The Fund Mgt Activities in Singapore", by Valerie Wu


Singapore's booming asset management industry saw its sixth consecutive year of double-digit growth in 2006, boosted by continuing worldwide interest in Asia's rapid economic.

According to the Monetary Authority of Singapore’s (MAS) latest survey of the asset management industry, the amount of assets managed by Singapore-based fund managers swelled by 24 per cent last year, reaching $891 billion at end-2006, compared to $720 billion a year earlier. Since the mid-nineties, the Singapore Government has identified the investment management industry as one of the key financial sectors to develop. With this in mind, the MAS has introduced a variety of incentives and reforms to encourage the growth of the investment management industry.

 The MAS and the Government of Singapore Investment Corporation (GIC) have committed to place out a total of S$35 billion of funds to external fund managers over the next few years. This will serve as seed money to grow the Singapore fund management industry.

 The Central Provident Fund (CPF) Investment Scheme for unit trusts was also revamped to increase the number of quality asset managers and products available to CPF members.

 MAS also liberalized the investment guidelines for both CPF and non-CPF unit trusts to give asset managers the flexibility they need to diversify their portfolios. Restrictions on regular savings plans were also lifted so that asset managers can decide whether they want to offer regular savings plans, and their structure.

 To improve and streamline the regulatory structure for asset management companies, MAS reduced the minimum group shareholders' funds requirement for an investment adviser's license from S$500 million to S$100 million. The minimum amount of global funds that the company must manage was also lowered from S$5 billion to S$1 billion.

 Steps have been taken to make rules more transparent. For example, new disclosure requirements and investment guidelines for unit trusts are now set out in the Handbook of Unit Trusts, issued by MAS and the Registry of Companies and Businesses (RCB).

 MAS raised the disclosure standards for unit trusts so that investors would be adequately informed of the returns and risks associated with their investments, and can compare the performance and charges of different unit trusts and asset managers.

 In March 1999, MAS introduced measures aimed at nurturing the local boutique fund management (BFM) industry, including a new Approved Boutique Fund Managers (ABFMs) Scheme, which allowed investment income earned by foreign investors from funds managed by ABFMs in Singapore to be tax-exempt.

 To attract new asset managers to Singapore and encourage existing firms to expand their operations, the Government has introduced various tax incentive schemes for the asset management industry. For example, the Enhanced Fund Manager scheme allows fund management companies who manage at least S$5 billion of foreign investors' funds to enjoy tax exemption for the fee income earned from providing investment management or advisory services.

 SGX has also allowed the listing of hedge funds from June 2006.

These efforts appear to have met with some success, as many international fund management firms have set up offices in Singapore and do business there. Singapore is certainly fast emerging as a major centre for fund management activities in the region.


Fund management is defined as collecting funds from individual investors and invest those funds in a potentially wide range of securities and other assets. Pooling of assets is the key idea behind investment companies.

There are two types of fund structure: open-ended funds and close-ended funds. Open-end funds stand ready to redeem or issue shares at their net asset value while close-end funds do not issue or redeem shares, so investors who wish to cash out must sell their shares to other investors.

Singapore’s fund management industry here has benefited from rising private wealth worldwide, boosted by the strong global economy and robust stock markets, and keen interest among investors in Asia's economic growth led by China and India.


The national development strategy for the fund management sector is to build on existing strengths, address weaknesses, prioritize likely market niches, and take into account related activities and their support factors, and leading edge global developments.

 Expanding the government’s role in developing the asset management industry by:
(1) developing start ups and small and medium sized fund management firms;
(2) extending fund management mandates granted by the GIC and the MAS;
(3) providing funds to attract private equity players.

 Boosting competitiveness as pre-eminent asset management centre by
(1) improving tax treatment;
(2) reviewing CPF structure;
(3) improving investor education;
(4) improving professional training.

 Increasing focus on developing alternative assets (ie hedge funds) cluster by
(1) raising developmental focus and regulatory responsiveness;
(2) establishing the limited partnership structure (ie for an investment vehicle, as in the US) in Singapore;
(3) reforming the Trustees Act;
(4) streamlining tax incentives for private equity into a single package;
(5) increasing tax certainty for private equity;
(6) establishing a favorable tax environment for alternative investments;
(7) upgrading professional skills in private equity;
(8) using private equity as an option to help Government-Linked Companies (GLCs) to spin-off non-core assets.

 Developing ancillary services by:
(1) developing trustee and custody services;
(2) developing specialized legal, custody and other ancillary services.


Singapore aims to be the premier asset management hub in Asia. To achieve this aim, various measures have been put in place.

