WHY NOT, INDEED? A PWC VIEWPOINT ON CREATING A NEW PLATFORM FOR SINGAPORE'S ASSET MANAGEMENT INDUSTRY
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Why not, indeed?
A PwC viewpoint on creating
a new platform for Singapore’s
asset management industry
www.pwc.com/sg
A future redefined?
Today, Singapore is viewed globally by industry players
In a fast-changing and regulators as a pre-eminent asset management
landscape, there is centre. As an entry point for the West into Asia, it also has
a robust regulatory framework and a business-minded
increasing pressure for government. In a fast-changing landscape, there is
Singapore to continually up increasing pressure for Singapore to continually up its
its game and to re-invent game and to re-invent itself to remain at the forefront of
itself to remain at the the industry.
forefront of the industry.
Investors and product developers at asset management
firms increasingly look for solutions in the form of
investment vehicles and domiciles which prove to be the
most advantageous to them. This would encompass considerations in terms of
flexibility of structures, pragmatic regulations, availability of quality resources
and strength of infrastructure, marketability and tax optimisation. At the same
time, regulators around the world are also demanding that asset managers
demonstrate substance around their structures and provide investors with
sufficient transparency and protection through using established international
investment fund centres.
Photo courtesy of Singapore Tourism Board
2 Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industry
This industry need for varying investment structures, vehicles and flexible
frameworks to cater for different investment strategies and investor preferences
now opens the door for Singapore to take a fresh look at what it can do to secure
its future as the asset management hub in Asia, and whether improvements
can be made to its existing investment fund framework to allow for a broader
spectrum of choice to different segments of the asset management industry.
In recent years, there has been an increasing trend towards setting up
Singapore-domiciled investment vehicles. This is primarily driven by the fact
that Singapore offers a place where substantive fund management activities and
investment vehicles can co-exist. In addition to tax treaty benefits, Singapore
also offers an unparalleled location where asset managers, investment banks
and capital introducers can mingle in a business-friendly environment overseen
by a highly respected and pragmatic regulator. This is wrapped with world-class
infrastructure for travel and internet together with a large selection of securities
service providers and professional services providers.
Notwithstanding this increasing interest, one key observation is that Singapore
does not currently have an investment fund platform which caters to the specific
needs of hedge funds, private equity, securitisation or cross-border investment
funds. In order to compete with investment centres such as Hong Kong,
Luxembourg, Dublin and Cayman Islands, Singapore needs to be able to offer
a variety of investment fund platforms beyond the current structures available
today. Such a framework would not only help dispense with the drawbacks of
the current regime but would anecdotally lead to an increase in the number
of funds and asset managers setting up in Singapore. In the bigger picture, the
inevitable evolution of asset management and servicing eco-system around
such a change would contribute significantly to the economy in terms of higher
employment, enhanced productivity and growth in fund flows through new
product ranges created and managed in Singapore, among others.
It is in this frame of thought
The inevitable evolution of asset that PwC Singapore has
developed a white paper to
management and servicing consider the various aspects
eco-system would contribute of what is needed to bring the
significantly to the economy in Singapore asset management
terms of higher employment, industry to the next level
– the establishment of a
enhanced productivity and growth comprehensive investment
in fund flows through new product fund law framework which
ranges created and managed in would cater to the needs of all
Singapore. asset managers and investors,
regardless of strategy or
distribution channel.
Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industry 3
What the market told us
To support our hypothesis on the acceptability and interest in the concept of a new
investment fund law framework, PwC Singapore conducted a high level survey of
the asset management community in Singapore in July and August 2013 to gather
industry insights and feedback. The target audience consisted of registered or
licensed asset managers of Singapore and a few foreign groups, spanning all the
sub-sectors (traditional funds, private equity, real estate and hedge funds).
The overarching concensus from the survey was that a new investment fund law
would be deemed appropriate and would actually be required to gain more share
of the global fund market. It was seen as a huge catalyst for the industry and
that Singapore would do a much better job of providing confidence to the global
investment community through bringing about a regime which is comprehensive,
yet robust and flexible to meet future demands. Examples of this would include
variable capital structures that enable investors to enter and exit the investment
vehicle without the current corporatised vehicle pitfall, flexibility in choosing
the appropriate reporting framework to cater to the needs of the international
investment community, investor and investment strategy confidentiality as well as
the ability to access tax treaty benefits, among many others.
