Morgan Stanley may enter Singapore retail funds market

Morgan Stanley Investment Management may enter the Singaporean retail mutual funds business in the second half of this year, says Lee Tiong-Seng, executive director and business head for Asia ex-Japan. "We have a successful retail business in the United States, Europe and Japan. The time has come for Asia," he says.

The firm has always had a retail capability, but the landscape in Singapore is becoming sufficiently attractive to warrant the effort. As of July 1 the Monetary Authority of Singapore (MAS) will allow offshore funds to be registered directly for retail sales. Until now any offshore product had to enter the market via a feeder structure, which is costly to establish and doubles the layer of costs to investors.

But Morgan Stanley's decision to go ahead with a retail strategy may also depend on whether or not the Central Provident Fund (CPF), Singapore's all-encompassing pension system, will countenance the use of CPF funds in such offshore funds outside of the traditional feeder funds.

CPF-approved funds comprise over half the market, so the MAS liberalization for now only applies to the cash market. Without access to CPF-approved funds, distributors will have less incentive to market a cash-only product. Although most fund management executives expect CPF will follow the MAS' lead, timing is uncertain.

The CPF is now undergoing a fundamental reassessment by the government's Economic Review Committee chaired by Tharman Shanmugaratnam, a board member of MAS and government minister. It is possible this could lead to changes including getting CPF to include these offshore funds.

But fund managers also expect CPF will prefer to sit back and let the cash market test the waters first, or simply decline, as most national pension fund systems have a bias toward keeping investments in onshore vehicles.

In the meantime, Morgan Stanley is studying the local market to determine the most efficient way to enter the retail business. This is likely to involve both building partnerships with good distributors as well as branding. The firm has global relationships with banks and brokers that could serve as distributors in Singapore.

While the firm is a latecomer to Singapore's retail funds business, Lee says the market is still a growing one and that the firm can improve the product range. "In some ways being late is a blessing in disguise," he says, allowing the firm to learn from others.

Should Morgan Stanley go retail, it will also look at bolstering its presence in Hong Kong, where it markets offshore funds. Lee is weighing the pros and cons of providing products for Hong Kong's Mandatory Provident Fund programme. "We may not want to be a service provider but our funds could be a part of a master trust scheme," he says. The issue is what costs are involved in tweaking existing funds to meet MPF requirements, which for example limit a fund's exposure to individual securities and have minimum allocations to Hong Kong-based stocks.

The firm sees pension reform throughout the region as leading to new retail opportunities, and it is keen to establish itself in Asia ex-Japan's retail universe.