Hedgeweek Interviews
TNS strengthens European reach to deliver enhanced market data capability and ultra-low latency connectivity
Transaction Network Services (TNS) has invested significantly in its European backbone and data solutions in 2021, offering expanded market data from all major European equities exchanges and ultra-low latency TNS Layer 1 in-data centre architecture connected to TNS’ points-of-presence (PoPs) across Europe.
The organisation enhanced its already extensive market data portfolio adding Wiener Boerse AG, which operates the stock exchanges in Vienna and Prague. TNS is also working with Deutsche Börse to provide access to Eurex and Xetra market data for non-member organizations, leveraging its established presence at the datacentre in Frankfurt.
“This strengthening of our European backbone is part of our commitment to provide premium infrastructure-as-a-service (laaS) across Europe,” comments Alastair Watson, Managing Director of TNS’ EMEA Financial Markets business. “Access to streaming market data globally is critical to the operations of financial firms. Coupled with our proven, reliable, low latency technology, we can deliver data in an efficient and cost-effective manner. This provides a far less complex alternative to firms sourcing and maintaining their own dedicated exchange connectivity for data sourcing.”
Eurex is a leading derivatives exchange for futures and options, while Xetra is the exchange for German institutional organisations and the premier ETF trading venue in Europe. In Vienna, Wiener Boerse AG operates at one of the oldest exchanges in the world. These additions complement TNS’ existing European equities data portfolio which includes Cboe Europe, Euronext, Aquis, LSE and SIX Swiss, among others.
The TNS infrastructure brings together over 2,800 financial community endpoints to address the needs of financial market participants worldwide. TNS offers a range of connectivity, colocation, cloud, market data and VPN solutions within its laaS portfolio.
Traders using the company’s Managed Hosting solution benefit from TNS’ global point-of-presence footprint and extensive existing on-net connections, which include uninterrupted access to more than 100 exchanges with local, physical support around the globe. Additionally, real-time monitoring is provided by TNS’ Network Operation Centres in the UK, US and Australia.
Eagle Point Credit Management closes Defensive Income Fund at hard cap of USD300m
Eagle Point Credit Management (Eagle Point), a specialist investment manager focused on investing in CLO securities, portfolio debt securities and other credit investments, has held the final close of its Defensive Income Fund.
The fund had an original target size of USD250 million, was oversubscribed and closed at its hard cap of USD300 million.
“We saw very strong demand for our defensive income strategy, which we believe provides an attractive and uncorrelated source of yield,” says Thomas Majewski, Managing Partner of Eagle Point. “This niche investment strategy capitalises on Eagle Point’s highly differentiated approach to source, diligence and acquire portfolio debt securities, including debt and preferred equity issued by credit funds and BDCs, which is unique among institutional credit managers. We greatly appreciate the confidence that our investors have in our ability to deliver yield across market cycles.”
Eagle Point’s Defensive Income Fund was supported by a diverse group of limited partners, including endowments, foundations, public pension funds, insurance companies and family offices.
Eagle Point was formed in 2012 by Majewski and Stone Point Capital.
Digital asset fund flows total USD288m in past week
Digital asset investment products saw inflows totalling USD288 million last week, bringing the total inflows year-to-date to a record USD8.7 billion, according to the latest Digital Asset Fund Flows Weekly report from CoinShares.
Bitcoin saw the majority of inflows totalling USD269 million last week bring total inflows for October to USD2 billion.
The record-breaking previous week, following the US SEC permitting a Bitcoin futures ETF decision, was not repeated last week with only USD53 million of inflows from US-based ETFs.
Multi-asset investment products saw outflows totalling a record USD23 million, in what is now a three week run of outflows.
Like this article? Sign up to our free newsletter Author Profile Related Topics Digital AssetsSingapore: Fostering Governance, Integrity and Best Practices
By Martin O’Regan – Comprising more than 1,000 managers with USD4 trillion of assets under management makes Singapore a leading Asian investment management hub. These impressive numbers demonstrate potential for the ever-changing industry.
A shifting and growing business landscape requires firm leadership, thoughtful insights, reforms, and competency training to ensure the community can continue to capitalise on industry trends. The successful launch and take on of the Singapore Variable Companies Act (VCC) has been the catalyst for a lot of the current growth. With a pro-business regulator marketing locally and overseas, together with the local funds community being strong advocators of the VCC, are the leading reasons for its growing success.
Designed to meet the changing global regulatory trends, VCC’s growth in Singapore since its introduction in 2020 has seen a diverse range of VCC set ups. At Solas, we have onboarded VCCs for family offices, charitable trusts, long/short equity, private equity and venture capital (mainly in life sciences, deep tech and biotech). For VCC to function as a collective investment vehicle, it can be applied as a Master-Feeder structure where VCC is the master and a feeder. For master VCC, it has mainly been applied for Indian focused portfolios to help comply with onshore Indian regulations and a Cayman feeder in the same structure to capture the NRI investment community. We have seen VCC being a feeder into Luxembourg masters and the VCC is also a pooling vehicle for Asian investors.
Singapore’s status as a fast-growing investment hub has a lot of regional and global managers looking for access to Asia via Singapore. This upward trend has Solas engaging in more double taxation work from the private equity and real estate sector. The Singapore Double Tax Treaty furthers Singapore’s global competitiveness — to meet the demands, Solas provides services to help clients meet tax substance requirements for holding companies and SPVs by providing resident directors, facilitating board meetings for investment and divestment decisions and quarterly meetings for oversight and governance of the ongoing operation of those Singapore entities.
We are proactively gearing up for the dynamic investment landscape by improving our infrastructure and product offering. As we anticipate 2022, Solas has developed in-house capabilities for digital assets and Environmental, Social and Governance (ESG), which we see as key drivers going forward. Aside from VCC, sustainable investing will add value to Singapore with the metrics sizing up the sustainability of an investment or business, thus attracting more investors. To better serve digital assets, we have brought in industry experts to help develop our due diligence and onboarding process, upgrade our policies and procedures and revamp our ongoing monitoring for this asset class. We have been involved with the first digital asset fund to be tokenised on the ADDX platform, and this being the first VCC on ADDX was very exciting for us.
With the demand growing from progressive investors and fund managers, it is about building more substantial digital capabilities and regulatory developments to grow Singapore as a digital asset hub.
Fostering Governance, Integrity and Best Practices
With growth comes change; in the past, the roles of independent fund directors were relatively passive, however with the increased level of complexity in the industry, directors must now account for the value they can bring to the board. The growing sophistication of funds will require directors to demonstrate skills in risk, strategy oversight, compliance and investment processes. It is increasingly important to discuss fund directors’ role and effectiveness in protecting the fund and its investors. They are the accountability and independence that investors count on to maintain the integrity of the fund.
This is where the independent fund directors’ knowledge and code of conduct have shifted from a nice-to-have to a must-have. They must understand what works under the current system and what doesn’t. Fund directors provide an oversight function for investors and bring impartiality and experience to a fund’s board and the fund’s affairs and activities. Investors look at the comfort of independence that you are acting on their behalf. Transparency and transparent reporting are what regulators look at; hence, while there is no legislation in VCC for how directors should behave, I have helped set up and chair the Singapore Fund Directors Association (SFDA) to outline best practices that will serve the industry’s interests. The SFDA has developed a Code of Conduct which intends to provide the board of directors of investment fund entities with a framework of principles and best practice recommendations for effective and efficient governance. The framework is also intended to ensure that fund directors demonstrate a high standard of professionalism and ethical behaviour when discharging their obligations. In Singapore, it is still a work in progress and, as a community, we are working on setting high standards in motion.
Gaining unparallel access to the community through industry-led initiatives sets a way forward for professional conduct practices and competency training. The SFDA sets out to be a dynamic facilitator of excellence in fund director practices through education, information sharing or exchange and accreditation.
Revamp of Limited Partnerships
As Singapore strives to create a holistic ecosystem of governance and best practices, the momentum of the private equity market in South East Asia also sees a revamp of the limited partnership regime.
Overseen by a mutual limited partnership agreement, the benefit of a limited partnership is that there is no legal reporting requirement for the return of capital and distribution of profits that you see with companies. While this offers the flexibility of raising capital without giving up control, companies organised as limited partnerships pose particular risks to investors. They do not enjoy the same rights as corporate shareholders.