4 Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industry
The recipe for a successful funds centre
• Institutional investors • Investment
• Government and professionals
sovereign • Highly-skilled
• HNWIs and retail labour force
investors Investors Asset
Managers
Service Products &
• Legal, tax & Providers Structures • Investment
regulatory vehicles and
advisors, auditors, legal structures:
custodians, • Unit trust
administrators etc. • Partnerships
Over the past decade, Asia has become an area of interest for many investment
houses. The widening of the middle income class, outstanding talent and
abundant natural resources have contributed to this growth. What is of striking
importance is that the region is not only being eyed as an investee destination
but countries such as Singapore, Hong Kong, Taiwan and Japan have also firmed
up their infrastructure to cater to this upswing.
For many asset managers, selecting a country to set up an investment vehicle
is equally a business decision as it is a tax planning one. Legal vehicles are
important for structuring investment pooling vehicles which should not be
subjected to additional levels of taxation. There should be a good mix of
investment vehicles in an aspiring investment centre that caters to the various
investment objectives. The current regulatory framework in Singapore caters
mainly to investment funds set up as unit trusts only, which do not grant access
to the privileges offered in double tax treaties, or a corporate vehicle which
comes with may restrictive components which make it investor unfriendly.
From a pure products perspective, what is seen as the immediate need in
Singapore is a corporatised investment vehicle such as SICAV (French acronym
which translates to “a company with variable capital”), or Open Ended
Investment Companies (“OEIC”).
Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industry 5
Wishlist: What would an ideal
investment funds framework
for Singapore look like?
A move towards growth
Building a successful investment fund centre of the future requires a lot of
thought, co-ordination among the different stakeholders at government
and private levels, a deep understanding and appreciation of where the
industry is moving towards, as well as having the hunger to get there before
anyone else does.
Below we set out some thoughts around why a refresh of an investment
fund framework would be desirable to an ambitious fund centre such as
Singapore.
Cross-border markets
At the end of Q1 2013, the total funds under management across Asia was
approximately USD6.34 trillion – this represents 21% of the global funds
under management. Asian economies contribute approximately 40% of the
global real GDP and this is forecast to grow to USD24.6 trillion by 2015.
This is a growth rate that is almost double the rest of the world.
The Asia Region Funds passport being promoted under APEC today is
intended to provide an efficient mechanism for funds to be sold across
jurisdictions, and thus support the development of regional capital markets.
In addition, the recently announced ASEAN cross-border framework for
Collective Investment Schemes (“CIS”) also seeks to achieve the same
purpose, albeit for different jurisdictions. As the various discussions around
an Asian fund passporting regime take shape, having a proven track record
of investment fund structures and supporting service industry at the time of
launch will be fundamental to the success of the initiative.
6 Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industry
Photo courtesy of Singapore Tourism Board
Other territories’ investor preferences
A principal concern when structuring an alternative fund is to provide
the most favourable tax result for the investors. Today, US investors are
the largest set of investors globally.
11%
26% 48% North America
Europe
Asia-Pacific
21%
Rest of the World
Sources: Lipper July 2013 & PwC Analysis
Because US corporations are subjected to tax on investment income as
well as business income, tax exempt US investors prefer to invest through
non-US corporations. Taxable US investors generally prefer to invest
through US-domiciled pass-through entities.
Investment fund laws should govern the business of investment funds and
not the pooling vehicles legal entities. Therefore, having fund laws that
understand and cater to the relevant sub-sectors such as private equity,
real estate, hedge funds and retail-distributed funds would be a better
way to govern and protect the investors while regulating the managers.
Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industry 7
Wishlist: What would an
ideal investment funds
framework for Singapore
look like? (continued)
More funds lead to more managers
A sophisticated investment funds platform is one of the ingredients of the
success stories of Luxembourg, Ireland, and the Channel Islands. While
they do not host the world’s asset managers, the global trend of ensuring
substance and justification for spanning one’s operations/management
across the globe will be a key element in determining the location of asset
management entities.
If the infrastructure to cater to investment funds is well developed, then
those looking to establish a presence in Asia might well locate their
asset management arms in Singapore. The key driver would be the safe
harbour rules, which is essentially an extended transfer pricing rule
protection offered to the asset management industry. Today, only the
United States, United Kingdom, Switzerland, Singapore, Hong Kong,
Japan and Australia have these broad exemptions made available to the
industry.
Tax efficiency
Portfolio investors in securities frequently make and hold those
investments by pooling their funds with other investors in a Collective
Investment Scheme (“CIS”), rather than investing directly. Most countries
have dealt with domestic tax issues arising from groups of small investors
who pool their funds in CISs. In many cases, this is reflected in legislation
that sets out specific tax treatments that may have significant conditions.
