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Hedge-Fund Managers ‘Keen for Clarity’ on Singapore Regulation

Date: Friday, February 26, 2010
Author: Netty Ismail, Bloomberg

Hedge-fund managers are “keen for clarity” on what Singapore’s regulator will do to increase oversight of the industry, said Han Ming Ho, who heads the funds practice group in the city state at Clifford Chance.

The Monetary Authority of Singapore has yet to indicate what the new rules for hedge funds will be since consulting the industry in September last year. Clifford Chance was one of the first international law firms awarded a Singapore license.

“The question that remains in the minds of managers I believe is that of the substance which the new changes will bring, whether in terms of additional or new requirements to be met or the raising of regulatory barriers of entry into Singapore,” Ho said in an e-mailed reply to queries from Bloomberg News.

The central bank said last year it will fine-tune its “regulatory approach as appropriate,” after moves to make it easier for hedge funds to set up shop there than in other Asian cities such as Hong Kong and Tokyo helped fuel the industry’s growth in recent years. Hedge funds are under scrutiny from regulators and lawmakers worldwide, who say they are partly to blame for the worst financial crisis in a generation.

Hedge-fund managers in Singapore are currently exempt from holding a capital-markets services license, provided they manage funds on behalf of 30 or less of what the regulator describes as “qualified” investors.

Licenses Likely

Hedge funds in the city-state will “almost certainly” need to be licensed, Michael Coleman, chairman of the Singapore chapter of the Alternative Investment Management Association, said in October.

The industry expects the monetary authority to start this quarter public consultation about tightening regulations following discussions with the industry since September last year, Ho said.

“From the anecdotal examples and discussions I have had with start-up managers and institutional hedge fund managers exploring various Asian jurisdictions to establish a presence, I have heard comments on more than one occasion, that in the absence of clarity on the pending changes to the Singapore licensing regime for the hedge fund industry, there has been less of a pull factor to commit resources and to ‘push the button’ with Singapore,” Ho said.

Still, “there are more rather than less number of managers whom, despite the lack of clarity, remain committed to their choice of Singapore as their Asian office, although it is their unanimous desire that clarity on the changes be provided to the industry soonest possible.”

There were 26 hedge-fund startups in Singapore last year, fewer than the 33 in Hong Kong, according to Eurekahedge Pte. The number of startups in Singapore had exceeded Hong Kong’s in 2008 and 2006, data provided by the Singapore-based industry researcher show.

‘Successful Recipe’

The island-state’s industry has grown from near zero in 1997 to now housing 138 single-strategy hedge-fund managers that employ more than 800 professionals, according to a survey by the local chapter of AIMA. The industry oversees at least $34.9 billion, excluding assets managed by several of the large global firms, it said.

The monetary authority has come up with a “successful recipe” combining attractive local tax incentives for managers, “efficient” licensing rules and a growing pool of fund service providers that has led to the “exponential growth” of the industry, Ho said.

The Group of 20 nations in April agreed to tighter oversight of funds. Funds won’t be able to get investment from U.S. banks, under proposals announced in January by President Barack Obama. The European Union’s Directive on Alternative Investment Fund Managers is currently being debated, with the European Parliament scheduled to vote on a final draft this year.

Singapore’s monetary authority in January added regulatory requirements that exempt managers, including hedge fund managers, are expected to comply with, its Web Site shows.

The new pre-requisites include the need for managers to have “adequate resources, including compliance arrangements commensurate with the size and scale of business activities in Singapore,” the regulator says.

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net.