ACRA’s recent call for feedback to revamp the Limited Partnership Act (Chapter 163B) that governs the establishment of limited partnerships is a welcome move to make the funds friendlier and attractive. This will bolster Singapore’s position as an established asset and wealth management centre.
Working together with regulators and fund management industry associations like SFDA to introduce policy initiatives to enhance further and expand LPs’ appeal makes it a compelling alternative to well-established fund structures in other jurisdictions. Understandably, time to familiarise and accept new policies is needed. Again, how the industry uses these advantages will depend on the efficacy and critical knowledge of the asset management value chain.
What’s Coming
The local asset management industry continues to build capacity and capabilities, securing steady progress, especially during these challenging times. Solas is excited to be a part of it. Our new motto: Leading the Way Forward: Reliable, Relatable and Reputable, continues to signify our commitment to expand our knowledge with well-established fund industry experts in our professional network, growing our experience and reputation. We hope to grow with the industry as it grows for us.
Martin O’Regan
Managing Director
Martin O’Regan is an Independent Director with over 20+ years’ experience and a qualified accountant (FCPA, FCCA). Prior to setting up his own directorship firm at Solas Fiduciary Services, he spearheaded Intertrust Singapore to expand its fiduciary services in Asia. He previously headed the alternative Funds Services in Asia for Deutsche Bank, Citi Fund Services (Bermuda), Apex Fund Services (Dubai) and UBS Fund Services (Cayman Islands and Hong Kong). Martin is licensed as a director with Cayman Islands Monetary authority (CIMA), and Chairman of the Singapore Fund Directors Association (SFDA).
Like this article? Sign up to our free newsletter Author ProfileSingapore in the green lane
By Armin P. Choksey – In the last few years, the world has witnessed significant progress in harmonising environmental, social, and governance (ESG) disclosure frameworks. The launch of new initiatives globally shows that both investors and stakeholders recognise the value of streamlining ESG disclosures and the importance of consolidating them.
Singapore stands at the cusp of green innovation. It has the prowess to not only become a sustainable development hub but also contribute effectively to global ESG research and standards.
Singapore leading the way
The regulatory push in Singapore has been encouraging to promote the adoption of ESG among financial institutions and the marketplace at large. Singapore’s pragmatic and progressive regulatory authority, Monetary Authority of Singapore (MAS), has been engaging financial institutions to consider ESG criteria in their decision making and product development process.
For instance, MAS’ Sustainable Bond Grant Scheme encourages the issuance of green, social and sustainability bonds in Singapore and is open to first-time and repeat issuers. Earlier this year, the MAS published the Environmental Risk Management (ERM) Guidelines for banks, insurers and asset managers to strengthen the financial sector’s role in the transition to an environmentally sustainable economy.
The Green Finance Industry Taskforce (GFIT) was convened by the MAS and comprises of representatives from financial institutions, corporates, non-governmental organisations, and financial industry associations. GFIT proposed a taxonomy and launched an ERM handbook; issued a detailed implementation guide for climate-related disclosures by financial institutions aligned with TCFD; introduced a framework to help banks assess eligible green trade finance transactions; and launched a whitepaper on scaling green finance in the real estate, infrastructure, fund management and transition sectors. GFIT also launched a series of workshops to build capacity in green finance for financial institutions and corporates
In early 2022, MAS will set out its regulatory expectations on the disclosure standards that must be met by retail funds in Singapore. This demonstrates the practical and focused approach of the regulator which has been a pillar of its success. The road to developing a global ESG standard is still some time to go but the journey has already begun with one initiative at a time.
PwC Singapore is committed to drive sustainable investments and create sustained outcomes. The firm is doing its part to help financial institutions shift towards sustainable investments given that’s the future direction. Singapore-headquartered Asian Investment Fund Centre is a part of PwC’s network of asset and wealth management industry specialists in Asia Pacific, offering a one-stop shop for various cross-border services.
Armin P. Choksey
Partner, Asian Investment Fund Centre, PwC Singapore
Armin leads PwC’s Asian Investment Fund Centre and its Asia Pacific Asset and Wealth Management Research Institute based in Singapore. His key areas of focus include: market entry, funds distribution strategies, operational due diligence, responsible investments strategy and implementation, target operating model, product development, policy initiatives, performance measurement and verification, product rationalisation and operational efficiency of the asset and wealth management business.
Like this article? Sign up to our free newsletter Author Profile Related Topics ESG & Responsible InvestingSingapore: The Asset Management Centre of the Future
By Mark Voumard – The genesis of Singapore’s asset management industry development: 2021 – 2035
It’s 2035 and Jane Lee, a resort hotel executive in Singapore is planning to invest in one hedge fund and two mutual funds, all Variable Capital Company’s (VCC) managed by asset managers based in Singapore, Asia’s largest asset management centre, fund domiciliation hub and private banking nexus. Her AI digital PA navigates to her personal, cloud based, financial portal reviewing the latest return data and scans her personal, long term financial plan and goals, leading to approval, and Jane is ready to invest. Her AI program using U-Reg, an advanced KYC/AML software, locks into each manager’s online application and completes each subscription form in 30 seconds, supplying certified true copies with a digital watermark of her passport, proof of address and proof of Accredited Investor status. Each fund manager’s AI system checks and verifies all the information resulting in approval within five minutes, with Jane’s AI PA remitting funds in Singapore’s digital currency, the SG-ED.
Global economic shift to Asia
In 2021, a Regional Comprehensive Economic Partnership (RCEP) pact (and the world’s largest free trade agreement) was signed, focusing on reducing trade barriers in Asia. By 2030, it was adding USD220 billion a year to world incomes and USD560 billion to world trade. In 2031, China surpassed the US as the world’s largest economy and by 2033, 42 per cent of world GDP and 36 per cent of global consumer spending was generated in Asia.
The period 2022 to 2029, saw technological innovation and the rapid adoption of technology by governments in Asia; in particular, in Singapore, where the city state ramped up subsidies and multiyear training of the local workforce, to truly transform itself into a knowledge economy. The adoption of digital tools and processes boosted productivity growth and unleashed a wave of innovations across many domestic sectors including finance and asset management.
Strong growth as an asset management and fund domiciliation hub
By 2035, global Assets Under Management (AuM) grew from USD89 trillion in 2021 to USD240 trillion (CAGR 6.84 per cent). By 2035, AuM across the asset management industry in Singapore rose from USD3.5 trillion to USD20 trillion (CAGR 14.34 per cent), second globally as a fund hub, only to Luxembourg’s USD22 trillion (CAGR 11.27 per cent), followed by Shanghai with USD15 trillion. Whilst investment vehicles established and operated in Luxembourg and Singapore are used to make regional (pan-EU and pan-Asian) investments respectively, in the case of Shanghai, most of the capital and assets are domestic, not cross border. In the region, both Australia and Japan have built large pools of domestic capital in domestic vehicles but with a focus still on primarily investing in domestic assets.
Singapore’s growth spurt began in the early 2020s with the launch of the VCC in January 2020. Singapore was already one of the leading asset management and private wealth centres in Asia experiencing double digit CAGR in AuM when it launched the VCC to bring funds onshore where they could be serviced locally and to win a percentage of the global fund domiciliation business.
Prior to the VCC launch, 85 per cent of the money managed from Singapore was in Cayman structures and 4 per cent in Luxembourg structures. 500 VCCs were launched in the first two years (during the first Covid pandemic) and as of August 2035 there are 7,000 VCCs with 70 per cent of the money managed from Singapore now in Singapore domiciled structures. Globally, the trend to onshoring continued through the 2020s, boosted in part by the rollout of the global minimum tax in 2023 that was extended to the financial industry, hitherto exempt, in 2028. Whilst some US-based managers continue to use Cayman and increasingly Delaware vehicles, the rest of the world, over time, shifted to either Luxembourg, despite the partial break-up of the EU in 2027, for European investments or Singapore for Asian investments.
Between 2021 and 2035, Singapore’s share as a percentage of global AuM increased from 3 per cent to approximately 9 per cent and the number of licensed asset managers based in Singapore increased from 1,050 to 2,950. By 2028, the Asian Regional Fund Passport (ARFP), a cross-border, online system allowing residents of 15 countries across Asia to access funds domiciled and or managed in each of the other 14 countries, had overcome prior obstacles and was in full swing. By 2029, Asia accounted for 75 per cent of all the venture finance in the world versus 3 per cent in 2005. With a focus on political stability, the rule of law and the strongest IP rights in Asia, Singapore became the regional headquarters for many of the Asian recipients of this wave of money.
