Tighter CPF rules both threat and opportunity, says RCM's Konyn

Fund providers in SingaporeÆs state pension scheme will be subject to new qualification criteria from 2011, forcing some to shape up or ship out, and giving others a chance to grab market share.

The stricter criteria due to be applied to fund providers in Singapore's state pension scheme will mean some may have to leave the system when the new rules come into force in 2011, says Mark Konyn, Asia-Pacific head of RCM.

"Singapore is changing the qualification rules to provide more support when individuals choose their investment options," he says, outlining the proposed adjustments to the Central Provident Fund (CPF) system. "It's backdated, there's no grandfathering -- meaning that all the funds on the system are open to re-application, and it's likely that some will not make the cut."

That means certain firms need to make changes now to give themselves a chance of remaining providers, says Hong Kong-based Konyn. Meanwhile, funds that are not represented in the scheme, but have a good chance of qualifying, have an opportunity to re-position and gain some business.

RCM is just such an example. "We've been a very small player in the CPF market," Konyn says. "We see an opportunity now, with the rule change in the market -- given the size of our firm and the range of product -- that we'll have sufficient interest that we'll have a good chance to qualify under the new rules"

Meanwhile, the new requirements will bring the Singapore set-up closer to the Hong Kong scheme in some ways. Yet both systems will remain fundamentally different, although the Hong Kong rules will also see changes from 2011.

To be a provider under the Mandatory Provident Fund (MPF) scheme, funds must be domiciled in Hong Kong. That means the MPF is a distinct opportunity limited to those providers who want, specifically, to be part of it, says Konyn. It is not possible to directly offer funds through the MPF scheme that have been organised for other markets. "So, unless you're going to get significant assets from MPF, you can't take that product and sell it anywhere else," he adds. "It's yet to be proved that you can even sell it in the Hong Kong retail segment."

On the other hand, Singapore has always been open to all comers, as long as the fund has CPF approval and is rated according to its risk category. "There has been almost no penalty for putting up a fund for inclusion," says Konyn. "While in Hong Kong funds were for the MPF and the MPF only, in Singapore you could take existing funds domiciled elsewhere and chance your arm, with no great downside if you couldn't sell your product having gone through the approval process -- only de-registration."

But the CPF rules will now become much more prescriptive, so there is no guarantee that a fund can be sold outside the system. That will influence fund managers' approach to the CPF market, says Konyn, as companies grapple with how to build a business strategy around a set of rules that apply per fund and are dependent on performance and competitive positioning.

"Firstly you've got to be committed to be there; secondly you've got to have a big enough range of funds to be sure you have something that meets requirements and meets demand throughout the various cycles," he says. "Lastly you have to believe that you have the ability to satisfy the criteria on an ongoing basis, which means you need to have a stable team in place."

This may be beyond the capability -- or indeed wishes -- of certain players, but could open the field for others willing to make a strong commitment to the CPF system.

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