Singapore-based hedge fund managers are being forced to consider relocating to other Asian centres by an increasingly onerous regulatory environment, say industry practitioners.
New regulations to be introduced by the Monetary Authority of Singapore (MAS) will create a 'nightmare' scenario and make it hard for small managers to survive, a hedge fund event in Hong Kong was told.
“It would appear the MAS view on the alternative asset management industry is that it’s much better to have casinos than it is to have hedge fund managers” said Alex Duperouzel, partner of regulatory consultant firm ComplianceAsia.
He was speaking at a hedge fund startup forum on July 8. A large proportion of hedge fund managers present had travelled up from Singapore for the event.
“Broadly, it’s going to be harder as time goes on to have smaller operations in Singapore” said Duperouzel, highlighting “nightmare-ish” anti-money laundering and outsourcing guidelines in the pipeline.
Mark Voumard, CEO of hedge fund platform Gordian Capital sees an increase in regulatory inspections being introduced by the MAS and highlights governance, disclosure, conflicts of interest and segregation of duties as possible future areas of focus.
He also pointed to rules that "the MAS will be bringing in” on IT outsourcing guidelines, which require asset managers to make sure that service providers they outsource to have fit and proper staff.
A report released by accounting firm PwC last week noted that hedge funds have embraced the outsourcing of non-core activities. That report advised asset managers to focus on “right-sourcing” and cautioned against outsourcing aimed purely at cutting costs.
PwC defines right-sourcing as the process by which an asset management company determines how to most efficiently and effectively provide back- and middle-office services.
Amongst other things, this would place a requirement on a fund COO to foresee future regulatory changes in response to cybersecurity concerns, for example.
Mark Hibbs, CIO of Adamas Asset Management told AsianInvestor, “A lot of people are looking to leave Singapore”.
Hibbs described the regulatory environment in Singapore as “volatile rather than accommodating” to the hedge fund industry, observing that the advantages of locating in Singapore have diminished.
That trend has been underway since Singapore did away with exempt fund manager (EFM) licensing over two years ago. Voumard observed that there were 345 EFMs in April 2013 and there are none now. Over the same period, the number of registered fund managers in Singapore rose from 67 to 282, while capital market service licence holders rose from 164 to 342.
One Singapore-based hedge fund manager observed that the MAS was “swamped with queries” at the time of the shift from EFM and had “huge problems with manpower”.
While the regulator may have put those issues behind it, Hibbs sees Singapore following the example seen in Tokyo, where an uncertain regulatory environment encouraged many Japan-focused hedge fund managers to move to another centre - Singapore. Now, it seems there may be be another exodus, this time to Hong Kong.
Panellists at the hedge fund startup forum saw a more stable regulatory environment in Hong Kong. Still, tighter standards in Hong Kong are seeing more asset managers “looking to buy rather than apply for a licence” said Mandarin Capital CEO Samuel Faveur.
ComplianceAsia’s Duperouzel said that Hong Kong's SFC is “not as negative about the industry” although “regulations are very similar” between Hong Kong and Singapore.
He added that oversight of asset management is increasing, with more data being collected and disclosure requirements rising. The SFC’s emphasis was more on insider dealing, unlicensed activities and offshore marketing, he observed.
Asked if more Singapore-based Japan-focused hedge fund managers would set up in London – following the relocation of Caygan Capital’s (formerly known as GCI Investment Management) CIO, Naruhisa Nakagawa, last year as reported - Hibbs said that he didn’t see others moving to London.