Use of AI by hedge funds
XAI or Explainable Artificial Intelligence (a term created by DARPA) allows humans to understand how and why AI generates a specific set of results and allows managers to be able to explain to investors exactly how alpha is being generated. Singapore bet the house on this technology providing significant government funding for hedge funds utilising XAI, leading to Singapore becoming a world-leading XAI hub.
Introduction of digital currency
The MAS issued its own digital currency, the SG-ED in 2025, which further cemented Singapore’s position as a centre for crypto and blockchain investing and trading. That said, as more and more central banks issued their own digital currencies (CBDCs) with China leading the charge in 2022 issuing an ‘e-yuan’ and the US belatedly issuing its own USD-ED in 2028, the growth of independent crypto currencies such as Bitcoin fell dramatically. The use of the SG-ED prompted previously unbanked assets from across Asia to shift into its rigorous financial system and improved speed, cost, and transparency of cross-border payments.
The talent bottleneck
The knowledge economy created tremendous demand for skilled workers with the numbers in the financial industry jumping to 700,000 in 2034 from 200,000 in 2014 and the finance industry contributed to 48 per cent of Singapore’s GDP in 2034 versus 19 per cent in 2021. The path was not easy with a talent bottleneck developing in the asset management industry between 2020 and 2022. A subsequent significant increase in the number of global asset managers basing themselves in Singapore, bringing with them international expertise, beneficial for knowledge transfer and upskilling of the local workforce, combined with strong support by the MAS for academic programs and training provided by the industry, resulted in a significant expansion of financially trained workers.
Mark Voumard
Founder and CEO of Gordian Capital
Executive Committee Member and Co-Chair of the Promotion and Advocacy Working Group, Singapore Funds Industry Group (SFIG). Mark Voumard, who has almost four decades of experience in Asia, is founder and CEO of Gordian Capital, Asia’s leading independent alternatives institutional platform and fund structuring specialist (AUM USD7 billion) where since 2005, he has been involved in the structuring and launch of over 100 funds (hedge, private equity, venture capital, real estate, and private credit).
Like this article? Sign up to our free newsletter Author Profile Related Topics Technology & software solutionsThe global secondaries market: What Singapore-based sponsors can learn
By Tom Lin and Morgan Shubin, Clifford Chance – It has become fashionable to say that secondary transactions are now ‘mainstream’, with some market participants pointing to the flourishing GP-led segment of the market as a ‘fourth leg’ option for liquidity alongside conventional exit routes for PE assets (i.e. sale process, IPO or recapitalisation). That might not be necessarily a perfect characterisation, though we suspect it might be to a degree with some nuance. However you might characterise it, the growth in deal activity (market commentators expect transaction value to exceed USD100 billion for the first time in 2021), extraordinary fundraising, the concerted expansion of global managers into the strategy (whether through acquiring established platforms or team build-outs) all points toward one direction of travel: bigger, more competitive and more complex.
A growing market
The pandemic has supercharged the growth in transactions led by the sponsor, or GP-led secondaries to use jargon, involving single assets or concentrated portfolios with a crown jewel. This was driven in part by the outlook of an uncertain exit environment as the macroeconomic shock of the pandemic first took hold, coupled with (and giving way to) a recalibration of sponsors’ (and investors’) expectations on value and growth potential resulting from the market dislocation. Tailwinds driving the accelerated growth potential of certain asset classes resulted in GPs doubling down, whilst headwinds facing other asset classes resulted in GPs looking to extend holds on assets with strong fundamentals to undertake strategic pivoting.
Our perspective at Clifford Chance is perhaps unique in that our ‘boots on the ground’ capital solutions team in Singapore is lucky enough to run deals across European and APAC opportunities. Whilst the market opportunity in APAC has historically been small by comparison (it’s commonly accepted that APAC represents around 5-10 per cent of global secondaries volume), there is cause for optimism in regional activity growth driven by a number of factors. A slowdown in primaries, a backlog of transactions disrupted by the pandemic, and the opportunity for international investors to use a secondary strategy to access mature assets in the region as a means of diversification, are commonly recognised as such factors. In this context, supported by a strong advisory community on the ground in Singapore and elsewhere in the region, more proven GPs are reviewing assets through the secondaries lens which, empirically, has resulted in higher quality GPs bringing deals to the market during 2021.
Learning the lessons
Singapore-based sponsors thinking about entering the secondaries market will be in the privileged position of being able to build on the lessons learned in the US and European secondaries market, allowing for swifter identification of key issues and an ability to refer to ‘market practice’ where relevant and helpful. For example, an issue that has received a lot of attention in global secondaries transactions is how conflicts of interest are managed and, for some market participants, the increasingly robust approach that GPs are taking towards conflicts management. In a GP-led secondary transaction, the sponsor sits on both sides of the trade. One thing we have observed as perhaps the biggest issue in the whole area is validating valuations and LP agitation about the extent to which value was really right. We think LPs are increasingly sceptical about fairness opinions (often commissioned by the LPAC or advisory committee of a fund, around the process of conflict management rather than the actual proposed price) and, as a consequence (and certainly for the concentrated or single-asset deals), they expect to see more market-testing of value with lead secondary buyers being bidders in a market auction akin to a traditional M&A buyout.
In relation to deal terms, careful consideration must be given to the manager’s duties to each of the buying and the selling entities, and how best to evidence the mitigation of conflicts of interest to the investors in each vehicle. This may be particularly acute where a sponsor is asking for a staple, or when bringing in their current flagship fund to co-invest alongside the secondary vehicle (a trend we have seen emerge as the equity cheques required now routinely exceed what can be put together with only one or two lead underwriters of a deal – not to mention the ‘strong buy signal’ that comes about with a sponsor’s flagship fund coming into a deal). What should the liability package look like and does that pass muster as a reasonable allocation of risk from a buy-side and a sell-side perspective? How do you price in an identified but unquantifiable risk (e.g. an ongoing tax or regulatory investigation)? How do you structure rollover election options when pressured to not offer a ‘status quo’ option for the existing investors by over-subscribed buy-side demand from lead secondary buyers?
Ready to go
Our view is that, with the benefit of deal trends and sentiment from global transactions, the Singapore ecosystem is particularly well set up (and we would say is more than ready) to support significant growth of the secondary strategy in the immediate timeframe for pan-APAC opportunities. The increasing availability of W&I insurance for these types of deals and access to the underwriting markets from Singapore-based brokers, is one example. As a financial hub, the private capital participants on the ground (experienced placement agents, counsel and lenders) in Singapore will support managers seeking to move into, or increase their presence in, this segment of the market. The key, as always, is proactively planning transactions with transparency in mind and adapting deal technology developed globally to local market conditions.
Morgan Shubin
Senior Associate
Morgan Shubin specialises in the establishment and operation of private funds, and secondaries deal technologies. Morgan advises a wide range of private investment fund houses, including those focused on private equity, venture capital, real estate, debt and funds of funds, in relation to their private fund structures, secondaries transactions, co-investments, carried interest schemes and the funds aspects of M&A transactions.
Morgan also advises investors in relation to the terms of their investments in private funds.
Tom Lin
Partner
Tom Lin specialises in M&A and corporate finance with a focus on private equity transactions, advising on buyouts, secondaries, joint ventures, MBOs, minority and co-investments, public M&A, management incentives and restructurings. Tom has particular market recognition for his work in complex private equity secondaries transactions and is regularly sought out to advise on GP-led liquidity offerings in Asia and Europe.
Like this article? Sign up to our free newsletter Author ProfileSingapore: Addressing climate change and sustainability
By Ashmita Chhabra – With the United Nation’s COP26 summit approaching, the need to do more to address climate change is once again in focus. As a key financial services hub in Asia, Singapore has an important role in the development and integration of sustainable finance practices into the real economy. The capital market’s ability to drive meaningful change by encouraging disclosure, stakeholder engagement and innovative green financing initiatives are all part of Singapore’s commitment.
Developing a sustainable ecosystem
The Monetary Authority of Singapore (MAS) intends to make sustainable finance a defining feature in Singapore’s role as a global financial centre. Its inaugural sustainability report, the first of its kind by a central bank in Asia, outlines plans to strengthen and develop a green finance ecosystem, build a climate-resilient reserves portfolio, while reducing its own carbon footprint. Those efforts include testing the climate resilience of its official reserve investments and deploying USD1.8 billion to five asset managers under its Green Investment Programme (GIP) to manage new mandates focused on climate change and the environment.
