A surge in private-market investments offset minimal growth in traditional funds in Singapore last year, found the annual asset management industry survey by the local financial regulator, released yesterday.

This reflects the steady rise in demand for alternative assets in Asia in recent years, particularly among institutions seeking to diversify portfolios and boost returns.

As a consequence, the Monetary Authority of Singapore urged industry players to rethink how to balance their business amid increased investor appetite for private-market assets.

Slowdown in traditional fund growth 

The Singapore fund industry’s assets under management increased 9% to S$2.6 trillion ($1.8 trillion) last year, the slowest rate of growth since 2011, when industry AUM shrank by 1.2%. It was a particularly big decline from the 30% expansion to S$2.4 trillion in 2014, and also significantly slower than the 14% compound annual growth rate (CAGR) over the past five years. 

However, the city-state’s alternative AUM swelled 29% to S$410 billion, from S$318 billion at end-2014. This was driven by particularly strong growth in private equity (including venture capital) and real estate AUM. PE/VC funds expanded 47% to S$136 billion and property funds by 80% to S$69 billion. Meanwhile, hedge fund and real estate investment trust (Reit) assets grew 11% and 7% to S$119 billion and S$85 billion, respectively. 

Despite accounting for barely one-sixth of total industry assets, alternative funds attracted net inflows of S$83 billion last year, 41% of the total S$203 billion of fund inflows.

Meanwhile, traditional fund AUM grew just 4%, down from 38% in 2014. The survey did not provide data on net flows of traditional assets.

Institutional investors accounted for more than 60% of the source of funds for alternative asset managers, dominated by corporates (44%), then pensions (21%) and official institutions (14%).

Industry rethink needed?

“These trends illustrate the crossroads facing the asset management industry,” MAS noted. With prolonged low interest rates expected to continue to have implications for returns and investment cost, the industry needs to rethink how to balance investment demand and stable returns after fees, the regulator said.

The shift into alternatives is mainly due to disappointing public-market performance, added the report, with investors seeking excess returns from the illiquidity and credit risk premiums available in private markets.

Alternative asset managers add diversity of asset classes, target markets, source capital and expertise to Singapore’s asset management industry, said MAS.

Meanwhile, the fast growth of private-market assets could alter the market's structure, as it offers opportunities for Asian entrepreneurs to keep their companies private for longer, said the watchdog. This has implications for how the city supports such companies throughout their life cycle, it added.

*A total of 776 financial institutions surveyed included banks, finance and treasury centres, capital markets services licensees, financial advisers, insurance companies. It excluded direct investments by government-related entities.