Singapore's fund management industry

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Singapore's fund management industry

  1. 1. Singapore’s fund management industry May 2005
  2. 2. Agenda • Historical summary of the growth of the investment funds industry • Factors contributing to the growth • Hedge Fund industry • Challenges ahead • Career opportunities 2
  3. 3. Key themes Search for margin growth Innovate product offering Growth Focus on hedge funds and alternatives Consolidation – small is beautiful Cost reduction and outsourcing Process Client service reinvention Improvement Transparency and disclosures Mutual fund oversight Controlled Internal controls and regulatory compliance Environment Risk management 3
  4. 4. Fund managers have had to deal with a number of issues globally as well as locally Distribution channels Marketing Market timing & late consolidation trading Corporate Outsourcing Governance Reputation & investor trust Fight for talent Anti Money Brand laundering protection Source: PwC Global Investment Management Survey 2003, PwC research 4
  5. 5. Asian fund markets - the case for growth? 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$314 billion) Estimated 2004/2005 Gross Domestic Product Growth Rate (in %) 10.0 2003 * 2004 * 2005 * 9.0 8.0 7.0 6.0 % 5.0 4.0 3.0 2.0 1.0 0.0 Singapore Thailand Indonesia Hong China Malaysia Korea Taiw an Philippines Kong Source:Asian Development Bank 5
  6. 6. High domestic savings rates provide significant opportunities for investment penetration Estimated 2003/2004 Gross Domestic Savings Rates (in %) 50.0 2003 * 2004 * 45.0 40.0 35.0 30.0 % 25.0 20.0 15.0 10.0 5.0 0.0 Singapore Thailand Indonesia Hong Kong China Malaysia Korea Philippines Source:Asian Development Bank But uncertainty remains – eg. the continued unrest in Iraq, is the Chinese economy heading for a soft landing, where are US interest rates heading etc? 6
  7. 7. The most significant growth in HNW financial wealth will be in Asia Wealth Forecast - HNWI Financial Wealth by Region (US$ trillions) 0.8 0.9 Annual Growth Rate 4.7 2003 – 2008E Worldwide 7.0% 0.6 0.6 0.6 9.3 0.8 Africa 4.6% 0.8 0.8 3.7 3.6 Middle East 2.8% 3.5 6.5 5.3 5.9 Latin America 5.2% 14.0 Asia-Pacific 7.4% 8.5 At 7% 7.6 7.4 Growth North America 10.7% 11.0 Europe 4.1% 8.2 8.4 8.7 2001 2002 2003 2008E Source : Cap Gemini Lorenz curve analysis May 2004, World Wealth Report 2004 Developments in the Fund Management Industry 7
  8. 8. The growth in discretionary assets under management in Singapore is particularly encouraging Growth in AUM 300 $ 254.6 250 $ 210.6 200 $ 183.0 $ 180.7 $ 183.4 S $ billion $ 166.4 $ 160.4 150 $ 125.0 $ 124.1 $ 126.3 $ 111.9 $ 109.8 100 $ 86.5 $ 90.7 $ 65.9 50 $ 38.7 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Total Discretionary AUM Total Non-Discretionary AUM Source:MAS Asset Management Survey 2003 8
  9. 9. The number of collective investment schemes in Singapore is also growing 9
  10. 10. And the number of Asset Management Companies… 10
  11. 11. Singapore has also done well in attracting hedge fund talent, and is positioning itself to be a hub for alternative investments Hedge Funds and Managers : Location and Number 7% 45 17% 40 35 22% No. of m anagers 30 25 17% 20 15 10 20% 10% 5 7% 0 Singapore USA Australia Japan 1997 1998 1999 2000 2001 2002 2003 Hong Kong UK Others Source: EurekaHedge (number of hedge fund managers Source: EurekaHedge based in Singapore) 11
  12. 12. Growth of the industry
  13. 13. 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 13
  14. 14. 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 14
  15. 15. 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 15
  16. 16. 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 16
  17. 17. The growth of hedge funds
  18. 18. AIMA continued membership growth …of which 20% is in Asia – the fastest growing region! 850 800 750 700 650 600 550 500 450 400 350 300 250 200 150 100 50 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 18
  19. 19. Japan, Hong Kong, Singapore • Investments in Asian hedge funds leapt to over $60bn by end 2004 from $34bn at the end of 2003 • There are over 550 Asian-dedicated hedge funds • The majority of Asian hedge funds are run from the region • Recent returns have been better than the global universe 19