The investment management industry has also been rapidly developing policies and framework to meet demand and major state-led institutional investors have followed global trends in ESG adoption, with themes such as carbon transition now core to investment decision managing. While much of the disclosure requirements remains voluntary, MAS expects financial institutions operating in the city-state to make climate-related disclosures from June 2022, in line with international frameworks, including the TCFD recommendations.
The EU introduced the first part of its Sustainable Finance Disclosure Regulation in March and plans to have in place more stringent measures next year requiring asset managers investing in the region to produce comprehensive reports, with quantitative ESG metrics around their investments, including carbon emission data points. Regulators in the US and the UK are set to push through similar rules.
Preparing to deliver
Having the right tools to provide accurate and meaningful qualitative and quantitative data, like through the use of Apex Group’s new Carbon Footprint Assessment solution, will be key to financial sector firms delivering on those regulatory and fiduciary demands. Only by obtaining a clear picture of their ESG performance – both as a business and across their portfolio companies – can they create an action plan that helps ensure they play their part in building a more sustainable future.
Recent research by Apex Group shows that many asset managers in Singapore recognise this responsibility; however, the commitment to act leaves room for improvement. 94 per cent of private equity firms in Singapore agreed that climate change is an urgent issue, with 84 per cent agreeing they and their investments should take greater responsibility. Yet less than half of respondents (40 per cent) measure their own carbon footprint and only 32 per cent that of their investments.
Encouragingly, however, all the private equity firms from Singapore that took part in the study said they have plans to be carbon neutral, with 44 per cent already having a well-defined process underway, and 56 per cent planning to do so in the future. Part of that commitment is down to the fact that pressure is mounting on the financial sector, not least from regulators.
Ashmita Chhabra
Managing Director
Business Development - Asia Pacific, Apex Group
Executive Committee Member and Co-Chair of the Promotion and Advocacy Working Group, Singapore Funds Industry Group (SFIG). Ashmita is based in Singapore and oversees business development and strategy. She has over 17 years’ experience working with asset allocators and fund managers in the alternatives funds sector. Prior to Apex, Ashmita spent a decade building the global alternatives research business at Eurekahedge, a subsidiary of Mizuho Bank with her teams in Singapore and New York. She was also responsible for key client relationships with global allocators, advisory firms, fund of funds and investment banks. She is Chair of the Singapore Fund Administrators Association (SFAA).
Like this article? Sign up to our free newsletter Author Profile Related Topics ESG & Responsible InvestingSingapore: Optimal location for global asset management
By Ashmita Chhabra and Mark Voumard – Singapore stands out as best in class as a location to do business in APAC with its political and economic stability, sound and predictable regulation, an engaged regulator, world-class infrastructure, and as an innovative financial centre with a well-developed range of service providers.
Singapore is fast becoming an APAC hub for asset managers domiciling their investment funds in addition to their investment management activities. Singapore’s asset management industry grew strongly in 2020, with AuM rising by more than 17 per cent to SGD4.7 trillion (USD3.50 trillion).
The introduction of the Variable Capital Company (VCC) in January 2020 generated strong interest from local and a growing number of global investors even during the pandemic, with over 400 VCCs launched to date. Recognising a need for investment funds to be structured as corporate entities, the VCC incorporates the best features of a fund into a corporate structure, providing a flexible and effective option for global asset and wealth managers looking at the region. Additionally, VCCs can avail themselves of certain tax incentive schemes, including access to 90+ DTAs. Singapore is the ideal location to domicile Asian-focused funds and further, a base to forge fund distribution and wealth management partnerships.
Apart from asset managers, family offices have been early adopters of the VCC, leveraging the novel features of the structure, with the combined benefit of government incentives for family relocation, coupled with tax incentives and exemptions for family offices, for more effective wealth management.
Singapore’s strong focus on sustainability resulted in the MAS being the first central bank in Asia, and the second in the world, to publish a standalone sustainability report in June 2021, setting out its strategies to facilitate Singapore’s transition to a low carbon future.
MAS is working with financial institutions to strengthen the Singapore financial sector’s resilience against environmental risks, further cementing its commitment to ESG mid-2021 by announcing it is investing USD1.8 billion (SGD2.4 billion) into climate-related investment opportunities.
Singapore is extremely well positioned for global asset and wealth managers, asset owners, banks and other financial institutions that have begun to add Singapore in their asset management hub set-up and expansion plans to ride the growth momentum in and from which to access the region.
The launch of Singapore Funds Industry Group (SFIG) in April 2021, as a partnership between MAS and the private sector brings together the entire asset management ecosystem (investors, fund managers and service providers) with a common goal of supporting Singapore’s rise to a leading global full-service asset management and fund domiciliation hub.
SFIG’s mandate is to identify emerging industry trends and formulate strategies that will drive this mission via four Working Groups: Infrastructure & Innovation, Policy, Capabilities & Training, and Promotion & Advocacy.
MAS has been lauded as a forward-thinking regulator demonstrating a willingness to engage and collaborate with practitioners to create a balanced and effective environment for business, which goes a long way in supporting the growth and further development of the asset management industry in Singapore.
Ashmita Chhabra
Managing Director
Business Development - Asia Pacific, Apex Group
Executive Committee Member and Co-Chair of the Promotion and Advocacy Working Group, Singapore Funds Industry Group (SFIG). Ashmita is based in Singapore and oversees business development and strategy at Apex Group. She has over 17 years’ experience working with asset allocators and fund managers in the alternatives funds sector. Prior to Apex, Ashmita spent a decade building the global alternatives research business at Eurekahedge, a subsidiary of Mizuho Bank with her teams in Singapore and New York. She is Chair of the Singapore Fund Administrators Association (SFAA).
Mark Voumard
Founder and CEO of Gordian Capital
Executive Committee Member and Co-Chair of the Promotion and Advocacy Working Group, Singapore Funds Industry Group (SFIG). Mark Voumard, who has almost four decades of experience in Asia, is founder and CEO of Gordian Capital, Asia’s leading independent alternatives institutional platform and fund structuring specialist (AuM USD7 billion) where since 2005, he has been involved in the structuring and launch of over 100 funds (hedge, private equity, venture capital, real estate, and private credit).
Like this article? Sign up to our free newsletter Author ProfileSingapore: The ‘go to’ domicile for Asia Pacific expansion
Singapore continues to make significant efforts to further promote the appeal of the Lion City to hedge funds, private equity and other alternative investment managers, and it seems that its strategy is working. In 2020, Singapore’s asset management industry grew strongly, with assets under management (AuM) rising more than 17 per cent overall and at 31 per cent year-on-year in the alternatives sector. Venture capital and private equity continue to be strong performers within this segment.
Singapore provides a key gateway for global investment managers seeking to raise assets and invest across Asia Pacific’s financial markets and with a significant family office presence, Singapore also represents an important fundraising hub for those seeking to expand in the region.
A game-changing structure
Last year, the unveiling of the Variable Capital Companies (VCC) Act was widely seen in the investment industry as a potential game-changer. In addition to facilitating increasingly attractive and efficient structures for Asia-centric hedge fund strategies and other regional and global alternative investment strategies, the new investment fund framework is expected to have major employment benefits for Singapore’s financial services sector and beyond.
The VCC provides the fund management industry with a new corporate structure tailored for investment funds, offering them greater operational flexibility and cost savings. “Fund managers using the VCC framework benefit from its flexible capital structure, effective segregation of assets and liabilities, and ability to cater to open and close-ended funds,” says Gillian Tan, Assistant Managing Director (Development & International), Monetary Authority of Singapore (MAS).
Some fund managers have even redomiciled their existing funds to Singapore, including from Cayman Islands, Bahamas, Mauritius and Cook Islands. “This demonstrates the global appeal of VCC to fund managers who seek to enhance the substance of their activities locally, and to maximise operational efficiencies and cost savings from co-locating their fund management and fund domiciliation activities in Singapore,” Tan adds.
The VCC’s successful launch has been a catalyst for growth, but also shows the need for sustainable digital capabilities and regulatory developments to grow Singapore as a digital asset hub. Martin O’Regan, Managing Director at Solas, says: “The growing sophistication of funds will require directors to demonstrate skills in risk, strategy oversight, compliance and investment processes.”
