S’pore chips away at HK’s hedge fund dominance


Prime springboard: People walk along Marina Bay against the skyline of the business districts in Singapore. It is now the second-largest source of foreign portfolio inflows into India after the United States. — AFP

SINGAPORE is cementing its status as a regional hotspot for hedge funds, with the number of firms expanding from Hong Kong to the city-state tripling in the past three years.

At least 16 firms already operating in Hong Kong added a Singapore office between the start of 2019 and end of 2021, compared with just five in the previous three-year period, according to a Bloomberg News analysis of regulatory and business registry data in both financial hubs.

Among those that put boots on the ground in Singapore are some of the largest global managers, such as Marshall Wace, Citadel and D.E. Shaw & Co.

There are also smaller regional peers, including Ovata Capital Management and Trivest Advisors.

Trivest didn’t respond to multiple requests for comment and the other firms declined to comment.

While Hong Kong’s status as the dominant hedge fund hub in Asia isn’t under threat – it’s home to nearly 44% of hedge fund managers operating in the region, according to Preqin Ltd data – Singapore is an increasingly important location for firms operating strategies that aren’t exclusively China focused.

The city-state’s treaty with India has historically positioned it as a tax-efficient base for investments in Asia’s third-largest economy.

It’s also a natural gateway to fast-growing regional neighbours like Vietnam and Indonesia.

Rich families are increasingly setting up family offices in Singapore, creating a pool of capital hedge funds can tap into.

Singapore serves as a “prime springboard” for expansion, said Kher-Sheng Lee, global trade body Alternative Investment Management Association co-head in the Asia-Pacific region.

“Some firms pursuing pan-Asian or China plus one growth strategies are beginning to see India and Indonesia as crucial.”

Future proofing

The biggest single jump in hedge fund arrivals in Singapore was in the second half of 2019, the Bloomberg data analysis shows.

That’s when Hong Kong was rocked by months-long political protests, often resulting in clashes between demonstrators and the police and business suspensions.

At the time, lawyers and consultants reported swelling numbers of queries about how to start offices elsewhere.

“There is definitely an increase in firms setting up in Singapore,” said Philippa Allen, founder of ComplianceAsia Consulting, citing regulator’s comments to the industry on its vetting workload.

“Managers realised that they needed better business back up plans and the best solution to that is to have two offices in different places.”

While the pace of new hedge fund openings has slowed since 2020, the flow of money continues to grow.

Hedge fund assets under management in the city jumped 30% in a year to S$257bil (US$188bil or RM826.5bil) in 2021, the biggest dollar increase on record, according to Monetary Authority of Singapore (MAS) data released in October and an analysis of past reports.

Whereas China was once the dominant destination for international investors in Asia, many are starting to allocate more to India and South-East Asian countries which have been big beneficiaries of the move to diversify supply chains.

Emerging market veteran Mark Mobius, for example, now places a higher weight on to India than China.

Singapore is an obvious base to push further into this region because it has better access to talent that knows the markets and fewer Covid related-travel requirements. There are financial and business incentives too. In 2020 Singapore launched a new corporate structure called a “variable capital company”, or VCC which gives hedge funds a more flexible investment structure, including not having to publicly release shareholder names.

It also has a comprehensive tax treaty with India which can help avoid double taxation in many cases.

Singapore is now the second-largest source of foreign portfolio inflows into India after the United States, according to data from the National Securities Depository Ltd.

About 20% of the 660 Singapore VCCs set up by Oct 14 are hedge funds, according to the MAS.

One firm that’s diversifying is Pinpoint Asset Management. Having started as a China-focused manager, it opened in Singapore as part of an effort to expand a fund that invests across Asia through different portfolio managers.

It’s also got offices in India and Japan, said managing director Jennifer Wong.

“We want to capture investment opportunities in these markets due to their strong development and growth,” Wong said.

Another is Hong Kong-based Ovata, a US$1.1bil (RM4.8bil) hedge fund firm started by members of BlueCrest Capital Management equity team, which now has eight employees in Singapore, said a source. It expects India and South-East Asia to be a bigger focus in coming years, the person said. Ovata declined to comment.

Hong Kong strength

While the increasing number of satellite offices opening in Singapore is a sign of how the centre of financial gravity in the region is shifting, Hong Kong is making a big effort to stage a comeback and convince the rest of the world it remains the go-to place in Asia for finance.

It hosted a star-studded summit in November with top executives from all of the world’s biggest banks. It’s also dismantled many of the Covid restrictions – such as hotel quarantine – which has kept the city isolated.

For many of the biggest hedge funds even if they’ve also opened in Singapore, when it comes to staffing Hong Kong still dominates.

For example, while US$62bil (RM272.6bil) London-based giant Marshall Wace has ramped up headcount in its Singapore outpost to about 20, it still has around 50 people in its Hong Kong office, according to a person briefed on the matter, who asked not to be identified as the information is private. Marshall Wace declined to comment.

“As long as China continues to hold the attraction of the world and remains investable, Hong Kong will be viable,” said AIMA’s Lee.

“Singapore has different strengths. So this is a positive sum environment and the industry wants both to thrive.” — Bloomberg

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