Singapore’s bid to become a financial centre for the region is increasingly being conducted through its stock exchange. Singapore Exchange (SGX) has lobbied to become a centre for listings of real estate investment trusts, for exchange-traded funds – and now for hedge funds.
In March, SGX put out a consultation paper asking for comments on its new framework for listing hedge funds. In doing this, it aimed to become an Asian counterpart to Dublin and Luxembourg, which between them dominate such listings worldwide.
There’s potentially a lot at stake. According to Axiss Australia, a research group in Sydney, hedge funds from Australia, Hong Kong, Japan and Singapore directly control $33 billion in assets, not counting fund-of-fund structures, between 334 funds. Hedge fund database Eurekahedge lists 889 funds holding Asian assets, although not all of them are based in the region; 237 are listed on an exchange.
The vast majority have so far listed eight time zones away in Dublin. Roseanne Kelly, head of investment fund listings at the Irish Stock Exchange, says of 9,000 listed securities, approximately half are in alternative assets, including hedge funds. “We were the first to recognize the need for the listing of them, and to have a specific regime,” she says.
Scepticism
But what is that need? Singapore’s bid assumes that anyone in the time zone would want to list a hedge fund in the first place. Not all are convinced. “We’re managing to raise all the assets we need from our investor base already,” says one Asia Pacific hedge fund with more than $500 million under management. “I’m not sure what a listing would give us that we don’t already have.”
The theory is it captures the attention of more investors. “The attraction of institutional investors is key,” says Kelly. “Over time it has become a quasi-regulatory stamp of approval – not regulation in itself, but because it represents best practice.” It also gives greater information to investors, boosts profile and allows investments to be marked to market.
The rush to Ireland, for example, was driven by requirements among some Swiss funds that they could only invest in funds with a listing. James Chirnside, chief investment officer at Asia Pacific Asset Management, which runs Asian fund of funds, recalls: “A lot of people said: let’s find the cheapest place to list and then we can invest. Hence the whole Dublin listing idea was born. To work in Singapore, it would need to be driven by some similar form of regulatory rule.”
Such a rule is not clear among Asian institutions. Alex Mearns at Eurekahedge says some European pension funds still require their underlying investments to be listed on an exchange, “but in terms of hedge fund investors it’s more of a minority. And if you’re the kind of investor who requires an exchange listing, you probably have a quite restrictive investment mandate, which means it’s unlikely you’ll be investing in hedge funds anyhow.”
Peter Douglas, who heads the Singapore chapter of the Alternative Investment Management Association, thinks that’s missing the point. “Asian capital is much less institutionalized, though I would imagine there would be some appeal for Japanese and Australian institutions,” he says. “It’s more about global capital coming to Asia.”
Lawrence Wong, head of listings at SGX, says the move is “in response to market feedback and demand”, and says it will give funds a wider pool of institutional investors while enhancing transparency and disclosure. He says he wants to attract funds already listed elsewhere and that feedback has been positive.
“Given the impetus on Singapore’s ambition to become a major financial hub for the region, offering listings of hedge funds will further strengthen our strategy to be an Asian gateway,” he says, “a one stop shop where international market participants can tap growth opportunities through the Singapore marketplace.”
The competition
There is a competitor in the region for hedge funds listings, though it takes a
different form. The Australian Stock Exchange (ASX) has 10 listed hedge funds, but in most cases it’s either the manager itself or a closed-end fund that’s traded. The Singapore proposal is that funds will list and never trade – which sounds pointless but is the model that has worked for Dublin. (Wong points out Singapore also still allows listed and tradable investment funds as in Sydney.)
Tellingly, Australia used to have more listed hedge funds; one, Absolute Capital, delisted itself because it found its obligations under the Corporations Law as a listed company too onerous.
“We’ve had a lot of interest from hedge fund managers to list products, and particularly more recently,” says Michael Kolikias, in the listed managed investments division of the ASX. “They see it as an avenue to increase their funds under management.”
As to the rules themselves, they require funds to have a minimum asset size of S$20 million (or $20 million for funds denominated in another currency), a principal with five years experience and a prime broker with a credit rating of at least A for long-term debt, among others. Douglas calls the rules “generally good: pragmatic and usual”. But he has one gripe: “I fail to see why it’s specific to hedge funds. The opportunity is much broader.”