4 While in the past 11 years alone, asset managers’ assets under management globally have more than doubled from $37.3 trillion in 2004 to $78.7 trillion in 2015.5

Singaporean asset managers raised this as a concern, with China being replaced by Europe. 64.91 percent of 57 fund managers that responded regarded political uncertainty in Europe as one of their top three concerns this year, another 45.61 percent saw weakening emerging markets as a major issue while 42.11 percent named rising tensions in voter sentiments and the impact on trade as another key risk. Slowing growth in China ranked fourth in the list of macro concerns at 40.35 percent compared to 85.1 percent citing China concerns in 2016.6

Singapore’s regulatory era causes a high level of stability in which supports growth; measures by the  authorities to ease ways of doing business, together with low tax rates, particularly attract clients.

Meanwhile, Singapore is increasingly leveraging on technology and innovation across the value chain. It can be between the usage of artificial intelligence and data analytics and identification of investment opportunities, and the utilisation of advisors and digital distribution channels to increase fund generation and automate back-end processes.

New wealth has translated into sizeable pools of assets under management (AUM) originating from institutional investors such as sovereign wealth funds (SWFs), pension funds (PFs) and onshore wealth in Southeast Asia.

Singapore’s regulatory era causes a high level of stability in which supports growth; measures by the authorities to ease ways of doing business, together with low tax rates, particularly, attract clients.

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“The country benefits from its capital account currency and open architecture that has contributed significantly to encourage local and international asset managers to base their operations here which means investors in Singapore get world-class products and services. A downside could be the relatively small local population. This can be countered by entering into product passporting/mobility arrangements like ASEAN Collective Investment Scheme (CIS) and Asia Region Funds Passport (ARFP), which will offer greater incentive for asset managers and funds to be based in Singapore and have their products sold in multiple territories. Luxembourg and Ireland are great examples of how passporting can benefit centres in this way,” Choksey said.

The ASEAN CIS framework (Initial CIS framework) was subsequently implemented in August 2014 and sought to provide a streamlined authorisation process for fund managers operating in a signatory jurisdiction to offer collective investment schemes approved in that jurisdiction to retail investors in other signatory jurisdictions.8 However, the revised CIS framework fosters cross-border fund distribution to shorten time in marketing for funds. Local investors can benefit from a wider choice of funds as product expertise is exported to different markets. This is considered an opportunity to consolidate management of funds and streamline operating models.9 

In the perspective of BNP Paribas Securities Services, the ASEAN CIS framework complements the Undertakings for Collective Investment in Transferable Securities (UCITS) model, allowing asset managers to access traditionally closed fund markets such as Malaysia and Thailand. However, it is imperative that the participating regulators continue to harmonise regulations between the various jurisdictions to reduce the barriers to entry to the ASEAN CIS framework.10

 


 

The key enhancements to the framework will11  enable a wider range of fund managers to participate in the framework by lowering the qualifying criterion to $US 350 million AUM from $US 500 million; shorten the time-to-market for the launch of funds, as the signatories have committed to reviewing within 21 calendar days a complete application from fund managers for the authorisation of a fund; and give participating fund managers more flexibility to delegate the investment management of a fund by increasing from 20 percent to 100 percent the proportion of the fund’s assets that can be sub-managed by a manager that is not regulated by a signatory.

The differences are distinct economically – from the GDP per capita in Singapore being more than 50 times greater than some of its neighbouring states, to the vast size of Indonesia’s growing middle class and economic output, and the double digit growth of Philippines and Myanmar.12

Singapore’s fund management industry’s total AUM rose seven percent to $2.74 trillion ($US 2.02 trillion) between January and December 2016 (see Figure 2 on previous page), driven by double-digit gains in alternative assets, according to findings from a survey by the city state’s central bank.13

The Monetary Authority of Singapore (MAS) consulted on proposed refinements to the licensing and business conduct requirements to facilitate the provision of digital advisory services in Singapore.14

Singapore must be able to adapt to an industry that has the opportunity to move center stage and get out of the usual banking and insurance industry.