The primary result is that most countries now have a tax system that
provides for neutrality between direct investments and investments
through a CIS, at least when the investors, the CIS and the investment
are all located in the same country. One of the primary purposes of tax
treaties is to reduce tax barriers to cross-border trade and investment.
Treaties do this by allocating taxing jurisdiction over a person’s income
between that person’s country of residence and the country of source of
the income – in order to avoid double taxation.
8 Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industry
If the infrastructure to cater
to investment funds is well
developed, then those looking
to establish a presence in
Asia might well locate their
asset management arms in
Singapore.
Boost to the domestic economy
There is no doubt that an increase in funds domiciled in Singapore
would lead to an increase in domestic business activity. The fund
industry is a very scalable business, and the extensive use of service
providers to create, develop and support the industry provides a
valuable eco-system which will grow around the industry. This
would come in the form of increased activity in legal and accounting
services, fund administration and reporting, distribution and growth of
alternative channels for product development and marketing – which
all ultimately lead to a more vibrant employment market as well as the
need for services that support the resulting increased economic activity
such as nightlife, hospitality, food & beverage, etc.
Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industry 9The ideal structure
In line with other investment centres, Singapore should also seek to introduce
legislation that offers regulated fund products to all types of investors. This
would mean catering to the retail market (which needs a lot more regulatory
intervention) and to the non-retail market (which needs a tone to be set with
high-level intervention to prevent any systemic failures).
The retail funds regime would need detailed guidance and regulatory oversight
as the ultimate goal would be the protection of investors. The non-retail funds
regime should ensure that the investment fund business is adequately governed
with little or no room for fraud or circumvention of laws (money laundering, tax
evasion, Ponzi schemes, etc).
The proposition in this case would be a framework of investment fund laws that
marry the legislations that govern legal entities (partnerships, companies and
trusts) with the necessary laws that govern the business of fund investment.
One leading argument to not disrupt the fundamentals of the existing
Companies Act, Partnership Act, nor the Trust Act is that a new overhaul of
legislation would negate or force superseding years of precedence and case
laws that work as solid third line of support in the legislative process. PwC’s
proposition also suggests introducing a framework for sub-industry types such
as real estate, private equity and hedge funds, as there has been an increase in
demand for such industry sub-sectors to be regulated.
This is by no means a one-shot game. A systematic and meticulously planned
implementation in phases would be the most prudent way to see this to success.
The first phase of implementation could be in the form of a fund law that could be
used over the company legislation only, which would help plug the current gap.
This will also give Singapore a competitive edge over other jurisdictions by
aiding in the attraction of the future flow of funds which would want to
re-domicile from offshore to on-shore jurisdictions – the next forecasted wave
of funds in the future.
Investment Fund Law
Retail Accredited
Limited Private
Unit Trust Public company Trust
Partnership Company
10 Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industryWhat’s next?
Over the next few weeks, PwC will be releasing a series of sectional
analyses and perspectives on the proposal for a new investment funds
law framework to be established in Singapore, as follows:
• Views From The Industry – the results of an industry survey carried
out by PwC in August 2013 to gather perspectives and feedback from
major asset managers on the existing Singapore funds framework
and what they would like to see emerge;
• Lessons Learnt From Others – a summary of the jurisdictional
benchmarking conducted by PwC on how Singapore fares vis-a-vis
other established international fund centres, and what Singapore
needs to take into account in creating its own future-proof
investment fund framework;
• A Taxing Moment – what should be evaluated from a tax structuring
standpoint to create even more opportunities for the asset
management industry;
• Building The Foundation – an assessment of the key thrusts needed
to create a successful investment funds framework in Singapore,
what the base and pillars of the framework should look like and the
impact of these proposals to the current regime;
• Firing the First Salvo – bringing Open-Ended Investment Company-
like structures into the game; and
• Putting It All Together – summing up all the considerations,
challenges and next steps to take Singapore’s investment funds
industry to the next level.
Why not, indeed? A PwC viewpoint on creating a new platform for Singapore’s asset management industry 11Contacts
Justin Ong
Singapore Asset Management Leader
+65 6236 3708
justin.ong@sg.pwc.com
Anuj Kagalwala
Singapore Asset Management Tax Leader
+65 6236 3822
anuj.kagalwala@sg.pwc.com
Tan Hui Cheng
Partner
Tax – Asset Management
+65 6236 7557
hui.cheng.tan@sg.pwc.com
Armin Choksey
Senior Manager
Financial Services – Asset Management
+65 6236 3359
armin.p.choksey@sg.pwc.com
© 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP
which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.You can also read
