Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
At a ceremony at the Raffles Hotel, a memorandum of understanding (MOU) was signed between the Investment Management Association of Singapore (Imas), the E-Finance Services Technical Committee and Swift. The goal of the MOU will be to promote the local fund industryÆs adoption of globally recognised standards for automated processing and to help drive down high front-end fees, which are common in Singapore.
ôEach of our respective organisations has a strong commitment to building a world class operational environment in Singapore for the funds industry,ö says Giri Mudeliar, executive director at Imas. ôTogether, through this MOU, we can help industry players understand the issues they face and then evolve to the level of automation [they need].ö
The MOU will promote interrelated but separate objectives. Under the agreement, Imas will be committed to driving adoption of straight-through processing (STP) for all parties involved in the fund management industry. It will also encourage dialogue on operational issues with its members, pension and plan sponsors and regulators in its own market and other Asian economies.
ôSingaporeÆs vision is be known as the Asian hub for the fund industry, just like Dublin and Luxembourg in Europe,ö says Mudeliar. ôIn order to achieve that status, we must as an industry strive for risk reduction and cost-savings benefits derived from fund automation.ö
The Singapore-based e-Finance Service Technical Committee will serve a different role, working with the investment community through education and industry working groups. Through these associations, it will aim to gain support for more active participation from industry stake holders and industry associations.
ôFund automation in Asia is on the advance, so to remain competitive the fund industry in Singapore must embrace and implement the standards that have been set in place in other global centres,ö says Andrew Kwek, chairman, e-Finance Services Technical Committee and head of institutional sales at Deutsche Asset Management in Singapore.
Swift will provide a more hands-on roll under the MOU. It will provide training and share global practices in support of the Singapore fund industryÆs adoption efforts of the ISO 20022 open messaging standards.
The news comes as a welcome boost for the Lion CityÆs fund management, which has trouble competing with some regional markets in terms of processing efficiently, thus increasing costs and errors. Currently, SingaporeÆs fund industry is trailing well behind Hong Kong and Taiwan on terms of processing automation and is far more reliant on manual keying and paper than these other markets, despite moving towards automation earlier.
ôThere are good reasons for us signing the MOU, foremost being that Singapore is lagging Hong Kong and Taiwan in automation,ö says Kwek. ôSingapore may have started this process earlier than Hong Kong and Taiwan, but little progress has made since.ö
Adds Eric Chua, regional head at Swift: ôWe have seen significant take-up of ISO 20022 standards in Taiwan and Hong Kong this year, which streamline subscriptions, redemptions and switching of funds down to the simple press of a button between linked financial institutions, effectively removing human error and countless hours of manual processing and reconciliation. Fund automation ultimately does the right thing for investors by bringing down the costs, and the risks of investing in fund productions.ö
According to the MOU signatories and members of the regional fund management industry, low levels of fund automation in Singapore have led to higher front-end costs and management fees. Although fees on funds vary, it is generally understood that Taiwan mutual funds charge between 1-2% on the front end, while mutual funds in Singapore charge between 3-5% depending on whether they are wholesale or retail funds.
ôIn Singapore, the end investor is paying more fees, which is largely a result of costs relating to manual processing,ö says Chua. ôAs investors are after decent net returns, many asset classes are coming in and could take away a lot of the mutual fund business, unless greater adoption comes in to drive down fees.ö
The low level of automation and the relatively homogenous distribution network in Singapore could be an advantage for the cityÆs fund industry and help the MOU gain influence quickly, according to some operational experts.
ôSingapore does not have as many distributors as Hong Kong or Taiwan and there are not as many parties to automate, which is an advantage,ö says Dean Chisholm, Asia Pacific head of operations at Invesco. ôThe industry needs people to champion automation in Singapore and this MOU is an important step.ö
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