A new asset management ecosystem
While the VCC has been a key development, it is not the only one. To underscore how the island views its position within the global funds industry, its financial regulator, MAS, recently announced a new partnership between it and the private sector to burnish Singapore’s reputation as a leading full-service asset management and fund domiciliation hub.
Known as the Singapore Funds Industry Group (SFIG), its mission is to bring together key players across the entire asset management value chain, including not just fund managers but also lawyers, tax advisors, fund administrators and corporate directors. These service providers work closely with fund managers to support a fund’s operations throughout its life cycle in areas such as fund structuring and set-up, fund administration, regulatory reporting, tax advisory, and fiduciary oversight.
Tan comments: “We encourage the fund management and administration industry to tap on SFIG to help ideate, test and implement as it works on digital utilities and infrastructure, provide feedback and insights on regulatory, legal and tax frameworks conducive to Singapore’s development as a funds hub, and contribute content and attend its training and engagement sessions.”
Singapore in the green lane
With the UN’s COP26 summit approaching, Singapore is positioning itself to play a key role as the financial services hub in Asia. Ashmita Chhabra, Managing Director at Apex Group, comments: “Pressure is mounting on the financial sector, not least from the regulators.”
MAS has released a sustainability report to prompt development of a green financial ecosystem and is fostering the development of a green bond market, with its Sustainable Bond Grant Scheme encouraging the issuance of ESG-compliant bonds in Singapore.
Further, a Green Industry Taskforce has been convened, proposing a taxonomy and launching an ERM handbook among other measures to promote ESG considerations in the Singapore markets, while MAS is looking to set out its expectations on disclosure standards that must be met by retail funds in Singapore early in 2022.
Armin P. Choksey, Partner, Asian Investment Fund Centre Leader at PwC Singapore, says: “The road to developing a global ESG standard has still some time to go but the journey has already begun with one initiative at a time.”
Secondary market grows in APac
Meanwhile, despite relatively small numbers of five to 10 per cent of global volume, the Singapore secondaries market continues to grow as such transactions become more ‘mainstream’, and there is cause for further optimism.
Tom Lin, Partner, and Morgan Shubin, Senior Associate at Clifford Chance, comment: “Our view is that, with the benefit of deal trends and sentiment from global transactions, the Singapore ecosystem is particularly well set up to support significant growth of the secondary strategy.”
A vision of the future
It feels like exciting times lie ahead for the Lion City, both for fund managers and service providers alike. Imagining how the industry will develop from 2021-2035, Mark Voumard, Founder and CEO at Gordian Capital, predicts a global economic shift to Asia; strong growth as an asset management and fund domiciliation hub; and the introduction of its own digital currency.
This report will shine a light for all those looking to get a better understanding of Singapore’s virtues, its myriad benefits and why it is fast becoming the ‘go to’ option for Asia Pacific expansion.
Like this article? Sign up to our free newsletter Author Profile Related Topics Special ReportsLazard eyes credit opportunities with “early mover” long/short UCITS launch
Lazard Asset Management has unveiled a new long/short credit UCITS hedge fund which trades investment grade, crossover, and high-yield bonds in Europe and North America.
The Lazard Coherence Credit Alternative Fund replicates the original Lazard Coherence Long/Short Credit strategy, which launched in August 2012. The strategy’s “early mover” portfolio is built around Lazard’s view that fixed income markets are an extension of equity markets, and makes investments ahead of yield spread and price changes which are driven by earnings and credit ratings momentum.
Managed by Sal Naro, Vincent Mistretta, Michael Cannon and Sanjay Aiyar, the fund looks to generate absolute returns and maintain capital preservation, and will aim to curb interest rate volatility through hedging and other risk management processes.
The strategy employs a top-down macro view to zero in on relative value opportunities across and within certain credit sectors, which is then fused with a proprietary, multi-factor model that systematically identifies specific long and short opportunities, Lazard said.
Allocations in the portfolio are grouped by their expected return drivers – core holding, event driven, relative value and so on – and are actively managed based on potential market opportunities and the macro landscape.
“Persistently low interest rates have led to a surge in corporate debt issuance. Yet the changing economic environment and eventual withdrawal of central bank stimulus could lead to significant credit migration, causing challenges for investors that have moved down the ratings spectrum in search of yield,” said Sal Naro, managing director and portfolio manager on the Lazard Coherence team.
“By viewing bonds as an extension of equity markets, rather than adopting a traditional fixed income approach, we seek to identify sector and credit spread migration early, leading to greater return potential, while looking to limit the tail risk for investors.”
The original Coherence Long/Short Credit Strategy has recorded an annualised return of around 8 per cent net of fees since inception, with a realisable Sharpe Ratio in excess of 1.5.
The new launch will further expand Lazard’s Alternative Investment Platform, which currently manages about USD3.9 billion in client assets.
Lazard Asset Management manages a range of equity, fixed income, and alternative investments globally. Together with affiliated asset management companies in the Lazard Group, the firm manages some USD272.6 billion in client assets.
Like this article? Sign up to our free newsletter Author Profile Hugh Leask Employee title Editor, Hedgeweek Twitter Linkedin Related Topics UCITs Long-short investing Investing in Hedge FundsManagement Companies in Focus 2021
The management company concept was first created to provide assurance of good governance and control with self-managed fund entities and vehicles. As funds proliferated and as the industry matured, the management company concept was born as an entity that would provide the necessary governance, oversight and services.
Since that time, the industry has matured with an increased move towards the provision and use of third-party ManCo services and the establishment of ‘Super ManCos’ – a service offering comprising both UCITS and AIFMD funds.
This report looks at developments in third-party services, Super ManCos, and drivers and challenges in different jurisdictions to consider the current situation of the market and future opportunities.
Regulation pushes Irish ManCo adoption
In recent years, the Irish fund market has struggled under a burden of regulation that would break a lesser jurisdiction. From regulatory reporting to UCITS V, and from CP86 to CP140, the need for regulatory compliance across the board has resulted in increasing interest in and take-up off third-party management company (ManCo) offerings.
Until 2017, most people setting up UCITS funds in Ireland used the self-managed fund (SMIC) model. However, there was a whole stream of continuing regulation – UCITS IV, UCITS V, AIFMD, EMIR, FATCA, CRS, the introduction of Central Bank online reporting systems, a huge increase in in regulatory reporting, PRIIPs, KIIDs, EMT/EPT, MiFID II – with none of the traditional delegates in the SMIC structure responsible for managing that regulation.
According to Patrick Robinson, Managing Director at MJ Hudson Bridge in Ireland: “This really started to lead to the growth in third party management companies in Ireland.”
While some firms set up third party management companies early on, MJ Hudson Bridge came later to the market with its ManCo, launching its first funds in 2017 when people were then starting to look at what management companies could offer in terms of a more effective operating model or an outsourced operating model.
Robinson explains: “Shortly after CP86 started, the Brexit referendum came along and the number of asset managers looking to set up their own management companies in Ireland to provide a post-Brexit EU distribution solution gave regulators an opportunity to push increased local substance expectations very quickly. The push for increased local substance has continued post-Brexit, resulting in the traditional self-managed funds appointing third party management companies.”
Of course, there is still an appetite for internal ManCos for those who want an EU licence, whether for EU distribution or individual account management, and scale still matters, with most of the top tier managers who required an EU contingency now having set up with their own regulated firms somewhere within the EU.
However, many managers are still waiting for final clarity on post-Brexit UK access to the EU and decisions on financial services equivalence before making long-term decisions on setting up their own EU licences..
“They’re looking at all the workaround solutions in the interim, including MiFID hosting licences including in jurisdictions such as Malta and Cyprus, at how robust those are from a regulatory standpoint and from their investors’ viewpoint, and waiting until UK financial services access is clear before making decisions about setting up their own licence within the EU,” Robinson says.
Robinson believes that, when the current regulatory change in Ireland settles somewhat, service will become the key differentiator between third-party ManCo offerings, with areas such as ESG a particular area for expansion.
“We’re looking at assisting our managers with the real implementation of ESG into their investment processes, investment due diligence and how investment managers are assessing the underlying companies they are investing in for ESG. Our specialist ESG consultancy business at MJ Hudson has been providing ESG services to asset managers for over 15 years and has been a huge benefit to a number of our clients in developing real ESG into their investment strategies and policies,” he says.
