Singapore’s prospects as a fund management hub look stronger than ever. A number of recent international developments have contributed to this. Global investors are concerned about uncertainties arising from the US-China trade war, protectionism, Brexit, the Italian budget and a sluggish growth outlook for the eurozone. The last few years have also witnessed the implementation of OECD sponsored initiatives to counter aggressive tax planning strategies using offshore tax havens and ensuring transparency through exchange of financial information between countries.
Against the backdrop of these uncertainties, global investors and funds are increasingly focused on Asia and they find immense comfort in Singapore as a reliable financial centre and investment platform, thanks to its economic and political stability, ease of business, as well as a conducive regulatory and tax framework. Therefore, Singapore's fund management industry will likely witness considerable growth and innovation in 2019.
Offshore to Singapore
Historically, a large number of international funds have been domiciled in the Cayman Islands and Luxembourg, which are considered to have the necessary legal tools to establish fund vehicles that investors are familiar with. These funds often invest through special purpose vehicles in countries that have a good network of tax treaties.
Fund structures are now likely to shift from offshore tax havens to reputed jurisdictions where it is possible to establish a real commercial presence, thereby offering extra protection against potential tax challenges. Singapore has emerged as a natural choice for funds with investors in the region or those that invest across Asia. Moving forward, an increasing number of funds will be established in Singapore rather than in offshore jurisdictions.
Funds are also likely to beef up the size and quality of their asset management teams in Singapore. A large number of single and multi-family offices representing wealthy families across South and South-east Asia will also continue to shift to Singapore.
The recently introduced Singapore Variable Capital Company (VCC) Bill offers an important addition to the suite of fund vehicles available in Singapore, which includes private companies, limited partnerships and trusts. VCCs provide considerable corporate flexibility in returning capital to investors and are especially useful in open-ended fund structures. One can also create cells or sub-funds within a VCC for different categories of investments. The VCC framework, once effective, will further facilitate the movement of fund structures from offshore to Singapore.
The tax incentives available for Singapore resident funds and enhanced tier funds (ETF) have majorly contributed to the growth of Singapore's fund industry. The incentives apply to funds managed by licensed or exempt fund managers in Singapore. They are also subject to various criteria - including minimum fund size of S$50 million (for ETF incentive) and minimum annual expenditure of S$200,000 - which ensure that only credible players in the industry benefit from such incentives. Presently, these tax incentives have a sunset of March 2019, but because they are pivotal to the continued growth and success of Singapore's fund management industry, many are hopeful that they will be renewed.
Growth and innovation
2019 is going to see increased competition between asset managers in Singapore. There is excessive dry powder available for investments by private equity and venture capital funds into Asia, in addition to leverage from banks and debt funds. Many sophisticated investors and family offices have direct access to deals or may prefer to co-invest with funds. Tokenised offerings, crowd funding platforms and other tech innovations will continue to create alternative avenues for venture funding.
In order to stay competitive, asset managers will be pushed to differentiate by enhancing their value proposition and industry specialisation, deploying innovative deal strategies and investing into new asset classes. More asset managers will start integrating technology and blockchain platforms into portfolio analysis, reporting and fund administration. The increased competition may also result in more club deals, consolidation between asset managers, and other interesting collaborations within the industry. Such innovations will help fund managers better align with expectations of their investors as well as their portfolio companies.
Enhancing the Singapore platform
The increased availability of capital and funding options through Singapore is a boon for founders and startups in the region and will greatly benefit those who have to overcome the "Death Valley curve" - symbolising cash flow challenges after a seed or Series A funding.
The next five years will see a significant growth in the number of unicorns (startups valued at $1 billion and above) in South and South-east Asia, with Singapore-based funds continuing to participate in multiple mega-funding rounds.
Another trend that is likely to continue is the increasing sophistication of founders and portfolio companies in the region who will make more discerning decisions on the type of investors and funds they prefer to partner with in the long term. It is also likely that most exits in the region will happen through strategic sales or buyouts rather than initial public offerings.
The growth of the fund management industry in Singapore and availability of capital will complement Singapore's position as a tech and innovation hub for the region. At the same time, innovations in fintech and blockchain can help transform Singapore's fund management industry. The outlook is very positive