Despite a turbulent 2014, fund managers and sector analysts have expressed confidence in the resilience of Singapore’s investment environment for the future.
The recent growth spurt in Singapore has not been ‘pure luck’. Strategically surrounded by emerging ASEAN economies, Singapore boasts geographic and economic advantages that support a diverse and large fund management sector.
This caters to fund managers who traditionally establish advisory and management operations in Singapore with the aim of deploying their investment strategies on a regional/global scale to invest in a wide range of marketable securities and unlisted assets alike.
There is clear evidence that the conditions are favourable for fund managers who choose Singapore. Fund managers are naturally sensitive to seizing opportunities and we explore seven advantages of Singapore that appeal to this sector:
1. Positive growth outlook
Between 2002 and 2013, ASEAN grew approximately at an average of 6% annually, compared with the global average of 4%. The ASEAN Economic Community 2015 plan to enhance regional growth and development by integrating the region’s collective strength to create an impact in the global market.
Additionally, with a combined population of 600 million, there is potential to ride on the back of consumerism to drive growth. As the regional financial hub, Singapore’s financial sector is positioned to be at the forefront of this economic assault.
Sensing these opportunities in the region, numerous global fund management companies have rightly chosen to anchor in Singapore.
2. A big pond with enough fish
Post financial crisis, Asia has witnessed phenomenal wealth creation. In Singapore alone, the number of dollar millionaires doubled between 2008 and 2012 (according to WealthInsight).
It is estimated that by 2017, nearly one in 20 Singaporeans will be a millionaire. The ever increasing rate that Asia is producing high net worth individuals has to be proportional to the amount of wealth seeking a home base.
A report by the Monetary Authority of Singapore (MAS) showed that total AUM by Singapore-based asset managers grew by 11.8% year-on-year in 2013 to S$1.82 trillion, with 56% coming from Asia Pacific. Fund managers raising funds in Singapore would find a high wealth concentration in the country.
3. A confidence-inspiring regulatory framework
MAS has been keeping pace with global regulatory standards. With the enhanced licensing regime for fund management companies, MAS has increased its oversight in this industry.
This enhanced licensing regime inspires confidence in investors looking for a dependable regulated environment to harbour their wealth. With a relatively more mature legal and regulatory framework, Singapore is an ideal investment location.
4. A hub of reputable distribution agents
There is a hive of activity amongst bank intermediaries and retail distribution in Singapore. In 2013, the Swiss National Bank selected Singapore as the location for its Asia branch. Singapore was the destination of choice partly because it accounts for a sizable share of the Asian bond trade.
Singapore is even anticipated to overtake Switzerland by 2020 to become the largest global offshore wealth centre. Investors or those seeking to raise funds are not short of channels to create a wealth-generating vehicle.
5. Attracting Asia’s best and brightest
The financial industry currently hires approximately 5% of Singapore’s workforce. In a bid to expand the talent pool in the sector, Singapore has been rolling out plans to enhance the quality of finance professionals and groom people for top leadership roles.
Companies in the finance sector have also been partnering with local universities to tap into this qualified and competent resource pool. Potential investment firms would get a head start in tapping on human capital to fuel their needs.
6. A slew of fiscal incentives
In order to continually grow Singapore’s asset management industry, the government has extended and refined tax incentive schemes for qualifying funds. Additionally, Singapore has economic and tax treaties with over 70 countries, giving it a substantial advantage over other traditional choices.
This, coupled with a low income tax and zero capital gain tax regime, has made the country attractive to fund managers by design. Singapore has also aligned and cooperates openly with global tax initiatives, while adapting to FATCA and AIFMD requirements.
Fund managers can sleep soundly knowing that they aren’t worse off here in comparison with other tax jurisdictions.
7. Robust infrastructure and connectivity
Singapore boasts world-class infrastructure with top-notch transportation facilities. It is the leading network-ready environment in Asia, based on a 2014 report by the World Economic Forum.
Applying the spoke-hub distribution paradigm, fund managers naturally view Singapore as the hub to connect with and expand into other parts of Asia efficiently. Singapore’s high level of connectivity and advanced infrastructure are key considerations for any serious player in this sector.
Such factors cannot be ignored as they undeniably attract money and professional talent to the island state.
Fund managers have a returns-centric objective that requires them to outperform the alpha and beta. However, each fund manager is unique in terms of strategy, product offering and client profile. To be successful, fund managers need the right ingredients.
One must not underestimate the importance of the sovereign environment. The state of play is an important factor in facilitating the creation of successful investment portfolios. The rational approach for a fund manager would be to reduce risk uncertainty by continuously planting the seeds for further investments in Singapore.
A combination of quality people, business support, government readiness and widespread use of technology makes Singapore a preferred investment destination.
This article was written by Dennis Lee, Director, RSM Ethos Pte Ltd, and Dave Kwong, Associate, Valuations, Stone Forest Corporate Advisory Pte Ltd (RSM Ethos and Stone Forest Corporate Advisory are the Governance, Risk & Consulting and Corporate Advisory divisions respectively of the Chio Lim Stone Forest group). The article was first published on AsiaOne.