Singapore Regs Could Squeeze Out Smaller Hedge Funds

Dec 2 2011 | 9:41am ET

Singapore, long known and loved by hedge fund managers for its light-touch regulatory approach, is bringing its regime in line with most other hedge fund centers. And that move could imperil its effort to rival Hong Kong as Asia's alternative investments capital, one consultancy warns.

The Monetary Authority of Singapore is set to require all hedge funds in the city-state to register and have independent auditors. In addition, the largest, those with more than S$250 million in assets, will have to get a license from the regulator, and all funds will have to set up risk management systems and employ at least two investment professionals.

Those requirements could lead to a 15% attrition rate among Singapore's roughly 400 hedge funds, many of which are not especially healthy to begin with.

"You will get an initial wave of consolidation when people realize that they are just not going to make it," GFIA's Peter Douglas told Reuters. As it stands, more than 40% of Singapore's hedge funds have less than the US$30 million in assets they need to be commercially viable, Douglas said.

The new regulations will impose some very high costs on those managers—a risk-management system could run at least US$25,000 per year, to say nothing of the need to hire additional staff and an outside auditor—already struggling with increased costs that include a 38% increase in office rents in the city.

"For the famous guys, it's not such an issue as they raise a lot of money at the beginning, but for the not-so-famous ones, it’s a big struggle," one manager told Reuters. "My costs have gone way up. If they get unmanageable then I will have to move or shut down."

Not everyone sees the new regulations are a stranglehold on smaller managers. Some argue that MAS registration will be a selling point to fraud-wary institutional investors.

"Now managers can say to the market they are registered by the MAS, which exempt managers under the old regime couldn't do," Han Ming Ho, who leads Clifford Chance's fund practice in Singapore, said.

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