Hedge funds in Singapore will “almost certainly” need to be licensed as the central bank seeks to tighten regulation of the industry, according to the local chapter of the Alternative Investment Management Association, the largest trade group for hedge funds.
Hedge-fund managers are currently exempt from holding a capital-markets services license, provided they manage funds on behalf of 30 or less of what the Monetary Authority of Singapore describes as “qualified” investors.
“Almost certainly there will be a move away from the current exempt regime to some form of licensing,” said Michael Coleman, chairman of AIMA’s local branch, whose members are “in dialogue” with the central bank on proposed industry reforms. “Hopefully those changes will be well thought through and won’t damage the industry, which I’m very confident they won’t.”
Licensing requirements may add to costs for Singapore’s hedge-fund industry, which the local chapter of AIMA estimates oversees at least $34.9 billion, excluding assets managed by several of the large global firms. The industry has grown from near zero in 1997 to now housing 138 single-strategy hedge-fund managers that employ more than 800 professionals, according to a survey by the local chapter.
The island-state’s “lighter regulatory touch” has enabled hedge-fund managers to set up business “relatively quickly,” without risking any delay in getting the necessary licenses from the regulator, according to an overview of the industry published by AIMA.
“As part of MAS’s risk-based supervisory approach, we keep in touch with the industry to get a good understanding of industry practices and challenges,” a spokeswoman at the regulator said in an e-mail. “MAS will continue to monitor market developments and global initiatives, and fine-tune our regulatory approach as appropriate.”
World leaders, including the Group of 20 countries that make up most of the world’s economy, have called for stricter oversight of the pools of private capital in the wake of the global financial crisis.
“To move from very light regulation to high regulation will mean some additional costs; the MAS understands those issues,” Coleman said in an interview on Oct. 16, declining to provide further details on the proposed changes. “We’re very confident that the potential cost burden will be modest and won’t damage the industry. We’re working with the MAS to try and find the right balance between rigor and expense.”
Hedge-fund managers in the city-state are still subject to local rules on securities and futures trading as well as money laundering.
Tighter regulations are unlikely to deter hedge funds from setting up shop in Singapore, said Hong Kong-based David Gray, UBS AG’s head of prime services in the region.
“MAS has done a lot of work in being able to put the structures in place, they’ve been very clear about the rules,” Gray said in an interview. “For a lot of managers, it makes a lot of sense to start up in Singapore. You’ve got a talented workforce, a very commercial, reasonable regulator, and it’s an extremely stable economy.”
Hedge funds should be required to register and disclose data to regulators to guard against their trading destabilizing financial markets, the International Organization of Securities Commissions said in June.
Financial watchdogs worldwide should be able to demand information on funds’ risk management and have authority to work together and share data to track “globally active” funds and managers, Madrid-based IOSCO said in guidelines that seek to address gaps in oversight that contributed to the global financial crisis.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.