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Singapore Is Fastest Growing Asian Hedge Fund Centre

by Mary Swire,, Hong Kong

10 October 2007

Singapore's efforts to become a leading asset-management centre appear to be paying off, with more than 100 hedge funds now based in the city-state, managing assets of US$16.5bn.

London-based HedgeFund Intelligence says that Singapore is a more competitive location for hedge funds than other Asian centres. Hedge fund assets more than doubled in the first half of 2007, when twenty new hedge funds set up shop. Five of Singapore's funds now have more than US$1bn in assets, says the firm.

Over the last few years, the government has consistently tried to create an attractive fiscal and legal environment for asset management. In his 2006 budget in particular, Prime Minister and Minister for Finance Lee Hsien Loong announced a range of tax and other initiatives aimed at spurring growth in the financial services and asset management industry. Among the measures designed to promote the development of Singapore as a financial centre were enhanced tax incentives for asset and wealth management, capital and treasury markets, and captive insurance.

The factor that appears to be spurring hedge fund growth in Singapore is the relatively short time taken to register a fund in the city-state, an issue identified by hedge fund managers as the most crucial.

With a view to encouraging the growth of financial services companies the Government grants the following categories of fiscal incentives:

  • Trading Income: Capital gains and income made by financial service companies trading investments for and on behalf of their non-resident clients are often tax exempt both in the hands of the financial services company and in the hands of the non-resident client. The effect of this incentive is to make Singapore an attractive location for foreigners to base their investments.
  • Fee Income: Concessionary tax rates are levied on profits earned by financial services companies in respect of income earned billing clients for investment services rendered. Profits distributed as dividends are also granted a concessionary tax status.

A recent arrival in the hedge fund sector was Deutsche Bank, which is opening capital introduction and prime finance desks in Singapore to help serve the hedge fund industry there. Deutsche joins Citibank, Morgan Stanley and Merrill Lynch, which have all strengthened their prime brokerage desks in Singapore this year. According to the Monetary Authority of Singapore, the hedge fund industry in the city-state grew 76% last year.

Since June, 2006, the Singapore Exchange has accepted listings of hedge funds. Their units are not traded, however, with issue and redemption taking place in the over-the-counter market. The listing rules for hedge funds require that a fund must be authorised or recognised under section 286 or 287 of the Securities and Futures Act; or be offered only to institutions and/or accredited investors, and have a minimum asset size of at least S$20 million or US$20 million for Singapore and foreign currency denominated funds respectively. Fund managers are required to have in place an independent risk management function and the investment management team of a hedge fund is expected to have at least one principal with a minimum of five years relevant investment management experience.

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