singapore's fund management industry
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Singapore’s fund management industry
May 2005
2
Agenda
• Historical summary of the growth of the investment funds industry
• Factors contributing to the growth • Hedge Fund industry • Challenges ahead• Career opportunities
3
Growth
ProcessImprovement
ControlledEnvironment
Cost reduction and outsourcingClient service reinventionTransparency and disclosures
Mutual fund oversightInternal controls and regulatory complianceRisk management
Search for margin growthInnovate product offeringFocus on hedge funds and alternativesConsolidation – small is beautiful
Key themes
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CorporateGovernance
Outsourcing
Market consolidation
Marketing timing & late
trading
Fight for talent
Reputation & investor
trust
Brand protection
Source: PwC Global Investment Management Survey 2003, PwC research
Distribution channels
Anti Money laundering
Fund managers have had to deal with a number of issues globally as well as locally
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0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Singapore Thailand Indonesia HongKong
China Malaysia Korea Taiw an Philippines
%
2003 * 2004 * 2005 *
Estimated 2004/2005 Gross Domestic Product Growth Rate (in %)
Source:Asian Development Bank
Robust growth expected, fuelled by China’s economic locomotion, regional trade and expanding consumer demand
Mutual fund assets in Asia ex-Japan are expected to grow 12% annually over the next five years to US$560 billion by 2007 (2002: US$314 billion)
Asian fund markets - the case for growth?
6
High domestic savings rates provide significant opportunities for investment penetration
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Singapore Thailand Indonesia Hong Kong China Malaysia Korea Philippines
%
2003 * 2004 *
Estimated 2003/2004 Gross Domestic Savings Rates (in %)
Source:Asian Development Bank
But uncertainty remains – eg. the continued unrest in Iraq, is the Chinese economy heading for a soft landing, where are US interest rates heading etc?
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The most significant growth in HNW financial wealth will be in Asia
Wealth Forecast - HNWI Financial Wealth by Region(US$ trillions)
8.2 8.4 8.711.0
7.6 7.4 8.5
14.05.3 5.96.5
9.3
3.5 3.63.7
4.7
0.80.8
0.8
0.9
0.60.6
0.6
0.8
2001 2002 2003 2008E
At 7%Growth
Source : Cap Gemini Lorenz curve analysis May 2004, World Wealth Report 2004
Europe 4.1%
North America 10.7%
Asia-Pacific 7.4%
Latin America 5.2%
Middle East 2.8%
Africa 4.6%
Annual Growth Rate2003 – 2008E
Worldwide 7.0%
Developments in the Fund Management Industry
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The growth in discretionary assets under management in Singapore is particularly encouraging
Growth in AUM
$ 180.7 $ 183.4
$ 254.6
$ 65.9$ 86.5
$ 125.0 $ 124.1 $ 111.9
$ 183.0$ 166.4
$ 210.6
$ 160.4
$ 126.3
$ 90.7$ 109.8
$ 38.7
0
50
100
150
200
250
300
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
S$ b
illio
n
Total Discretionary AUM Total Non-Discretionary AUM
Source:MAS Asset Management Survey 2003
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The number of collective investment schemes in Singapore is also growing
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And the number of Asset Management Companies…
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Source: EurekaHedge
Hedge Funds and Managers : Location and Number
0
5
10
15
20
25
30
35
40
45
1997 1998 1999 2000 2001 2002 2003
No.
of m
anag
ers
Source: EurekaHedge (number of hedge fund managersbased in Singapore)
17%
17%7%
22%
20%
7%10%
Singapore USA Australia JapanHong Kong UK Others
Singapore has also done well in attracting hedge fund talent, and is positioning itself to be a hub for alternative investments
Growth of the industry
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Regulatory changes
• The CPF system introduced in 1986−Limited investment options – Singapore stocks,
unit trusts invested in Singapore, gold only• Liberalisation of the CPF system in 1990s −Addition of bonds, deposits, endowment plans,
fund management accounts and unit trusts investing in foreign markets
• No limit for CPF investments in unit trusts, whilst there are limits for stocks
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Regulatory and tax changes
• Feeder fund structures • Fund managers were able to set up structures that
feed into offshore funds • Offshore fund structures recognised for sale
• Fund managers are now able to sell offshore fund structures directly
• No tax on all revenues sourced out of Singapore
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Growth of Distribution channels
• Initially only foreign banks such as Standard Chartered Bank and Citibank sold foreign fund manager products whilst domestic banks sold funds managed by their bank’s asset management arms.
• Domestic banks started to sell foreign fund manager products.
• Distribution expanded to include Brokerages, Financial Advisors, Online.
• Growth of Independent Financial Advisors
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New products contributing to the growth of the industry
• Growth of sector funds such as technology, financials, healthcare
• Guaranteed/Structured products• Shift towards hedge funds and REITs
The growth of hedge funds
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AIMA continued membership growth
050
10015020025030035040045050055060065070075080085019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
…of which 20% is in Asia – the fastest growing region!
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Japan, Hong Kong, Singapore
• Investments in Asian hedge funds leapt to over $60bn by end 2004 from $34bn at the end of 2003
• There are over 550 Asian-dedicated hedge funds
• The majority of Asian hedge funds are run from the region
• Recent returns have been better than the global universe
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New funds launched by (major) regions
Location 2003 launches
2004 launches
Total number of funds
Australia 27 13 85Hong Kong 11 13 87Japan 15 9 54Singapore 15 19 52United Kingdom 24 24 128United States 24 14 99
Source: Eurekahedge, 31 December 2004
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Average Asset Size (US$m)
Source: Eurekahedge, 31 December 2004
Location 2003 2004 IncreaseAustralia 77 115 49%Hong Kong 81 114 40%Japan 168 145 -14%Singapore 36 46 29%United Kingdom 98 157 60%United States 202 191 -6%
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Comparative Table
Japan Hong Kong SingaporeOffshore Manager Required Required Common; but not
absolutely necessary
Onshore Investment Adviser discretion?
