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Rival centres share growth of alternatives industry

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Hong Kong and Singapore, the traditional rivals for financial services business in Asia outside Japan, are also doing battle to become the region’s de facto hub for hedge funds and other alternativ

Hong Kong and Singapore, the traditional rivals for financial services business in Asia outside Japan, are also doing battle to become the region’s de facto hub for hedge funds and other alternative investments. So far, say industry observers, honours are about even.

Hong Kong has long been the first choice for hedge fund managers established within Asia, as opposed to managers of Asian strategies operating out of London, New York or Sydney. ‘It is the region’s traditional financial centre, with old money,’ says Marie Christine Merkly, head of hedge fund sales for investment management software provider Linedata in Hong Kong.

However, over the past few years its rival to the south has grabbed a significant slice of start-up business by offering a more flexible regulatory regime. Singapore has proved particularly attractive to Japanese managers fleeing regulatory constraints at home, as well as managers operating in markets such as Korea and India, and has attracted its share of Asian desks set up by US and European managers to manage regional strategies within their portfolios or funds specifically focused on Asia.

The island state’s regulator, the Monetary Authority of Singapore, exempts managers of funds with 30 or fewer qualified investors from the requirement to obtain a capital markets services licence. This enables hedge funds to be set up in Singapore in as little as a week, compared with a wait for a hedge fund manager’s licence in Hong Kong that until recently could sometimes stretch to as much as four months.

However, the balance was redressed last June when Hong Kong’s Securities and Futures Commission introduced changes to its licensing procedures for fund managers serving sophisticated investors, not only to compete with Singapore but as part of a strategy to streamline and simplify its licensing and regulatory processes throughout the financial services industry.

The new rules offer an expedited licensing process for firms that are already licensed or registered in the US or UK as investment managers or advisers, that serve only professional investors and have good compliance records. An onerous requirement for designated responsible officers of hedge fund management firms to demonstrate their competence through a formal examination may now be waived where they can show relevant industry experience.

Peter Douglas of Singapore hedge fund consultancy and investment adviser GFIA say the rivalry between Hong Kong and Singapore can be exaggerated. ‘Within the region we make a big fuss about how different Hong Kong and Singapore are, but from Mayfair or Connecticut they look pretty much the same,’ he says. ‘They are both well located geographically, English-speaking, have a legal system that works, offer a good quality of life and are well served for international travel and communications.’

Douglas says new hedge fund start-ups were fairly evenly split between the two jurisdictions last year, and a decision may depend as much on the manager’s personal inclination as business factors. ‘If your focus is anything to do with China, the flow is to Hong Kong, no question,’ he says. ‘However, for Japanese managers looking to set up outside the country, there’s a critical mass in Singapore of as many as 30.

‘There’s also a small group of Indian managers, probably because of the very strong trade links between the two countries. Managers that are actively trying to raise assets are more likely to be in Hong Kong because the flow of capital is greater there. On the other hand, managers will small children will probably prefer Singapore because the air is cleaner.’

Says Merkly: ‘The key driver has been the Singapore regulations because the MAS made it very easy for hedge funds to set up there. You could hand in an application, and two weeks later you received a licence. Hong Kong was suffering because of the requirement to pass a financial exam and other steps managers had to comply with before getting a licence, but now they have started relaxing the rules, some of the momentum is returning to Hong Kong.’

She says that some of Singapore’s other advantages, the greater availability and lower cost of skilled personnel and cheaper office accommodation, have been eroded over the past few years – ironically in part as a result of its success in attracting the alternatives industry. ‘With the surge of hedge funds, office space is not as readily available as it used to be. Rents have gone up dramatically in the past three years, which has slowed the momentum a bit.’

The growth of the hedge fund management community in Singapore has prompted service providers such as administrators to develop or expand their presence there, but firms like Fortis Prime Fund Solutions, which has a presence in each jurisdiction, say they are happy to be serving both markets.

‘They both have their advantages and are both doing very well,’ says Gordon Shaw, a member of the global management team at Fortis with responsibility for Asia. ‘There is a lot of money coming into Singapore from areas such as the Middle East, although we are bigger in Hong Kong that because that’s where we started.’

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