To become a proposed asset management hub, Singapore must be able to adapt to an industry that has the opportunity to move center stage and get out of the usual banking and insurance industry. In line with Luxembourg’s position as the top asset management hub in the world, the asset management industry in Singapore should provide a strong pick-up in new private fund launches by local managers and investors.

“An investor’s risk tolerance and life stage are also key considerations when considering products and this can greatly impact the expected rate of return. And, as always, investors need to remember that past performance is no indication of future returns,” Choksey said.

Considering new asset management models would be a great way for Singapore to completely take over as the ASEAN region’s premiere asset management hub. Although external asset management (EAM) in itself is already seen as a business model, but is it enough to drive Singapore to the top of the region?

Among Asian countries, Singapore and Hong Kong are well-established financial hubs and thus, becoming the favored destination for EAM office establishment. The authorities in both centres endeavour to create favourable conditions or the wealth management industry. According to The Deloitte International Wealth Management Centre Ranking 2018, Singapore and Hong Kong also rank well for competitiveness, but with slight weaknesses in “provider capability” and also, in the case of Hong Kong, in “stability”. Wealth management providers better managed to stabilise their performance and profitability in the recent past, with cost income ratio down in the US, UK, Switzerland and Singapore (but rising in Hong Kong and Luxembourg).15  Mehrotra said that the strengths of Singapore when it comes to asset managing and the ease of doing business make the country even stronger.

“Both Luxembourg and Ireland are great examples of the benefits of passporting for a region and a generally large wealthy population. ASEAN and Asia-Pacific (APAC) have a growing wealth population, and currently do not have that level of integration and, as the regional market develops, we may see sector-specific hubs emerge,” Choksey said.

As mentioned in the Deloitte International Wealth Management Centre Ranking 2018, when revenue margins across the leading wealth management centres are compared, Singapore, Hong Kong and Switzerland have shown margin increases since 2014, while Luxembourg, UK and the US have experienced a continuous decline. Luxembourg lost its leading position to Switzerland as the most productive yet most expensive centre (and also ranks below Singapore), while Hong Kong overtook the onshore-focused US, which became the lowest-ranked centre in terms of revenue margin.16

The focal point of a wealthy client is often his or her company and thus it has the highest priority. Quick and efficient access to the services of an investment bank – such as providing support in IPOs or bridging loans – is an important differentiation factor, if one wants to be and remain relevant for these clients.17

However, Environment, Social, and Governance (ESG) and Socially Responsible Investing (SRI) are not ready to be welcomed by Singapore. Choksey mentioned that ESG and SRI investing across APAC is not as developed as it is in Western countries yet, so the opportunity is presented for Singapore to become a regional leader in this area. Investing trends from both institutional (mainly pension funds) and individual (mainly younger) investors indicate that ESG and SRI investing are gaining importance in the investment decision-making process so the demand is there and is growing.

“The Singapore Exchange has already taken some innovative steps with disclosure requirements for listed companies as have other regional exchanges. We think it is too early to state whether or not Singapore has a competitive advantage in this space yet but the opportunity is there to be seized,” he added.

PwC Singapore’s prediction, in a few years, is urbanisation creating a huge need for new infrastructure. They have estimated that close to $78 trillion will be spent globally on infrastructure from 2014 to 2025. And, by 2020, four distinct regional fund distribution blocks would have formed, allowing products to be sold pan-regionally, is looking broadly correct. It is anticipated that the four blocks would be: North Asia, South Asia, Latin America and Europe. Also, virtually, all major territories with fund distribution networks would have introduced regulation to better align the interests of the end consumer, distributor and asset manager is proving accurate.18

Singapore’s strong, forward-thinking policies together with existing infrastructure and talent are already in place to attract global and regional asset managers here to keep the industry humming.

