Financial Regulatory Forum

Singapore prepares to tighten rules for hedge funds – source

October 19, 2009

Office buildings of housing banks and wealth management funds are pictured in Singapore's financial district March 17, 2009. REUTERS/Vivek Prakash  (SINGAPORE BUSINESS CITYSCAPE) By Kevin Lim
SINGAPORE, Oct 19 (Reuters) – Singapore is preparing to tighten regulations for hedge funds and other alternative fund managers, potentially making it more difficult and expensive for smaller newcomers to set up operations, sources said.

Fund managers in Singapore with fewer than 30 “accredited” investors are currently exempt from holding a capital markets services license, freeing top managers from requirements such as filing certain reports to regulators and passing examinations set here.

The Monetary Authority of Singapore (MAS), the central bank, is likely to issue draft guidelines for public comment in November following consultations with interested parties on tightening supervision of hedge funds, sources said.

The changes could affect possibly hundreds of fund managers in Singapore.

Figures from Marsh, an insurance broking firm and risk advisor, say there are about 495 fund managers in Singapore currently exempt from some of the MAS capital market services licence rules.

The proposed rules will likely spell out the qualifications and experience required of managers planning to set up a fund as well as the standards of governance and similar infrastructure required, but will not remove tax incentives enjoyed by fund managers in Singapore, the sources said.

“MAS is studying the existing arrangements and the expectation is that something more rigorous will result from it,” said Michael Coleman, chairman of the Singapore chapter of the Alternative Investment Management Association (AIMA).

Coleman, who is also managing director of commodities hedge fund Aisling Analytics, one of Singapore’s largest hedge funds with about $1.5 billion in assets, said it was unclear how the new regulations will affect the industry financially.

“MAS is monitoring market developments and global initiatives, and will fine-tune our regulatory approach as appropriate,” a spokeswoman for the MAS said.

There are some 138 hedge fund managers in Singapore and they manage at least $34.9 billion in assets, AIMA says. The industry, which suffered record losses in 2008 as markets tumbled during the global financial crisis, is growing.

“Under the current guidelines, any Tom, Dick and Harry with no relevant experience in fund management can set up his own hedge fund,” said a hedge fund manager, who declined to be identified.

The manager said he was most concerned that MAS may force exempt funds to take up professional indemnity insurance, which could raise the cost of managing a small fund.

FEW TWO-MAN BANDS
But the changes may well be “cosmetic” because market forces will ensure that even small hedge funds are run by people with track record in the industry, he said.

“No bank will act as your counterparty or prime broker unless you have the relevant knowledge or experience,” he said.

There have been 20 relatively large hedge funds set up in Singapore this year, UBS’s head of Asia Pacific prime services David Gray said last week.

New funds need to be bigger since after the financial crisis clients were demanding a lot more compliance, due diligence and solid risk management, he said.

“It’s very rare to get a two-man band anymore,” Gray said.

Asian hedge funds have returned gains of 21.45 percent in the nine months to September, following losses of 20.57 percent last year, Singapore-based fund tracker Eurekahedge estimates.

Singapore has attracted asset managers, private banks and hedge funds in recent years with tax incentives and strict secrecy rules. It also provides investors the opportunity to manage part of the more than $300 billion in assets held by its sovereign wealth funds GIC and Tem
asek.
(Editing by Neil Chatterjee and Neil Fullick) ((kevin.lim@thomsonreuters.com; +65 6403 5663; Reuters Messaging: kevin.lim.reuters.com@reuters.net))

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