No No Yes
Tax position of Fund Lacks certainty Lacks certainty, but being addressed!
Yes
Local registration required
Yes Yes In most cases exemption available,
but sophisticated investor registration
often sought in practice
Performance Fees permitted
Yes Yes Yes
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Singapore, qualitatively:
• good business and lifestyle infrastructure– low operating cost– ideal travelling base
• manager growth:–screen-based (macro, relative value, multistrategy)–regulatory arbitrage (Japan, Korea, India)–quasi-prop money (major global hfunds, etc)–capacity-constrained strategies
• allocator presence:–GIC/Temasek–Private banks–Fund of Hedge Funds
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Why will Asian h-funds outperform?
• Asia: 15% of global capital markets, 7% of global h-fund industry.
• heterogenous collection of markets–broad range of economic drivers–many distinct capital markets niches
• high retail participation, low institutionalisation–inefficient but liquid (usually)
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Industry Convergence• major allocators treating Asia as an essential part of their portfolio
– setting up regional offices (GAM, RMF, Partners Group, KBC Alpha, Fairfield Greenwich…)
– dedicating research staff to Asia– huge growth in Asian FoHFs
• service providers replicating service levels– at least 8 prime brokers competing, 5 years ago there were 2– administrators dedicating staff to h-funds– tertiary providers (risk managers, compliance consultants, research
boutiques, marketing specialists) establishing in the region– extensive sources of seed/incubation capital – virtually none 5 years
ago• managers converging on global norms
– major global names establishing Asian presence (Tudor, Rohatyn, Och-Ziff, Ritchie…)
– well-resourced start-ups (Alcor, PMA, Creo, Aman…) with capital and deep teams from day 1
– good managers reaching capacity within 12-24 months
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Crystal Ball
• continued rapid inflow of assets and skills– prop traders, second-generation managers, conventional
houses– capital sources will multiply
• continuing breadth of strategies– multi-strat, macro, rel val, trading– continued exploration of capital markets: FI, FX, derivatives,
securitisation– intensive development of Asian FoHF space– investible index of Asian funds?
• the Seoul driver syndrome… expect traffic accidents– the ugly are learning how to look prettier – beware the
credible opportunists– shorter “time to close” disadvantages the newbies– plethora of Asian FoHFs overlapping each other
Challenges for the future
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Performance of global stock markets
Cost containment
Regulatory and compliance issues
Competitive pressure
Investor trust
Tax and regulatory barriers to cross-border distribution
Evolving client needs
Globalisation
63%73%
63
66
59
46
30
66
30
71
58
58
46
21
63
38
83%
72
67
61
50
39
61
22
67%
33
83
33
50
50
67
17
Total UK Europe Asia ex-Japan N. America
90%
60
70
70
40
20
50
40
???
Source: PwC Global Investment Management Survey 2003
Challenges facing the fund management industry
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0 10 20 30 40 50 60 70 80
Attracting new clients
Adapting to client needs/profiles
Brand image/reputation
Increased competition
Economic environment
Retaining existing clients
External regulation
Entering new markets
Major risk management failure/fraud
Developing local expertise
% of respondents
Institutional
Retail
Source: PwC Global Investment Management Survey 2003– Asia ex-Japan Response
Top challenges to growth in Asia
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To increase profitability over the next 3 years, a number of strategic priorities are being taken
Improve existing product performance
Reduce costs
Develop new products
Refine existing products
Enhance skills of client managers
Better communication of investment performance (transparency, comparability)
Develop new / alternative distribution channels
Raise management fees
58%65%
35
51
17
20
14
54
13
50
39
21
17
8
42
8
72%
39
67
11
11
11
61
22
50%
17
50
17
17
17
50
17
Total UK Europe Asia ex-Japan N. America
100%
30
40
10
10
10
50
20
Source: PwC Global Investment Management Survey 2003
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Distribution of foreign funds in any particular country is not a piece of cake
Development of open architecture
0 10 20 30 40 50 60 70 80
Perceived demand
Regulatory environment
Cost of doing business
Tax and legal barriersto foreign funds
Significant wealthy population
Rates of investment return
Depth of local knowledge
Availability of service providers
Legal structure
Tax laws
% of respondents
89%
Source: PwC Global Investment Management Survey 2003– Asia (ex-Japan) Response
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Asia’s diversity in having multiple distribution channels poses many challenges
Mutual Funds - Distribution Channel Mix Across Asia
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Singapore HongKong
Malaysia Korea Taiw an Japan India Thailand Indonesia China
Banks Independent Brokers/IFAs Tied Agents Direct Sales Force
Source: PCA Analysis 2002, PwC Research
Career opportunities in the industry
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• Business Development - Institutional • Business Development - Retail • Product Development • Portfolio Management • Research • Central Dealing • Performance Measurement• Risk Management • Compliance • Operations • Fund Administration
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Contact detailsAndrew KwekExecutive DirectorInvestment Management Association of SingaporeTel: 65 6230 9717Fax: 65 6535 2349Email: [email protected]