Why MAS handed out a $5bn private asset mandate
The Singapore central bank's announcement that it will place up to $5 billion with private equity and infrastructure fund managers is a fillip for the local private financing ecosystem and will encourage more private fund operators to set up shop in the lion city, experts have told AsianInvestor.
The Monetary Authority of Singapore's new initiative, announced by board member Peter Ong last week at the Singapore FinTech Festival, builds on its external fund manager programme, which has already helped to anchor global asset managers in public markets.
Under the initiative, MAS will fund private equity and infrastructure fund managers who are committed to either deepening their existing presence or establishing a significant presence in Singapore.
“It is surely a clear and loud statement of intent regarding Singapore’s enthusiasm in further developing and strengthening its hub status and ecosystem for [private equity/venture capital] and infrastructure investments," Jek-Aun Long, partner and head of Singapore investment funds at law firm Simmons & Simmons, told AsianInvestor.
"As part of that boost to the overall ecosystem, the new variable capital (VCC) regime will, of course, also stand to benefit. It is good timing,” he said.
Singapore’s VCC framework, which received parliamentary approval in October, is aimed at encouraging private market funds such as hedge funds, private equity funds and real estate fund managers to domicile their investment vehicles in Singapore.
Following the MAS announcement, it is evident that the Singapore government is now throwing its weight behind plans to turn the city-state into a private markets hub.
AsianInvestor has previously reported that asset managers and institutions in Singapore are likely to be keen to use the new framework, assuming it receives favourable tax treatment.
MORE TO COME?
Ho Han Ming, a partner with legal firm Sidley Austin, said the MAS's announcement last week appeared to be its biggest publicly announced external mandate to date.
That's, possibly, because the central bank typically gives few details of its external fund manager programme.
MAS had S$376.5billion ($273.5 billion) in official foreign reserves at the end of March.
The central bank does not provide a detailed breakdown of its overall asset allocation, although investment grade bonds in advanced economies are known to account for the largest allocation in its investment portfolio.
The well-placed source added that the MAS push on private markets showed it was becoming more familiar with the value proposition of private equity and reflected a growing tendency for Asian companies to stay private for longer, as well as Asia’s immense infrastructure needs.
Could it encourage other Singaporean institutional investors to follow in MAS’s footsteps? Perhaps. Well-resourced institutions in Singapore are aplenty and some of them, including GIC and Temasek, are already experienced and sophisticated investors in their own right.
“Of course, geographic proximity, being close to your clients or investors and the fact that the manager and/or investment fund is regulated by local regulators under a familiar legal, regulatory and tax regime can be advantageous,” noted Simmons & Simmons’s Long.
“It can help ‘keep things simple’ for the money you wish to attract,” he said.
FAVOURING FINTECH
There seems to be another agenda too, given where and when the MAS announcement was made: to attract money into the financial technology space.
“There are many fintech startups in Singapore; it’s a fair assumption that fintech is one of the key sectors being targeted with this initiative,” Sidley Austin’s Ho said.
Fintech companies setting up base in Singapore frequently see it as a springboard to access markets across Southeast Asia.
The Asean economic bloc of 10 countries, in particular, with its favourable demographics, growing base of digitally savvy and increasingly affluent consumers, is attracting significant investor and fintech interest, according to a white paper by United Overseas Bank and the Singapore Fintech Association.
According to the report, $458 million had been invested in Asean fintech firms by the end of October, up 25% from end-2017.
It noted that in Singapore fintech firms catering to small-and-medium-sized enterprises and to wealth management experienced the highest growth in terms of funding.
Alternative lending grew the most in Indonesia and the Philippines, where the push for financial inclusion is the strongest. Thailand experienced strong growth in payments, while Malaysia favoured innovation to improve the performance of incumbent banks. In Vietnam, the highest growth was in cryptocurrencies.
In the case of infrastructure, Asia also remains a highly attractive destination for global and regional investors, given its population of 4.5 billion-plus and its infrastructure spending need, according to the Asian Development Bank, of more than $26 billion over the next 15 years.
Earlier this year, the Singapore government announced the creation of a new infrastructure office to bring together local and international players from across the entire value chain – covering developers, institutional investors, management and professional services providers to develop, finance and execute infrastructure projects.
Several international investors have said they plan to ramp up investments in infrastructure, including CPPIB, Mercer Super, AIA and HSBC Insurance.