Hedge fund start-ups in Singapore are on the rise after the central bank approved new rules that will exempt most funds from obtaining a capital market services licence.
Hedge fund managers in Hong Kong face the same licensing requirements as mutual fund managers.
Singapore and Hong Kong are strong rivals for the global trillion-dollar hedge fund industry in the region.
“With the rest of the world tightening financial regulations on hedge funds, Singapore is making it easier for investors to incorporate a hedge fund company with lightweight regulations,” says James Nuben of Rikvin Consultancy, which provides Singapore company incorporation as well as work visa applications.
The number of new funds in 2009 fell from 13 to 26 per cent, making it the lowest drop since 2003.
Peter Douglas, principal of GFIA, which advises investors seeking to allocate money to hedge funds, says: “The lack of clarity on Singapore’s rules last year made relocation to the city-state a difficult decision and cost business.”
After a consultation with the industry, Singapore’s central bank said in April that managers with less than SGD250m (USD183m) and serving not more than 30 qualified investors can submit a notification to the Monetary Authority of Singapore to be exempted from obtaining a capital markets service licence.
To be eligible for this new rule, managers and their bigger licensed partners must maintain a minimum base capital of SGD250,000 and have at least two directors.
“Singapore has recognised the needs of start-ups and smaller managers not to be overburdened by regulatory costs,” says Michael Coleman, chairman of the Singapore branch of the Alternative Investment Management Association.
Although smaller hedge fund manager will not need to obtain a licence, they will still have to follow Singapore’s rules on securities, futures trading, and money laundering.
According to MAS, the hedge fund industry grew to SGD43bn in 2009, with 320 hedge fund managers as compared to fewer than 20 managers before 2001.
“Singapore has been as sensible and forward thinking as they can be about growing the hedge funds industry,” says Peregrine Cust, founder of Prana Capital, which moved its investment team to Singapore from London in April. “It’s a very high-margin business, it brings lots of highly paid professionals into the local economy. It’s not going to take them that long to take this industry to critical mass.”