“The next stages of growth and opportunity in management companies will be about breadth of service and that one-stop shop outsource model,” Robinson concludes.
Patrick Robinson
Managing Director (Ireland), AIFM and ManCo
Services at MJ Hudson Bridge
Patrick Robinson has over 20 years experience in the asset management and funds services industry. Patrick began working for MJ Hudson Bridge in October 2009.
Patrick has an in-depth knowledge of UCITS and AIFM requirements and has project managed a number of UCITS Management Company /AIFM authorisations in Ireland and has provided assistance on numerous fund structuring /product development projects. He has established the risk, compliance and operational infrastructures of a number of asset management firms.
Like this article? Sign up to our free newsletter Author Profile Related Topics ESG & Responsible Investing UCITsMan FRM: Equity and macro hedge funds can capitalise on climate focus
With the COP26 climate summit underway in Glasgow, equity long/short hedge funds can capitalise on the renewed focus on sustainability, while climate change and energy price volatility heralds opportunities for certain macro managers.
Hedge funds may have endured a bumpy patch in the third quarter, but Man FRM’s chief investment officer Jens Foehrenbach is upbeat on the sector’s Q4 prospects.
Man FRM’s Q4 Quarterly Outlook said the heightened focus on environmental, social and governance (ESG) factors heralds fresh investment opportunities for equity long/short hedge fund strategies, which have suffered lately as a result of crowded long trades - particularly in technology and growth stocks that often struggle in rising interest rate environments.
Investors and consumers alike are now forcing companies to re-evaluate their environmental and social impacts.
As a result, “thematic funds will naturally benefit from a clear divide in “winners” and “losers” of the energy transition and/or move towards carbon neutrality,” Foehrenbach observed, noting that hedge funds can capitalise on this distinction.
Elsewhere, the potential for alpha generation in Chinese equities may prove “limited in the short term” thanks to the impact of the Evergrande debt crisis on stock market volatility there.
But healthcare stocks stand to gain from structural and secular tailwinds, Man FRM – the funds-of-funds unit London-headquartered, publicly-traded global asset management giant Man Group – noted.
“An aging population and increasing wealth in emerging markets should boost demand for drugs, treatments, and medical care, whereas technological innovation could create new opportunities across the sector,” the outlook said.
Elsewhere, Man FRM remains positive on discretionary macro and event arbitrage strategies, neutral on credit long/short, and a negative distressed credit.
On macro, Foehrenbach suggested managers can generate returns from the transition to tighter monetary policy and asset class volatility stemming from inflation.
“Macro managers have proven to be additive to portfolios as they have the potential to add convexity. We are focused on sourcing managers with a regionally unconstrained mandate,” he said.
He added that the quantitative macro space stands to gain from the “exceptional opportunities” in European gas and power price volatility in the immediate term while, longer term, the importance of inflation expectations, climate change and China’s reopening will be drivers of returns and investment opportunities.
In relative value-focused hedge funds, event driven merger arbitrage managers continue to benefit from a strong flow of deal activity across all regions, especially large cap mergers which can absorb a lot of arbitrage capital and keep spreads wider, he added.
Reflecting on the potential risk of stagflation, the note indicated, convertible managers could benefit from higher underlying stock volatility, while structured credit could be squeezed by weakening collateral values and higher borrowing costs. Certain equity long/short managers would struggle unless they are “nimble and factor aware”, while trend followers would likely struggle in the transition period from inflation to stagflation.
Foehrenbach added: “The increasing risk of a significantly more challenging market backdrop driven by persistent inflation has led us to adjust portfolios by reducing risks where necessary, while concentrating on hedge fund strategies that offer the best opportunities in the coming quarters.”
Like this article? Sign up to our free newsletter Author Profile Hugh Leask Employee title Editor, Hedgeweek Twitter Linkedin Related Topics ESG & Responsible InvestingSubstance over style: ManCos look to the future
By Kristina West – The management company concept was first created to provide assurance of good governance and control with self-managed fund entities and vehicles. As funds proliferated and as the industry matured, the management company concept was born as an entity that would provide the necessary governance, oversight and services.
Many firms took the decision at this time to create their own, internal management company; but since that time, the industry has seen greater development and detail of the rules, particularly with the focus on liquidity and sustainability, and expectations have grown, leading to the establishment of third-party ManCos servicing UCITS funds, AIFMs, or – more recently – both.
Internal or external?
There are still compelling arguments for both inhouse and external ManCos, depending on the stage or situation of the firm; for example, those who want an EU European licence, whether for European distribution or individual account management, may wish to set up their own ManCo, while most of the top tier managers who required an EU contingency are now set up with their own regulated firms somewhere within the EU.
However, for many, the costs of market entry are high, so firms need to consider how long they will be in the market, whether the costs are too prohibitive, and if the size of the investment is justified.
Craig Blair, VP, General Manager, Board Member and Conducting Officer at Franklin Templeton, also flags risk appetite as an issue. “You have to have substance and specialisms in the domicile that the management companies are in.”
The benefits of using a third-party provider can include lower financial outlay for new market entrants, time to market, and going into a new area of investment where an experienced third-party provider knows the asset classes and can provide good governance.
Super ManCos
Key services offered by third-party providers revolve principally around the six key management functions required by legislation, either UCITS or AIFMD, with supervision of delegates, risk management oversight, and investor management oversight at their core.
However, more recently, some third-party providers have begun to offer services in both UCITS and AIFMD funds. While the capital requirements, reporting and regulation structures may be different between the two, third-party ManCos have seen a gap in the market and are willing to cater to demand from large and sophisticated clients.
The battle of the jurisdictions
Luxembourg remains at the head of the European market for fund administration and related services, with more than EUR5.3 trillion in net assets under management in regulated funds. And funds domiciled in Luxembourg pay lower taxes on their funds under management than in other EU nations, an advantage which helps investors to benefit from a larger slice of the payouts.
The Association of the Luxembourg Funds Industry (ALFI) has a dedicated Management Company Technical Committee, with more than 200 leading industry experts, who have combined to form working groups looking at issues including due diligence on ManCos and service providers, marketing and distribution, and ESG and EU SFDR requirements.
Waystone is currently seeing client preference for Luxembourg over Ireland for private debt and illiquid asserts, as Luxembourg has built up a brand awareness and expertise that Ireland has not yet achieved.
However, David Morrissey, Global Head of Client Solutions at Waystone, believes that the regulatory framework and market support will evolve. He says: “Luxembourg has the SCSP which is basically a GP-LP investment structure. Ireland earlier this year launched the AILP, which is a very innovative new structure, but unfortunately it hasn’t gained the market traction we’d like to see at this stage. It just needs a bit more time.”
Yet third-party ManCos have a significant presence in the Irish market too. Patrick Robinson, Managing Director (Ireland), AIFM and ManCo Services at MJ Hudson Bridge in Ireland, points to the massive burden of regulation under which Ireland has been operating for years as a key driver, but also believes that service will become the key differentiator between service providers going forwards, with areas such as ESG ripe for expansion.
Creating opportunities
With increasing demand for services from clients and a continued focus from regulators across the world, it seems the third-party ManCo structure has never been more important. And with opportunities to follow clients into new markets and passport services into ever-more jurisdictions, the future is bright.
Like this article? Sign up to our free newsletter Author Profile Related Topics Special ReportsFrom pole to pole: Super ManCo Waystone offers global support
Until five years ago, there were still some perceived benefits for firms to build an in-house management company (ManCo), in terms of control and the assumption that using a third party might be perceived differently by investors. But with these concerns largely allayed, the rise of the third-party ManCo – and, indeed, what has been termed the ‘Super ManCo’, a firm that supports both UCITS and AIFs – seems assured.
Waystone may have only officially launched in March 2021, but the merger of three companies – DMS, MontLake, and MDO – under one banner has brought together experience plus geographical and asset coverage to create a Super ManCo that offers scale, substance, and expertise to its clients. Operating principally in Luxembourg and Ireland, Waystone also has a Cayman Islands operation, has passported its ManCo into France and Spain and has a UK ACD, its equivalent of a ManCo.
David Morrissey, Global Head of Client Solutions at Waystone, says: “When you look at the scale and substance at each of the management companies, together with our value-added services, it really is a significant differentiator in the market.”
Key services offered by third-party providers revolve principally around the six key management functions required by legislation, for either UCITS or AIFMD investment products, with supervision of delegates, operational risk management, and investment management oversight at their core.
