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Singapore working on tightening rules for hedge funds

Wednesday, April 28, 2010
Opalesque Industry Update – The Singapore Monetary Authority (MAS) on Tuesday issued a consultation paper that outlines tighter rules in the hedge fund industry, especially those managing below S$250m ($183m) and requiring them to have a minimum capital and two representatives residing in the city state, said Reuters.

Under the proposed rules, fund managers will be categorized into three groups: notified fund management companies such as hedge funds, licensed fund firms and asset managers that serve retail clients. Hedge funds which are serving 30 or more sophisticated investors would be encouraged to have insurance coverage against legal risk - though it would not be mandatory for firms managing assets below S$250m, said Reuters.

Last week, MAS announced it would review its rules for its investment-management industry, including hedge funds and private-equity firms. Singapore’s move came in the wake of renewed debate on the role of hedge funds in the financial world as governments around the globe are placing hedge funds under a microscope.

MAS will start conducting the public consultation within two weeks to discuss proposals “to enhance its regulatory regime to ensure that it remains sound and responsive,” said the Financial Times (FT).

In September last year, the FT disclosed that MAS had held informal consultations with hedge fund managers to determine ways of tightening the regulatory regime, in the light of concerns with the global financial crisis.

As part of the regulatory review that has been expected in Singapore for some time, MAS updated its list of Frequently Asked Questions (FAQs) on Exempt Persons last month (see Opalesque Exclusive: Singapore's Monetary Authority specifies new requirements for its Exempt Fund Managers regime a href= target=_blank>here).

This week’s move was met with skepticism from hedge funds in Singapore. Melvyn Teo, a director at the BNP Paribas Hedge Fund Centre at Singapore Management University, told Bloomberg the review would make the city-state less attractive to really small, young hedge funds but more appealing to more established larger hedge funds. “They’re aware of the need to find the right balance,” Teo said (see last week’s Opalesque Exclusive: Redemptions from low fee hedge funds could lead to 2%-3% drop in performance, says Melvyn Teo here).

Some believe that the planned consultation would mark a turning point for Singapore’s lightly regulated hedge fund sector. Singapore, together with the U.S., are known as the two developed jurisdictions that lightly regulate hedge funds, said However, insiders believe any new regulations will not be onerous.

Over the past year, proposals to regulate Singapore’s hedge funds revolved around requirements on working capital, debt capital, professional indemnity insurance, and compliance professional on funds’ staff. These new requirements will not be out of line with global rules and are not expected to drive away business from the city-state, WSJ said.

As a sign that Singapore’s hedge funds industry is still healthy, activist investor Algebris Investments LLP announced on Monday it would open an office in Singapore. The London-based firm, which is seeded by Christopher Cooper-Hohn’s Children’s Investment Fund Management UK LLP, registered it as Algebris Investment (Asia) Pte.

We also heard last month that Singapore was planning to create its own hedge-fund capital modeled after Greenwich, Connecticut, in a cluster of ex-British army homes called Nepal Hill, a 15- minute cab-ride from the city-state's main banking district.

Transforming Singapore into a major fund management hub
According to the FT, the current review is aimed at transforming Singapore into a major fund management and alternative investment hub. Singapore is currently ranked second after Hong Kong in terms of the size of the hedge funds industry (largely because the Singaporean government introduced tax breaks and other growth incentives).

A recent survey made by the hedge fund industry body AIMA found that Singapore has 138 single-strategy hedge-fund managers employing more than 800 professionals from near zero in 1997, reported Bloomberg. The city state also boasts of overseeing at least $34.9bn, excluding assets managed by several of the large global firms.

The overview showed that Singapore’s “lighter regulatory touch” allowed hedge-fund managers to set up business “relatively quickly,” without risking any delay in getting the necessary licenses from the regulator.
- Dumlao, Bischoff, Gravrand


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