1) Central Provident Fund
The Central Provident Fund (CPF), a compulsory government-managed retirement savings scheme, was set up in 1955. Current contribution rates are very high – up to 20% of salary from the employee and 16% from the employer, subject to a cap. The CPF absorbs much of the population’s savings and majority of which is invested in Government bonds. However, in recent years, CPF account holders have been permitted more flexibility in usage of their accounts. Drawdowns for major items such as house purchases are permitted, and CPF account holders may even invest a portion of their fund in stocks.

2) Handbook on Unit Trusts
MAS, together with the Registry of Companies and Businesses (RCB), has also published a Handbook on Unit Trusts. The Handbook provides easy reference to industry practitioners on the legal requirements as well as administrative guidelines for the offer, management and operation of unit trusts.

MAS has raised the disclosure standards for unit trusts so that investors are adequately informed of the fees and charges, risks and performance associated with each unit trust. Such disclosure helps investors to compare different unit trusts, enabling them to make informed investment decisions.

The Central Provident Fund Investment Scheme for unit trusts was revamped to increase the number of quality asset managers and products available to CPF members. This would further increase the pool of domestic funds available for professional management.
However, “The Code on Collective Investment Schemes” replaces the “Handbook on Unit Trusts” with effect from 1 Jul 2002. The Code is issued pursuant to Part XIII of the Securities and Futures Act (Offers of Investments).

3) Outplacing Government Funds for Private Management
In 1998, MAS has adopted a strategic approach towards developing the fund management industry. Following the Asian Financial Crisis, which hit Singapore’s neighbours such as Indonesia particularly hard, the Singaporean authorities redoubled their efforts.MAS and the Government of Singapore Investment Corporation (GIC) have decided to place out a total of S$35 billion to external fund managers over three years till 2000. This will act as seed money to grow the Singapore fund management industry.

4) Revised Requirements and Tax Incentives for Fund Management Companies
To attract more fund managers to operate out of Singapore, the minimum shareholders' funds requirement for an Investment Adviser's licence was reduced in February 1998 from S$500 million to S$100 million. The minimum amount of global funds that the company must manage was also lowered from S$5 billion to S$1 billion. The government also introduced tax incentives which allow qualifying fund management companies to enjoy tax exemption for the fee income earned from providing investment management or advisory services.

Fund management companies are entitled to the following fiscal concessions:

i) Fee income received by fund management companies in respect of services rendered are exempt from corporate income tax for a period of 5 years provided the fund management company manages an asset portfolio with a value in excess of S$5m (at the time of writing). The exemption period can be 10 years if the fund managers can make suitably strong commitments to significantly increase their level of fund management activities in Singapore. The exemption is granted by the monetary authority of Singapore on a case by case basis.

ii) Dividends: In Singapore there are no withholding taxes levied on dividends. Instead dividends are taxed at 20% with a tax credit being given for any corporate tax levied on the profits out of which dividends are paid. Where there is a shortfall between the tax credit and the 20% charge levied on dividends the shortfall must be made up by the company paying the dividend and not by the shareholder receiving it. Companies engaged in fund management are exempt from any further taxation on the shortfall in so far as that shortfall is caused by the concessionary fiscal status granted to the company.

Regulatory changes introduced in 2004 mean that international fund managers are no longer required to maintain a physical presence in the territory, and are permitted to make their funds available via private banks.

5) Licensing Regime for Boutique Fund Managers
In March 1999, MAS introduced a streamlined licensing scheme aimed at admitting more boutique fund management firms (BFMs) to add greater depth to the fund management industry. BFMs are owned and operated by experienced fund management professionals, provide specialised investment advisory services to selected institutional and high net-worth clients.

Singapore's Prime Minister Lee Hsien Loong announced in his 2005 budget that start-up fund managers would be given a 12-month grace period to meet the requirement that 80% of share capital must come from foreign investors to qualify for a 10% tax rate on fee income.

Foreign fund managers, ie those based overseas, are actively solicited to set up offices in Singapore. The authorities also recognize the value of innovation and are keen to get the leading edge firms to set up in Singapore. In accordance with this policy, Singapore has been welcoming to hedge funds, and has granted them mandates of government money to encourage them to set up in Singapore.

The other aspect of hedge fund taxation that industry participants called for to be changed was the level of the 10% tax, considered somewhat high by many. By cutting this levy to 5%, observers believed that Singapore would be able to continue to carve out a niche as a centre for the management of Indian, Japanese and Korean-based funds, in addition to capturing some of the growing interest in specialist Islamic hedge funds.

6) SGX Listing of Hedge Funds
In June 2006, Singapore Exchange Ltd (SGX) announced that it would accept listings of hedge funds. Although eligible hedge funds are listed, however there is no trading in their units on SGX. Typically, issue and redemption takes place in the over-the-counter market.