“We tell our clients they should really view us as an extension of their own internal teams, rather than the firm having to consider and worry about scaling up and allocating resources to the business”, Morrissey says.”
A third-party ManCo must also act agnostically in different jurisdictions to truly support service its clients. “We want to help our clients raise assets in their core markets,” Morrissey says. “Whether they need a Luxembourg fund, an Irish fund, a Spanish fund or a French fund, we offer them the regulatory support that allows them to launch a fund, which in turn, allows them to raise assets.”
Waystone is currently seeing client preference for Luxembourg over Ireland for private debt and illiquid asserts, as Luxembourg has built up a brand awareness and expertise that Ireland has not yet achieved, though Morrissey believes that the regulatory framework and market support will evolve.
He says: “Luxembourg has the SCSP which is a GP-LP investment structure. Earlier this year Ireland launched the Irish Limited Partnership (ILP Structure), which has been an initiative of the Irish Funds Industry for over 10 years, but unfortunately it hasn’t gained the market traction that the Irish industry would like to see at this stage.”
Waystone is well-placed for any development of jurisdictions and instruments in which its clients have an interest, with recent client requests including support in the Cayman Islands, the US and Japan.
“We are in the process of rolling out the equivalent of a ManCo in Singapore to support our clients, whilst we also passported our management company to Japan to assist one of our clients raise assets and distribute their funds locally. Ultimately we’re focused on helping our clients succeed,” Morrissey says.
David Morrissey
Global Head of Client Solutions
David Morrissey is Global Head of Client Solutions at Waystone and is based in Dublin. David has over 25 years of experience in product development and client service covering mutual funds, UCITS and non-UCITS, offshore hedge funds and private equity funds in the US, Europe, the Middle East and Asia. At Waystone, David uses his vast experience to assist clients with structuring and developing products in their chosen market. Leading a global Client Solutions Team, David has product expertise in key jurisdictions that include,the Cayman Islands, Europe, the USand the Asia-Pacific region.
Like this article? Sign up to our free newsletter Author Profile Related Topics UCITs InvestmentsLeading the pack: Luxembourg extends its reputation as a thought leader
The Association of the Luxembourg Fund Industry (ALFI), the industry body for promoting Luxembourg’s fund sector internationally, has witnessed the establishment and growth of ManCos across many years.
The history of ManCos
The fund industry grew primarily through the creation of self-managed UCITS fund entities. As funds proliferated and as the industry matured, the management company concept was born as an entity that would provide the necessary delegated services, governance and oversight in a more scalable way. The management company concept provided greater consistency and assurance of good governance and internal control.
Craig Blair (pictured), Managing Director and Conducting Officer at Franklin Templeton International Services and Co-Chair of the Management Company Technical Committee at ALFI, says: “This ability to be scalable allowed greater depth of expertise to develop in key areas such as portfolio management oversight, valuation and internal control functions such as risk management, compliance and internal audit. Bringing that skill and expertise together in a more efficient way meant you could develop greater value around good governance.”
The industry has since matured and seen greater development of regulations, particularly with the focus on topics such as liquidity, delegation oversight and more recently on sustainability. “This caused us to really think about how we structure ourselves, how to have appropriate positions and substance in place, organisational requirements, and policies and procedures are defined to a much greater level than before,” Blair says.
Internal or external?
There are still compelling arguments for both inhouse and external ManCos for asset managers, depending on the firm. For example, the costs of market entry are quite high in terms of hiring the required substance and capital requirements, so firms need to consider the financial outlay and ROI if they set up their own structure.
Blair asks: “Is it a long-term committed strategy, or are you going in with more of a tactical approach with a limited number of products and therefore will the costs be too prohibitive? Then you’d possibly be thinking about that third party model, perhaps even as a transitionary arrangement for the first three to five years until you gain critical mass.”
Even existing firms in the market entering new asset classes or areas of investment may want to consider whether they build organically or whether they utilise a third party who have experience already in those asset classes.
In terms of the internal management company, he flags risk appetite as a consideration for those asset managers who want to have their own structures. “You have to have requisite substance, control and decision making in the domicile that the management company is in, but the firm can leverage the infrastructure and global expertise to an extent within the wider organisation.”
Developing thought leadership
To consider the optimisation of the ManCo market, ALFI set up the management company technical committee with working groups looking at issues including due diligence on ManCos and service providers, marketing and distribution, and ESG and EU SFDR requirements.
“We’re also developing an investment management oversight forum,” Blair says. “Investment management oversight is a key requirement, but I don’t think there’s been enough of a broad-based industry discussion about best practices. We’re trying to produce some practicable guidance around that.”
He concludes: “In Luxembourg, the industry needs to continue to deliver value to investors, whilst ensuring the greater levels of investor protection. We are well placed to be a thought leader on topics such as digitalisation and sustainability.”
Craig Blair
Managing Director and Conducting Officer at Franklin Templeton International Services and Co-Chair of the Management Company Technical Committee at ALFI
Craig Blair is General Manager, Conducting Officer, and Board Member of Franklin Templeton International Services S.à.r.l. Blair has worked in the global financial services industry for over 16 years, holding various responsibilities in the Luxembourg, UK, Irish, Eastern European and Brazilian asset management industries. As Head of FTIS, he is responsible for the day-to-day operations of the corporate entity and EU-wide branch structure. He currently also sits on the Board of ALFI and co-chairs the ALFI Management Company Technical Committee.
Like this article? Sign up to our free newsletter Author Profile Related Topics ESG & Responsible Investing Legal & RegulationSingapore: the ‘go to’ domicile for Asia Pacific expansion
By Kristina West – Singapore continues to make significant efforts to further promote the appeal of the Lion City to hedge funds, private equity and other alternative investment managers, and it seems that its strategy is working. In 2020, Singapore’s asset management industry grew strongly, with assets under management (AuM) rising more than 17 per cent overall and at 31 per cent year-on-year in the alternatives sector. Venture capital and private equity continue to be strong performers within this segment.
Singapore provides a key gateway for global investment managers seeking to raise assets and invest across Asia Pacific’s financial markets and with a significant family office presence, Singapore also represents an important fundraising hub for those seeking to expand in the region.
A game-changing structure
Last year, the unveiling of the Variable Capital Companies (VCC) Act was widely seen in the investment industry as a potential game-changer. In addition to facilitating increasingly attractive and efficient structures for Asia-centric hedge fund strategies and other regional and global alternative investment strategies, the new investment fund framework is expected to have major employment benefits for Singapore’s financial services sector and beyond.
The VCC provides the fund management industry with a new corporate structure tailored for investment funds, offering them greater operational flexibility and cost savings. “Fund managers using the VCC framework benefit from its flexible capital structure, effective segregation of assets and liabilities, and ability to cater to open and close-ended funds,” says Gillian Tan, Assistant Managing Director (Development & International), Monetary Authority of Singapore (MAS).
Some fund managers have even redomiciled their existing funds to Singapore, including from Cayman Islands, Bahamas, Mauritius and Cook Islands. “This demonstrates the global appeal of VCC to fund managers who seek to enhance the substance of their activities locally, and to maximise operational efficiencies and cost savings from co-locating their fund management and fund domiciliation activities in Singapore,” Tan adds.
Its successful launch has been a catalyst for growth, but also shows the need for sustainable digital capabilities and regulatory developments to grow Singapore as a digital asset hub. Martin O’Regan, Managing Director at Solas, says: “The growing sophistication of funds will require directors to demonstrate skills in risk, strategy oversight, compliance and investment processes.”
A new asset management ecosystem
While the VCC has been a key development, it is not the only one.
To underscore how the island views its position within the global funds industry, its financial regulator, MAS, recently announced a new partnership between it and the private sector to burnish Singapore’s reputation as a leading full-service asset management and fund domiciliation hub.
Known as the Singapore Funds Industry Group (SFIG), its mission is to bring together key players across the entire asset management value chain, including not just fund managers but also lawyers, tax advisors, fund administrators and corporate directors. These service providers work closely with fund managers to support a fund’s operations throughout its life cycle in areas such as fund structuring and set-up, fund administration, regulatory reporting, tax advisory, and fiduciary oversight.
Tan comments: “We encourage the fund management and administration industry to tap on SFIG to help ideate, test and implement as it works on digital utilities and infrastructure, provide feedback and insights on regulatory, legal and tax frameworks conducive to Singapore’s development as a funds hub, and contribute content and attend its training and engagement sessions.”
