Singapore toughens hedge fund regulation

02/05/2010 | Chris Wright, Sid Verma

Singapore may lose some hedge fund managers because of a proposed tightening of regulation announced last week – but will be stronger as a consequence, a minister has told Emerging Markets

Singapore may lose some hedge fund managers because of a proposed tightening of regulation announced last week – but will be stronger as a consequence, a minister said yesterday.

Lim Hwee Hua, Second Minister in Singapore’s ministries of finance and transport, told Emerging Markets: “Whenever we make changes, there will be some who might find it a little less attractive. We accept that.

“But it’s a net consideration. We always know there will be others who will be glad we did what we did, and over time there will be new people who come in.”

The Monetary Authority of Singapore (MAS) last week announced a review of the regulatory regime for fund management. It proposed to tighten the exemption regime for hedge funds, which excuses them from holding a capital markets services license provided they manage funds for 30 or fewer sophisticated investors.

The review of this regime appears to be a response to global calls for greater regulation of private pools of capital: the MAS said it was to ensure that “the regulatory regime keeps pace with industry and regulatory developments globally.”

“It’s not just targeting hedge funds,” Lim said. “Our regulations, our rules and our incentives all evolve with the marketplace. There is nothing cast in stone that we will not change.”

These will be the first significant changes to regulation of hedge funds since 2002, when Singapore eased rules in order to build an industry to rival Hong Kong’s. It worked: Singapore has 138 single-strategy hedge fund managers, according to the Alternative Investment Management Association, and oversees $34.9 billion, the second biggest hedge fund industry in Asia after Hong Kong.

While the proposed changes do increase stringency, they stop short of doing so across the whole industry. Funds with less than $250 million under management would remain exempt from licensing. Asked about the logic of this position, Lim said the measure was still under consultation. She deferred further comment to the MAS, which has given participants until May 31 to respond.

Hedge fund professionals, some of whom feared greater restriction, have been generally positive about the changes.

Peter Douglas, who runs the Singapore-based hedge fund consultancy GFIA and is an Asia Pacific council member of AIMA, said: “While at the smaller end of the industry there may be some reorganisation and consolidation, generally the proposed regulations reflect current best practice without imposing arbitrary or onerous requirements that may stifle industry growth.”

Nevertheless there is a question about whether Singapore can continue to thrive as a financial centre if the renowned simplicity of its business rules is in any way impeded. Singapore’s private banking industry, which has grown in part because of the degree of privacy it grants clients, is also under international pressure, as other private wealth centres have been pushed to give greater access to client information.

Lim said: “Ultimately we want to make sure that we remain pro-business. But at the same time we must maintain the stability, the integrity of the system. This is part and parcel of the overall refinements we will always do from time to time.”

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