The new listing rules for hedge funds have the following key features:
i) Hedge funds must be authorised or recognised under section 286 or 287 of the Securities and Futures Act; or be offered only to institutions and/or accredited investors;
ii) They must have a minimum asset size of at least S$20 million or US$20 million for Singapore and foreign currency denominated funds respectively.

Under additional rules, fund managers are required to have in place an independent risk management function. The investment management team of a hedge fund is expected to have at least one principal with a minimum of five years relevant investment management experience. A hedge fund will have to announce its net asset value per unit, as soon as practicable after each month end, but in any event no later than seven business days. In addition, a fund must immediately announce any material change relating to its operations, including but not limited to, any change in its investment manager, custodian, administrator or independent auditor.


“Fund managers continue to use Singapore as their regional HQ because they see Singapore as a prime location to service clients, raise capital from the region, as well as invest into the region and beyond,” said MAS chairman and Senior Minister Goh Chok Tong, speaking to equity investors and business leaders from around the world at the fourth annual Asia Equity Forum organized by Japan's largest brokerage, Nomura.

Most of the growth was contributed by foreign traditional asset managers, which accounted for 85 per cent of the rise in total assets under management. The rest of the growth came from local asset management firms and alternative asset managers like hedge fund managers.

Hedge fund services are seriously lacking in the region, especially the early stage arena in Singapore, even though there has been an increase in the number of hedge fund managers in Singapore.

The number of hedge funds based in Singapore grew from just eight in 2001 to more than 50 in 2004 and rose sharply to about 190 at end-2006, a 76 per cent jump from a year earlier. Together, they managed more than $40 billion worth of assets, a 150 per cent increase from 2005.

Over the year, the total number of portfolio managers, investment analysts and other investment professionals rose 23 per cent to reach 1,786 at end-2006. Of these, a third are employed by local asset management firms.

As at 2005, more than 80 per cent of the funds managed out of Singapore last year was sourced from abroad. About half the total funds came from institutional investors; the rest were assets managed on behalf of other investors, including individuals and collective investment schemes.

Forty-three per cent of the funds was sourced from Asia Pacific, while the US contributed 11 per cent and Europe 24 per cent. The proportions were broadly unchanged from 2005. Asset managers here also reported a surge in funds from South Asia and the Middle East; funds sourced from these regions grew by 36 per cent and 21 per cent respectively.

According to the latest World Wealth Report published by Merrill Lynch and Capgemini in June 2007, Singapore saw a 21 per cent jump in its population of people with more than US$1 million in assets in 2006 - the fastest increase among the 71 countries covered in the report.

The total number of such high-net-worth individuals worldwide rose by 8.3 per cent to 9.5 million, while their combined wealth grew 11.4 per cent to US$37.2 trillion. In the Asia Pacific region, high-net-worth wealth rose 10.5 per cent to US$8.4 trillion, and is projected to grow at an average rate of 8.5 per cent a year to reach US$12.7 trillion by 2011.

A measure of the continuing keen interest in Asia was demonstrated in the data published by MAS on 4 July 2007 - 57 per cent of the total assets under management in Singapore last year were invested in the Asia Pacific region, up from 53 per cent in 2005.

The share of assets invested in Europe rose slightly to 12 per cent from 10 per cent in 2005, while the proportion of funds allocated to the US - the other main investment destination - was unchanged at 7 per cent. As stock markets worldwide soared, the proportion of assets invested in equities grew to 55 per cent in 2006, up from 47 per cent in 2005. This ate into the share of funds invested in bonds and other assets.


In recent years, we have seen a very significant increase in the number of unit trusts and investment-linked life insurance products in the Singapore market place. Singapore is one of the most open insurance markets in the world. As at 17th March 2000, the market became fully open to foreign insurers and the 49% limit on foreign shareholdings was also removed.

Singapore's development as a leading insurance centre has seen a rich pool of 56 direct insurers (including Life, General and Composite), 28 professional reinsurers, and 60 captives today. We are currently the largest domicile for captive insurers in Asia and 20 of the top 25 reinsurers globally are based in Singapore.

