SINGAPORE (Nov 19): In 2017, global assets under management grew 12% to US$79.2 trillion ($109.5 trillion). Singapore’s AUM rose 19% y-o-y to $3.3 trillion, outpacing global AUM growth. Although global AUM growth was underpinned by China and the US last year, Singapore’s share of global AUM should continue to rise apace, spurred by its fintech hub positioning and as a gateway to Asian investment. As Asian economies continue to develop, GDP per capita rises, and equity and fixed income issuance rises in the longer term. Demand for pension and retirement plans will also grow as the population ages.
Globally, retail AUM’s share of total AUM in 2017 was 39%, up from 37.5% in 2016, according to Boston Consulting Group (BCG). Among global institutional AUM, only the pension plan segment grew, to 14.5% of total AUM in 2017, from 14.2% of total AUM in 2016.
In Singapore, traditional sector AUM gained 20% in 2017, whereas alternative sector AUM rose 17%, led by private equity (PE) and hedge fund managers, says the Monetary Authority of Singapore’s (MAS) 2017 Singapore Asset Management Survey. In 2017, 78% of total AUM was sourced from outside Singapore; 67% of total AUM was invested in Asia-Pacific, with investments in Asean countries accounting for 39% of AUM.
Singapore ranks high in global wealth and asset management league tables. In The Deloitte International Wealth Management Centre Ranking 2018, which scores financial centres, Singapore is ranked No 2 after Switzerland. As a fintech hub, the Lion City is tied at No 1 with London. In a nod to the rising importance of digital in wealth management, Deloitte introduced two new success factors for wealth management — fintech hub and digital maturity of wealth management providers — and one new success indicator, digital infrastructure.
MAS’s focus on fintech is part of its overall strategy to position Singapore as Asia’s leading financial centre, and wealth and asset management hub. In a recent interview, Jacqueline Loh, deputy managing director of MAS, pointed out there were important synergies between the regulator’s asset management strategies and fintech strategies.
More fintech deals
Technology deals are driving investments in Southeast Asia. In private equity, more than half of last year’s transactions were technology-related, with investments from traditional private equity funds, sovereign wealth funds, family offices, corporates and development finance institutions, according to global law firm Dechert. Almost half of all the capital for private equity was secured by fund managers based in Singapore, says Preqin, a data company focusing on alternative assets. However, Preqin says 2017 was a challenging year for Asean-focused private equity fundraising. Total capital secured was only US$600 million compared with US$1.8 billion raised in 2016. The average fund size was US$52 million.
Interestingly, though, some 38% of all private equity funds that were closed since 2017 specified Singapore as an investment destination, Preqin says.
The Singapore FinTech Festival 2018 is likely to provide a platform for more fintech-related investment deals. For instance, the Singapore FinTech Festival — Global Investor Summit 2018 is targeted at introducing promising Asean enterprises and fintechs to interested investors. This year, the Global Investor Summit is expanded to include MATCH (Meet Asean’s Talents and Champions), a curated deal-making portal that will connect global investors looking with Asean start-ups and growth enterprises. The Global Investor Summit is focused on Asean fintech start-ups that have developed a business-to-consumer solution and have raised at least US$500,000, or developed a business-to-business solution; and global investors such as venture capital, corporate venture capital, private equity, family offices or angel investors.
Already, MATCH has generated more than 7,000 matches between 380 participating investors and 840 enterprises across Asean, and attracted US$12 billion worth of capital across several key sectors, including fintech.
Going digital
Digital is going mainstream in the asset management industry, says BCG. Artificial intelligence (AI), data analytics (DA) and machine learning will be able to enhance asset management both operationally and for investment advisory. “Every asset manager we have spoken with this year is pursuing a digital and analytics agenda, experimenting with digital labs, hiring data scientists and testing the use of alternative data,” the BCG report says. BCG believes that five years from now, asset managers will move away from core active products to solutions, specialties and alternatives.
On the retail front, passive investing such as exchange-traded funds could benefit from smart beta investing. With this strategy, stock selection characteristics (such as earnings, cash flow, dividend yields and gearing) are turned into a fixed set of rules governing trades.
“In the future, smart beta will pose a substantial threat to traditional active players. This is because smart beta seeks to replicate active management results at lower cost to investors. Fee levels for smart beta equity funds average 35 basis points, well below the average of 50bps for active equity products,” BCG says.