  20. 20. New funds launched by (major) regions Location 2003 2004 Total number launches launches of funds Australia 27 13 85 Hong Kong 11 13 87 Japan 15 9 54 Singapore 15 19 52 United Kingdom 24 24 128 United States 24 14 99 Source: Eurekahedge, 31 December 2004 20
  21. 21. Average Asset Size (US$m) Location 2003 2004 Increase Australia 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% Source: Eurekahedge, 31 December 2004 21
  22. 22. Comparative Table Japan Hong Kong Singapore Offshore Manager Required Required Common; but not absolutely necessary Onshore Investment No No Yes Adviser discretion? Tax position of Fund Lacks certainty Lacks certainty, but Yes being addressed! Local registration Yes Yes In most cases required exemption available, but sophisticated investor registration often sought in practice Performance Fees Yes Yes Yes permitted 22
  23. 23. 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 23
  24. 24. 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) 24
  25. 25. 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 25
  26. 26. 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 26
  27. 27. Challenges for the future
  28. 28. Challenges facing the fund management industry Total UK Europe Asia ex-Japan N. America Performance of global stock markets 73% 90% 63% 83% 67% Evolving client needs 66 50 63 61 67 Regulatory and compliance issues 66 70 58 67 83 Cost containment 63 60 71 72 33 Competitive pressure 59 70 58 61 33 Investor trust 46 40 46 50 ??? 50 Tax and regulatory barriers to cross-border 21 50 30 20 39 distribution Globalisation 30 40 38 22 17 Source: PwC Global Investment Management Survey 2003 28
  29. 29. Top challenges to growth in Asia Developing local expertise Institutional Major risk management failure/fraud Retail Entering new markets External regulation Retaining existing clients Economic environment Increased competition Brand image/reputation Adapting to client needs/profiles Attracting new clients 0 10 20 30 40 50 60 70 80 %of respondents Source: PwC Global Investment Management Survey 2003 – Asia ex-Japan Response 29
  30. 30. To increase profitability over the next 3 years, a number of strategic priorities are being taken Total UK Europe Asia ex-Japan N. America Improve existing product performance 65% 100% 58% 72% 50% Develop new / alternative distribution channels 54 50 42 61 50 Develop new products 51 40 39 67 50 Reduce costs 35 30 50 39 17 Refine existing products 17 10 21 11 17 Enhance skills of client managers 20 10 17 11 17 Better communication of investment performance 14 10 8 11 17 (transparency, comparability) Raise management fees 13 20 8 22 17 Source: PwC Global Investment Management Survey 2003 30
  31. 31. Distribution of foreign funds in any particular country is not a piece of cake Tax laws Source: PwC Global Investment Management Survey 2003 – Asia (ex-Japan) Response Legal structure Availability of service providers Depth of local knowledge Rates of investment return Development of open architecture Significant wealthy population Tax and legal barriers to foreign funds Cost of doing business Regulatory environment Perceived demand 89% 0 10 20 30 40 50 60 70 80 % of respondents 31
  32. 32. Asia’s diversity in having multiple distribution channels poses many challenges Mutual Funds - Distribution Channel Mix Across Asia 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Singapore Hong Malaysia Korea Taiw an Japan India Thailand Indonesia China Kong Source: PCA Analysis 2002, PwC Research Banks Independent Brokers/IFAs Tied Agents Direct Sales Force 32
  33. 33. Career opportunities in the industry
  34. 34. • Business Development - Institutional • Business Development - Retail • Product Development • Portfolio Management • Research • Central Dealing • Performance Measurement • Risk Management • Compliance • Operations • Fund Administration 34
  35. 35. Contact details Andrew Kwek Executive Director Investment Management Association of Singapore Tel: 65 6230 9717 Fax: 65 6535 2349 Email: andrew_kwek@imas.org.sg www.imas.org.sg 35

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