Some of the incentives in the recent years for the insurance industry include:
i) Tax Incentive Scheme for Offshore Insurance Business.
A concessionary tax rate of 10 percent can be granted to insurance companies on income derived from writing offshore insurance business.

ii) Tax Exemption Scheme for Offshore Marine Hull & Liability Insurance Business. This scheme aims to encourage all general direct insurance and reinsurance companies in Singapore to tap the insurance potential of the shipping communities in the Asia Pacific region. It provides tax exemptions for income derived from underwriting profits of offshore marine hull and liability business as well as non-Singapore dividends, realized capital gains, and interest including Asian Currency Unit (ACU) deposits derived from investing premium income from offshore marine hull and liability insurance business and shareholders’ funds used to support the offshore marine hull and liability insurance business.

iii) Abolition of Withholding Taxes on Financial Guarantee Insurance Contracts. To promote financial guarantee business, claim payments made under financial guarantee insurance policies by approved financial guarantee insurers to nonresidents are exempt from withholding tax.


A report released by Standard & Poor's (S&P) Ratings Services in September 2004, entitled 'Securitizing Real Estate in Asia: Is Singapore a Prelude of Things to Come?' noted that Singapore, with over US$1 billion in capital raised since 2002, is increasingly seen as a factor in the region's REIT and securitized real estate market arena. The report also pointed out that Singapore's many other advantages including location, a highly skilled and educated workforce, its 'AAA' sovereign rating, and clear legal system are also standing the city-state in good stead within the international real estate market.

According to S&P, the marriage of these factors with relevant tax benefits is making Singapore the preferred location to list shares for many regional real estate owners. Singapore has emerged as an inviting market for local and regional REITS issuers with pressures from investors and regulators driving the market toward international valuation, governance, and transparency standards.

In his 2005 budget speech, Prime Minister and Minister of Finance, Lee Hsien Loong announced that foreign non-individual investors would be encouraged to invest in the Singapore property market with a proposed reduction in the withholding tax on REIT distributions to 10% from 20%, for a period of five years. Additionally, to attract more REIT listings, the government will waive stamp duty on the instruments of transfer of Singapore properties into REITS to be listed, or already listed on the SGX, for a five-year period.


Singapore is also emerging as the most popular Asian location amongst hedge fund managers for fund start ups, and the city state saw more new fund registrations than either Hong Kong or Australia in 2004. Singapore saw 19 fund launches last year, compared to 13 each in Hong Kong and Australia. Institutional asset managers accounted for 85% of the increase, with hedge funds adding impetus – there were 190 hedge funds in Singapore at the end of 2006, compared to 107 at the end of 2005.

Singapore has recognized the opportunity presented by the ambiguous tax stance of the Hong Kong Inland Revenue Department towards unauthorized funds (i.e. most hedge funds); and it has been soliciting Hong Kong-based fund managers to relocate to the island state.

The factor that appears to be spurring hedge fund growth in Singapore is the relatively short time taken to register a fund in the city-state, an issue identified by hedge fund managers as the most crucial.

In his 2006 budget, Lee Hsien Loong announced a range of tax and other initiatives aimed at spurring growth in the financial services and asset management industry. Among the measures designed to promote the development of Singapore as a financial centre were enhanced tax incentives for asset and wealth management, capital and treasury markets, and captive insurance.

The current stable cost structure and clear and conducive regulatory and tax environment has primed Singapore into one of the most desirable places in Asia for fund managers to open their own boutique hedge funds. Singapore overtook Hong Kong in terms of hedge fund launches in 2004 – 13 new set-ups in Singapore compared to 12 in Hong Kong. In the first half of 2003, 12 new hedge funds opened their doors in Singapore, while only 6 were launched in Hong Kong.

According to Eurekahedge, as at 6 September 2006, across all strategies, there are pproximately 84 hedge fund firms located in Singapore, 134 in Hong Kong, 58 in Japan and 115 in Australia.

The growth in assets employed in the region, across all strategies, has been impressive in recent years, rising from USD 16 billion in 2000 to USD 90 billion in 2005. During that period, the number of single manager funds dedicated to Asian markets has also grown from approximately 180 to 650.

The high remuneration and independence of hedge funds, compared with traditional fund houses, means they tend to attract the best and brightest of the profession. The transfer of knowledge from these practitioners promotes the general development of the financial market in which they are based. Through the high fees they earn and active trading, hedge funds generate fee income for their suppliers. Hedge fund activities also boost GDP, tax revenues and stimulate quality employment in firms from which they purchase services, such as prime brokers, custodians and accountants and lawyers.


In accordance with its government-led economic philosophy, the Singapore authorities have expressly targeted the development of the fund management as a key element of the financial sector. A range of incentives are provided by the government to encourage international fund managers to set up in island state. Factors that support fund managers aggregating in a centre like Singapore include good infrastructure, availability of quality legal and accounting services, sound regulatory environment, low tax rates and a clear tax regime, and the potential demand for their products from the individuals and businesses in the economy. With these, Singapore’s fund management industry is set for exponential growth.

Valerie Wu
10 August 2007


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