Hedge funds startups in Singapore are on the rise after the central bank approved new rules that will exempt most funds from obtaining Capital Market Services licence.
Mr James Nuben of Asiabiz, a professional firm that provides Singapore Company Formation as well as work visa application thinks this is great news.
Hedge fund managers in Hong Kong face the same licensing requirements as mutual-fund managers. Singapore and Hong Kong are strong leading rivals for the global trillion-dollar hedge fund industry in the region.
“With the rest of the world tightening financial regulations on hedge funds, Singapore is making it easier for investors to incorporate a hedge fund company with lightweight regulations,” said Mr Nuben.
The number of new funds in 2009 fell from 13 to 26 per cent, making it the lowest drop since 2003. Mr Peter Douglas, principal of GFIA, which advises investors seeking to allocate money to hedge funds said: “The lack of clarity on Singapore’s rules last year made relocation to the city-state a difficult decision and cost business.”
After a consultation with the industry, Singapore’s central bank said in April that managers with less than S$250 million ($183 million) and serving not more than 30 qualified investors can submit a notification to the Monetary Authority of Singapore to be exempted from obtaining a Capital Markets Service licence.
To be eligible for this new rule, managers and their bigger licensed partners must maintain a minimum base capital of S$250,000 and have at least two directors.
“Singapore has recognized the needs of startups and smaller managers not to be overburdened by regulatory costs,” said Michael Coleman, chairman of the Singapore branch of the Alternative Investment Management Association.
“The proposed changes will, and already are, taking off the brakes that were applied because of regulatory uncertainty. Singapore is now fully back on the map as an attractive location for our industry,” said Mr Douglas who also runs a wealth management business on the island.
This move, according to Eurekahedge, prompted a boom for the industry as seven new hedge funds were set up in May and June. Although smaller hedge fund manager will not need to obtain a licence, they will still have to follow Singapore’s rules on securities, futures trading, and money laundering. According to MAS, the hedge fund industry grew to S$43 billion in 2009, with 320 hedge fund managers as compared to fewer than 20 managers before 2001.
“Singapore has been as sensible and forward thinking as they can be about growing the hedge funds industry,” said Peregrine Cust, founder of Prana Capital, which moved its investment team to Singapore from London in April.
“It’s a very high-margin business, it brings lots of highly paid professionals into the local economy. It’s not going to take them that long to take this industry to critical mass,” said Mr Cust.
Clifford Chance’s partner Ho Han Ming, who heads the law firm’s fund practice group in Singapore said more enquiries have been coming in since the rules were announced. Clifford Chance is one of the first international law firms awarded a Singapore license.
“A lot of guys are revamping their strategies, a lot of them are kick-starting their processes which they’ve put on hold,” said Mr Ho.
According to the Accounting and Corporate Regulatory Authority (ACRA), hedge fund managers who have registered their offices in Singapore include the US$1.5 billion London-based Algebris Investments LLP, and Fortress Investment Group LLC, which was the US$42 billion buyout and hedge-fund firm co-founded by Wesley Edens.
Singapore’s low personal income tax rate of 20 per cent is another attraction for managers from Europe to relocate. The United Kingdom recently increased personal income tax to 50 per cent while European regulators work on implementing tougher rules.
Singapore also bagged the number one spot as Asia’s most liveable city in a Mercer Consulting survey in May. Hedge fund giant Pure Capital is also “seriously considering” relocating its head office from London to Singapore. The firm had plans to move more of its operations to London last year in order to be closer to investors.
“Europe is going to very much become the ‘old world’ and get left behind. The hedge-fund industry will move towards Asia over decades to come,” said Anthony Limbrick, chairman and chief investment officer of Pure Capital.
“We may yet be a year or two away, but we like Singapore’s attitude to encouraging new business.”
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