Singapore’s asset management ambitions face next test as industry seeks speed and clarity

Greater clarity, speed and workable rules are among requests that industry players have in Singapore’s latest push to boost its asset management landscape, as they await crucial details on who qualifies and how the schemes work.

The measures have been widely welcomed as a timely response to competing initiatives from Hong Kong. But observers said their effectiveness will ultimately depend on how quickly Singapore translates the broad proposals into practical rules.

“The sooner the details are shared the better; certainty drives these decisions more than the headlines,” said Etelka Bogardi, partner at law firm Reed Smith.

“Anything that firms up the details earlier – interim guidance or an advanced ruling mechanism – turns a good signal into something managers can actually model.”

Earlier in August, the Monetary Authority of Singapore (MAS) announced three measures to boost the asset management industry in Singapore. They include tax exemptions on profit-related returns, a new hedge fund investment programme and a new foreign work pass track.

The proposals come as competition among Asian financial centres intensifies, with Hong Kong announcing its own package of tax incentives in June.

Who qualifies?

One area where industry players are seeking clarity is the proposed tax exemption on profit-related returns.

MAS will need to provide greater clarity on whether the profit-related return tax exemption is agnostic to fund types – for example, whether the tax exemption for key investment management professionals is based on whether the funds qualify for fund tax incentives, said Klenn Yeo, business tax partner at Deloitte Singapore.

More clarity is also needed on how certain the tax exemption can be obtained, and whether the tax exemption will apply to existing incentivised funds’ profit-related return contractual arrangements, he added.

Vikna Rajah, head of the tax, trust and private client departments at Rajah & Tann Singapore, said a key concern for his fund clients would be the precise ambit of compensation structures which will qualify.

Currently, carried interest received by fund managers in Singapore is subject to ordinary tax rates, despite its characteristics as part service fee and part entrepreneurial return on risk, he noted.

While Singapore still “compares favourably” in areas such as education system, public safety, rule of law, healthcare and quality of life, a material gap in the tax treatment of carried interest or performance fees may diminish those advantages, he said.

Meanwhile, the “next challenge” for MAS would also be to make out practical and executable details, said Lee Kher Sheng, co-head of Asia-Pacific at the Alternative Investment Management Association (Aima).

Lee noted repeated references to “real world structures” in MAS’ brief, which suggests that the authority is aware that the measures have to work in the real world, he said.

Differences with Hong Kong

Despite the current lack of details, industry observers said that the scope of Singapore’s incentives are already more defined compared with Hong Kong at the current juncture.

MAS has defined the scope to cover those under sections 13D, 13O, 13OA, 13U and 13V of the Income Tax Act 1947, which are funds already subject to economic substance requirements.

Meanwhile, Hong Kong had to “do a lot of work” to enumerate the qualifying assets for its proposal to expand tax concessions on performance fees and carried interest, said Suhaimi Zainul Abidin, chief executive of Quantedge Capital.

Media reports indicated that Hong Kong’s announcement triggered widespread restructuring across the city’s financial hub, with trading firms, family offices and smaller hedge funds checking for eligibility.

Suhaimi noted that both regions have similar scopes, although Hong Kong also explicitly included virtual assets as part of the scope.

Singapore may even have a potentially broader scope as it would appear to include traditional private equity carry, hedge fund incentive allocations and other similar profit shares, said Leonard Ng, co-managing partner of the Sidley Austin’s Singapore office.

“It is worth pointing out that neither the Hong Kong nor Singapore proposals give exemptions for proprietary trading firms, there needs to be third party assets or funds being managed,” he said.

Beyond attracting assets

Industry players also said the success of Singapore’s latest push should eventually be measured by more than the amount of assets under management (AUM).

“We often simply look at how many trillions of assets we have under management. But assets are easy to attract and to lose,” said Suhaimi, who is also deputy chairman of Aima Singapore.

Singapore could consider publishing metrics such as the number of funds based here, how many of them are founded here, and what share of senior risk-taking roles are held by Singaporeans, he said.

Such metrics could provide a better indication of whether the growth of the asset management industry is resulting in deeper investment capabilities and decision-making functions on the ground.

Observers expect that MAS’ measures will go beyond attracting AUM and benefit the wider financial ecosystem.

Amy Ang, Singapore head of tax at EY Solutions, said the moves encourage more investment expertise, strategic decision-making and value-creating activities to take place in Singapore.

This will deepen Singapore’s role as a leading global asset management hub and further strengthen the broader financial ecosystem over time, she said.

Lim Maan Huey, asset and wealth management leader at PwC Singapore, added that Singapore can capture broader economic gains through high-value employment and skills transfer. It can also grow supporting financial services such as banking, legal, tax, technology, fund administration and compliance.

“Continued efforts to enhance ease of doing business, regulatory certainty and market connectivity will also be important to ensure Singapore continues to be a global asset management hub,” she said.

Nevertheless, the measures are more likely to reinforce an existing decision than prompt a manager to relocate on their own, said James Ong, group head of asset management at CGS International Securities.

“Singapore should focus on speed, certainty and practical support,” he noted. “Clear rules and timelines will help fund managers plan more confidently, while transparent eligibility criteria will make the incentives more effective.”

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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