Singapore to Review Hedge, PE Funds Rules as Regulators Increase Oversight

Date: Thursday, April 22, 2010
Author: Bloomberg

Singapore will review rules for its investment management industry, including hedge-fund and private-equity managers, for the first time since it introduced incentives to lure alternative asset managers in 2002.

The Monetary Authority of Singapore will start a public consultation within two weeks on proposals to ensure regulations remain “sound and responsive to the changing needs of the various stakeholders in the fund management industry,” it said in an e-mailed statement late yesterday.

Hedge funds and private-equity firms are under scrutiny from regulators and lawmakers worldwide, who say they are partly to blame for the worst financial crisis in a generation. Singapore’s hedge-fund industry has grown into Asia’s second biggest behind Hong Kong as the government lured investment management professionals with tax incentives and grants.

“They’re aware of the need to find the right balance,” said Melvyn Teo, a director at the BNP Paribas Hedge Fund Centre at Singapore Management University. “It will make Singapore less appealing to really small, young hedge funds, but the industry is maturing at the moment. We might still be quite attractive to more established larger ones.”

Hedge funds worldwide posted net outflows of $285 billion last year, leaving assets at $1.6 trillion, according to Hedge Fund Research Inc., a Chicago-based research firm.

Alternative Managers

The review “is essential for the long-term and sustainable growth of the fund management industry,” the regulator said in the statement in response to queries from Bloomberg News. The MAS has been consulting the industry since last year about tightening regulations.

“If we can expect some sort of indication of what the plan is going to be, that is very welcomed,” said Stephane Pizzo, founder of Singapore-based hedge-fund investing firm Lotus Peak Capital. “The regulations need to be well thought out so they are useful guidelines for asset management firms, without being unnecessarily restrictive or cumbersome.” Pizzo started an Asia-focused fund of hedge funds last year.

MAS has set up the Investment Intermediaries Department to supervise intermediaries, including alternative investment managers, and to “drive regulatory policies” governing the industry, it said in the statement.

The monetary authority will have “the flexibility to apply the appropriate level of regulatory oversight and licensing requirements relevant to alternative managers, and not be limited with the broad brush approach” of the existing Capital Markets Intermediaries Department, said Han Ming Ho, who heads the funds practice group in the city-state at Clifford Chance.

Pilgrim, Iridium

Prospects for tighter regulation haven’t deterred hedge- fund startups from setting up in Singapore.

Pilgrim Partners Asia Pte, founded by Albert Ee, a former managing director of Millennium Management LLC’s Asian business, plans to start in May a hedge fund that will profit from bets on broad economic trends in Asia. Iridium Asset Management, set up by Jason Wang, a former manager at GLG Partners Inc., and Simon Quirke, who helped manage Lionhart Advisors Group Ltd.’s Asian investments, are starting an equity hedge fund that will focus on commodities-related industries next month.

The island-state’s “lighter regulatory touch” has enabled hedge-fund managers to set up business “relatively quickly,” without risking any delay in getting the necessary licenses from the regulator, according to an overview of the industry published by the local chapter of the Alternative Investment Management Association.

World leaders, including the Group of 20 countries that make up most of the world’s economy, have called for stricter oversight of the pools of private capital in the wake of the global financial crisis.

‘Investment Hub’

U.S. President Barack Obama and Democrats are pushing to get legislation on new financial-industry regulations through Congress by next month, including rules governing the derivatives market to make it more transparent.

The European Commission, the EU’s Brussels-based executive, has proposed laws to overhaul financial regulation, including plans to establish Europe-wide supervisors for banking, securities and insurance along with a European Systemic Risk Board to monitor threats to financial stability.

“MAS adopts an open and consultative approach with the industry, and remains committed to building Singapore as a fund management and alternative investment hub,” the regulator said. It will ensure that the “business and regulatory environment remains conducive to both traditional and alternative managers,” it said.

Exempt

MAS, also Singapore’s central bank, said last year it will fine-tune its “regulatory approach as appropriate.” In 2002 it eased rules that limited investments in hedge funds to make it easier for them to set up in Singapore than in other Asian cities such as Hong Kong and Tokyo, helping fuel the industry’s growth in recent years.

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

“I believe that the exempt fund-manager status should be replaced with light regulation,” said Ee of Pilgrim Partners. “As a financial centre, it’s important that hedge funds in Singapore should be run by experienced managers with good risk management processes and strong corporate governance.”

Singapore’s hedge-fund industry has grown to 138 single- strategy hedge-fund managers employing more than 800 professionals from near zero in 1997, according to a survey by AIMA. The industry oversees at least $34.9 billion, excluding assets managed by several of the large global firms, it said, making it Asia’s second biggest.

Local Rules

Hedge-fund managers in Singapore are still subject to local rules on securities and futures trading as well as money laundering.

The size of Singapore’s asset management industry shrank about 26 percent to S$864 billion ($630 billion) in 2008 from a year earlier because of the global financial crisis, the authority said in its latest survey released in September.

“I remain confident that the forthcoming paper will be commercially sensible, with the MAS adopting a receptive approach to feedback from the growing local hedge-fund industry,” said Clifford Chance’s Ho.