Whatever the case, data analytics is likely to be a central theme for asset managers and MAS is facilitating the digital transformation. In November last year, MAS introduced a $27 million Artificial Intelligence and Data Analytics Grant (AIDA) under the Financial Sector Technology and Innovation (FSTI) scheme to promote the adoption and integration of AI and DA in financial institutions. This provides an avenue for asset managers to use AI and DA to enhance their investment research and portfolio management.
On Nov 12, MAS released a set of principles to promote fairness, ethics, accountability and transparency (FEAT) in the use of AI and DA in finance. The FEAT principles provide guidance to firms offering financial products and services on the responsible use of AI and DA, to strengthen internal governance around data management and use.
Last month, MAS issued a set of guidelines on the licensing and business conduct requirements for digital advisory services in Singapore.
In October last year, MAS introduced a simplified regulatory regime for venture capital managers. Since then, 38 venture capital fund manager licences have been issued. In addition, private market funding platforms are also establishing operations in Singapore. MAS is consulting with the industry to lower the cost of entry for players pose no systemic or systemwide risks.
“The establishment of more private market channels of funding will enable growth companies to reach out to a wider network of investors,” Loh says.
The next growth wave
Emerging Asia is likely to provide the next big opportunity for asset managers based in Singapore. A recent Credit Suisse Research Institute report points out that large savings pools, coupled with the region’s rising wealth and growth in the middle class, are likely to lead to demand for health and retirement products, and products that help finance children’s education. In addition, as emerging-market pension and insurance funds under management grow, they will need to match their local currency liabilities with a sufficient quantity of suitable local currency assets.
“We believe increased institutionalisation of emerging Asian investments in conjunction with rapid economic growth will create the core demand for this incremental domestic equity and fixed income supply. Sustained foreign portfolio inflows will maintain a further source of demand for emerging- market equities and bonds,” says the Credit Suisse report. This represents an additional US$65 trillion of emerging Asian equity market capitalisation and US$33 trillion and US$10 trillion worth of regional corporate and sovereign bond market values.
Based on Organisation for Economic Co-operation and Development data, emerging Asia’s pension fund AUM grew US$1.2 trillion (in constant US dollar terms) between 2009 and 2016 to reach US$1.9 trillion, translating into a seven-year compound annual growth rate of 15%, outstripping GDP growth. The largest regional pool of pension savings (according to the latest 2016 data available) is in South Korea (US$850 billion), followed by China (US$515 billion) and Malaysia (US$200 billion). China clocked up the highest growth, of 19%, according to Credit Suisse.
Gateway to Asia
Singapore serves as a global gateway to Asia for asset managers and investors to tap the region’s growth opportunities. This year, Canada’s Ontario Municipal Employees Retirement System selected Singapore as its Asia-Pacific hub to expand its international presence. This adds to the growing community of public asset owners and global institutional investors using Singapore as a base to make investments into Asean. The others are Company of People’s Republic of China, Korea Investment Corp, Korea National Pension Service, La Caisse de dépôt et placement du Québec, Norges Bank Investment Management and Swiss National Bank. Their total AUM grew 23% to $212 billion in 2017.
“We are seeing a broadening in the asset management ecosystem, with global sovereign wealth funds and pension funds setting up offices in Singapore to manage their portfolio allocations in both public and private markets [in] a vibrant Asia,” Loh of MAS says.
“We have a strong geographical advantage as a gateway to Asia, and for Asia to the rest of the world. Asia, which is already a key part of global investment portfolios, presents a wide range of attractive investment opportunities, and Singapore will serve global investors by connecting them to markets here.”
Over the past 20 years, Singapore’s AUM have grown from $124 billion in 1997 to $3.3 trillion last year, representing an annualised growth rate of 17%. Loh says Singapore’s development into a leading asset management hub in Asia was driven by a few key factors: first, political stability, strong rule of law and robust regulatory frameworks; and second, a deep talent pool for the asset management sector as well as for ancillary service providers.
“Given this deep and broad talent pool, many global fund houses have designated Singapore as their regional hub anchoring activities across the value chain, from portfolio management to trading and research activities, all of which support the asset management capabilities that firms here provide,” she elaborates.
“Looking ahead, the outlook for our asset management industry remains bright, underpinned by positive long-term structural factors, including a rapidly expanding middle class and retirement reforms that will underpin growing demand for financial services. Meanwhile, strong growth in Asia, outpacing that of the developed economies, will continue to generate attractive investment opportunities and spur further investor participation in the Asian growth story.”