Singapore in the green lane
With the UN’s COP26 summit approaching, Singapore is positioning itself to play a key role as the financial services hub in Asia. Ashmita Chhabra, Managing Director at Apex Group, comments: “Pressure is mounting on the financial sector, not least from the regulators.”
MAS has released a sustainability report to prompt development of a green financial ecosystem and is fostering the development of a green bond market, with its Sustainable Bond Grant Scheme encouraging the issuance of ESG-compliant bonds in Singapore.
Further, a Green Industry Taskforce has been convened, proposing a taxonomy and launching an ERM handbook among other measures to promote ESG considerations in the Singapore markets, while MAS is looking to set out its expectations on disclosure standards that must be met by retail funds in Singapore early in 2022.
Armin P. Choksey, Partner, Asian Investment Fund Centre Leader at PwC Singapore, says: “The road to developing a global ESG standard has still some time to go but the journey has already begun with one initiative at a time.”
Secondary market grows in APac
Meanwhile, despite relatively small numbers of five to 10 per cent of global volume, the Singapore secondaries market continues to grow as such transactions become more ‘mainstream’, and there is cause for further optimism.
Tom Lin, Partner, and Morgan Shubin, Senior Associate at Clifford Chance, comment: “Our view is that, with the benefit of deal trends and sentiment from global transactions, the Singapore ecosystem is particularly well set up to support significant growth of the secondary strategy.”
A vision of the future
It feels like exciting times lie ahead for the Lion City, both for fund managers and service providers alike. Imagining how the industry will develop from 2021-2035, Mark Voumard, Founder and CEO at Gordian Capital, predicts a global economic shift to Asia; strong growth as an asset management and fund domiciliation hub; and the introduction of its own digital currency.
This report will shine a light on all those looking to get a better understanding of Singapore’s virtues, and its myriad benefits, and why it is fast becoming the ‘go to’ option for Asia Pacific expansion.
Like this article? Sign up to our free newsletter Related Topics Special ReportsSingapore in Focus 2021
Singapore continues to make significant efforts to further promote the appeal of the Lion City to hedge funds, private equity and other alternative investment managers, and it seems that its strategy is working. Last year’s unveiling of the Variable Capital Companies (VCC) Act has widely been seen in the investment industry as a game-changer, while Singapore’s financial regulator, MAS, recently announced a new partnership between it and the private sector to burnish Singapore’s reputation as a leading full-service asset management and fund domiciliation hub.
This report delves into the impact of these measures on Singapore’s burgeoning reputation as the financial hub for Asia, shining a light on its role in creating a sustainable ecosystem, the growth of its secondaries market, and its position as an asset management and fund domiciliation hub.
Singapore the Asset Management Centre of the Future
By Mark Voumard – The genesis of Singapore’s asset management industry development: 2021 – 2035
It’s 2035 and Jane Lee, a resort hotel executive in Singapore is planning to invest in one hedge fund and two mutual funds, all Variable Capital Company’s (VCC) managed by asset managers based in Singapore, Asia’s largest asset management centre, fund domiciliation hub and private banking nexus. Her AI digital PA navigates to her personal, cloud based, financial portal reviewing the latest return data and scans her personal, long term financial plan and goals, leading to approval, and Jane is ready to invest. Her AI program using U-Reg, an advanced KYC/AML software, locks into each manager’s online application and completes each subscription form in 30 seconds, supplying certified true copies with a digital watermark of her passport, proof of address and proof of Accredited Investor status. Each fund manager’s AI system check and verify all the information resulting in approval within five minutes, with Jane’s AI PA remitting funds in Singapore’s digital currency, the SG-ED.
Global economic shift to Asia
In 2021, a Regional Comprehensive Economic Partnership (RCEP) pact (and the world’s largest free trade agreement) was signed, focusing on reducing trade barriers in Asia. By 2030, it was adding USD220 billion a year to world incomes and USD560 billion to world trade. In 2031, China surpassed the US as the world’s largest economy and by 2033, 42 per cent of world GDP and 36 per cent of global consumer spending was generated in Asia.
The period 2022 to 2029, saw technological innovation and the rapid adoption of technology by governments in Asia; in particular, in Singapore, where the city state ramped up subsidies and multiyear training of the local workforce, to truly transform itself into a knowledge economy. The adoption of digital tools and processes boosted productivity growth and unleashed a wave of innovations across many domestic sectors including finance and asset management.
Strong growth as an asset management and fund domiciliation hub
By 2035, global Assets Under Management (AuM) grew from USD89 trillion in 2021 to USD240 trillion (CAGR 6.84 per cent). By 2035, AuM across the asset management industry in Singapore rose from USD3.5 trillion to USD20 trillion (CAGR 14.34 per cent), second globally as a fund hub, only to Luxembourg USD22 trillion (CAGR 11.27 per cent), followed by Shanghai with USD15 trillion. Whilst investment vehicles established and operated in Luxembourg and Singapore are used to make regional (pan-EU and pan-Asian) investments respectively, in the case of Shanghai, most of the capital and assets are domestic, not cross border. In the region, both Australia and Japan have built large pools of domestic capital in domestic vehicles but with a focus still on primarily investing in domestic assets.
Singapore’s growth spurt began in the early 2020s with the launch of the VCC in January 2020. Singapore was already one of the leading asset management and private wealth centres in Asia experiencing double digit CAGR in AuM when it launched the VCC to bring funds onshore where they could be serviced locally and to win a percentage of the global fund domiciliation business.
Prior to the VCC launch, 85 per cent of the money managed from Singapore was in Cayman structures and 4 per cent in Luxembourg structures. 500 VCCs were launched in the first two years (during the first Covid pandemic) and as of August 2035 there are 7,000 VCCs with 70 per cent of the money managed from Singapore now in Singapore domiciled structures. Globally, the trend to onshoring continued through the 2020s, boosted in part by the rollout of the global minimum tax in 2023 that was extended to the financial industry, hitherto exempt, in 2028. Whilst some US-based managers continue to use Cayman and increasingly Delaware vehicles, the rest of the world, over time, shifted to either Luxembourg, despite the partial break-up of the EU in 2027, for European investments or Singapore for Asian investments.
Between 2021 and 2035, Singapore’s share as a percentage of global AuM increased from 3 per cent to approximately 9 per cent and the number of licensed asset managers based in Singapore increased from 1,050 to 2,950. By 2028, the Asian Regional Fund Passport (ARFP), a cross border, online system allowing residents of 15 countries across Asia to access funds domiciled and or managed in each of the other 14 countries, had overcome prior obstacles and was in full swing. By 2029, Asia accounted for 75 per cent of all the venture finance in the world versus 3 per cent in 2005. With a focus on political stability, the rule of law and the strongest IP rights in Asia, Singapore became the regional headquarters for many of the Asian recipients of this wave of money.
Use of AI by hedge funds
XAI or Explainable Artificial Intelligence (a term created by DARPA) allows humans to understand how and why AI generates a specific set of results and allows managers to be able to explain to investors exactly how alpha is being generated. Singapore bet the house on this technology providing significant government funding for hedge funds utilising XAI, leading to Singapore becoming a world-leading XAI hub.
Introduction of digital currency
The MAS issued its own digital currency, the SG-ED in 2025, which further cemented Singapore’s position as a centre for crypto and blockchain investing and trading. That said, as more and more central banks issued their own digital currencies (CBDCs) with China leading the charge in 2022 issuing an ‘e-yuan’ and the US belatedly issuing its own USD-ED in 2028, the growth of independent crypto currencies such as Bitcoin fell dramatically. The use of the SG-ED prompted previously unbanked assets from across Asia to shift into its rigorous financial system and improved speed, cost, and transparency of cross-border payments.
The talent bottleneck
The knowledge economy created tremendous demand for skilled workers with the numbers in the financial industry jumping to 700,000 in 2034 from 200,000 in 2014 and the finance industry contributed to 48 per cent of Singapore’s GDP in 2034 versus 19 per cent in 2021. The path was not easy with a talent bottleneck developing in the asset management industry between 2020 and 2022. A subsequent significant increase in the number of global asset managers basing themselves in Singapore, bringing with them international expertise, beneficial for knowledge transfer and upskilling of the local workforce, combined with strong support by the MAS for academic programs and training provided by the industry, resulted in a significant expansion of financially trained workers.
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