According to Choksey, Singapore has the actual potential to become the most attractive asset and wealth management hub in the region; its strong, forward-thinking policies together with existing infrastructure and talent are already in place to attract global and regional asset managers here to keep the industry humming. This can be coupled with external policies like promoting fund passporting and entering into connect-style programmes with other asset and wealth management centres so that Singapore becomes the natural choice as a primary asset and wealth management hub in the region.

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References

1. World Economic Forum, Global Information Technology Report 2016, http://reports.weforum.org/global – information – technology – report – 2016/

2. Maria Polevikova, Business Environment in Singapore, 2013, https://www.theseus.fi/bitstream/handle/10024/57443/Polevikova_Maria.pdf

3. PwC, Asset & Wealth Management Insights Asset Management 2020: Taking stock, https://www.pwc.com/gx/en/asset – management / asset – management – insights/assets/am – insights – june – 2017.pdf

4. EY, EY Brexit stats for the wealth and asset management industry, http://www.ey.com/uk/en/newsroom/news – releases / 18 – 02 – 19 – ey – brexit – stats – for – the – wealth – and – asset – management – industry

5. PwC, Asset & Wealth Management: a new era of growth, disruption and opportunity, https://www.pwc.de/de/finanzdienstleistungen/asset – management / assets /studie – a – new – era – of – growth – disruption – and – opportunity.pdf

6. IMAS, IMAS 2017 Investment Managers’ Outlook Survey, http://www.imas.org.sg / public /media  / 2017 / 01 / 24 / 1193_Media_Release_20170109-3.pdf

7. Bank of New York Mellon, The UCITS of Asia? A closer look at the Asia Region Funds Passport (ARFP),  https://www.bnymellon.com/_global-assets/pdf/our-thinking/the-ucits-of-asia.pdf

8. Jek-Aun Long, Zixiang Sun, Benedict Tan, Gurjoth Kaur, Aik Kai Ng, Singapore: ASEAN CIS Framework enhancements, http://www.elexica.com/en/legal – topics/asset – management/050318 – singapore – asean – cis – framework – enhancements#content-main

9. http://securities.bnpparibas.com/insights/asean-cis-regulation-memo-2018.html

10. http://securities.bnpparibas.com/insights/asean – cis – regulation – memo – 2018.html

11. Allen & Gledhill, Singapore, Malaysian and Thai regulators sign MoU to enhance ASEAN CIS Framework to give retail investors wider access to fund managers, http://www.singaporelawwatch.sg/slw/attachments/119070/Capital%20Markets%201.PDF

12. Deloitte, Capturing the multi-trillion dollar asset management opportunity in Southeast Asia, https://www2.deloitte.com/th/en/pages/strategy-operations/articles/capturing-multi-trillion-dollar-asset.html

13. Synpulse, The Singapore Asset Management Industry: Building a Strong Foundation for Future Growth, https://www.synpulse.com / _ Resources / Persistent /  499ccf97 ee46e3f2ef895e72e00c37a9eb46a1ba / White – Paper _ Singapore – Asset – Management – Industry _ EN.pdf

14. Monetary Authority of Singapore (MAS), 2016 SINGAPORE ASSET MANAGEMENT SURVEY, http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Surveys/Asset%20Management/2016%20AM%20Survey%20Report.pdf

15. The Deloitte International Wealth Management Centre Ranking 2018, https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/financial-services/ch-fs-1800914_Deloitte-wealth-managemnet-Ranking-2018.pdf

16. The Deloitte International Wealth Management Centre Ranking 2018, https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/financial-services/ch-fs-1800914_Deloitte-wealth-managemnet-Ranking-2018.pdf

17. Synpulse, The Singapore Asset Management Industry: Building a Strong Foundation for Future Growth, https://www.synpulse.com/_Resources/Persistent / 499ccf97ee46e3f2ef895e72e00c37a9eb46a1ba / White – Paper _ Singapore – Asset – Management – Industry _ EN.pdf

18. PwC, Asset & Wealth Management Insights Asset Management 2020: Taking stock,  https://www.pwc.com/gx/en/asset-management/asset – management – insights/assets/am – insights – june – 2017.pdf