Mandates by Singaporean institutions may double in size over the next five years to S$110 billion ($64 billion), according to the most recent annual Singapore Assets Report published by Bermuda Trust, a subsidiary of Bank of Bermuda.
The report, undertaken in collaboration with local asset management consultancy GFIA, estimates the outstanding mandates from government and government-linked institutions total S$50-60 billion. This could grow rapidly if the board of the Central Provident Fund outsources to external managers more aggressively, and if statutory boards and government-linked companies (GLCs) continue to outsource in line with economic growth.
Both of these assumptions, however, are optimistic. CPF members' assets stand at S$91 billion ($52.6 billion), and it does use a few external fund managers - but the vast majority of assets are invested in short-term Singapore dollar instruments. Although GFIA believes the CPF board could outsource an additional S$8 billion without jeopardizing its risk controls, and notes there has been a modest increase, the report acknowledges that the organization has never indicated a desire to do so. As for the stat boards and GLCs, their outsourcing is based on a 6.7% annual GDP growth rate for the next five years, which seems rosy.
In all, 2002 proved a very flat year for institutional mandates. But the nature of those mandates has been changing away from traditional investments in global equities, global bonds and Singaporean assets, toward specialist mandates such as emerging markets, high-yield debt, small-cap equities and even hedge funds. This means that the cozy group of 40-50 traditional fund management houses that have dominated the business will see their hold erode in favour of specialist managers.
If growth in the institutional market is possible but perhaps unlikely, the retail market suggests real prospects. The report outlined a few scenarios for the growth of retail unit trusts. The likely scenario is 20% annual growth in fund assets, leading to a S$39 billion retail industry by 2007. This is despite three years of average compound unweighted performance of -31% for the universe of Singapore-registered unit trusts.
The good news is based on recent liberalizations, such as allowing direct sale of foreign funds, as well as expanding distribution via banks and insurance agents. Legislation last year also paved the way for developing an independent financial planning industry.
In addition, Mercer Investment Consulting is helping the government establish the framework for a managed pensions scheme for CPF members. The CPF is reinventing itself as a deliverer of retirement products managed by external professionals. The report says that while S$91 billion of CPF money is available for investments, only S$27 billion has actually been allocated.