SINGAPORE - Liberalization measures announced by the government of Singapore could free up to $80 billion Singaporean (about $55 billion U.S.) for external fund management by the end of the decade.
The measures are part of the government's sweeping moves aimed at building up a funds management and investment banking business and bolstering Singapore's stature as a financial center.
Singapore already had been laying the groundwork for the development of a private pension system. Effective in 1993, companies could take tax deductions for contributions to an approved trust fund.
And now, substantial sums of government money are to be freed up for funds management. Measures include:
The Central Provident Fund, the local social security system, will be allowed to invest internationally over time.
Governmental agencies and government-linked companies will be able to invest their surplus funds through private-sector managers in Singapore.
These agencies and companies will be urged to tap the capital markets for their financing, instead of relying on government sources.
The Government of Singapore Investment Corp. and Temasek Holdings, the government's investment unit, will be able allot more assets from their East Asian portfolios to fund managers in Singapore.
The moves not only will spur development of Singapore's financial sector, but also will increase opportunities for foreign fund managers.
According to Singapore's Senior Minister Lee Kwan Yew, international investing by the Central Provident Fund will begin in stages, starting in January. Government agencies would be urged now to use fund managers and the capital markets when possible.
In yet a further move to encourage fund management, the government also is expanding allowable tax exemptions for domestic and offshore funds.
But tapping the opportunity - perhaps especially Central Provident Fund assets - will take time. To win CPF assignments, managers will have to meet certain qualifications. For example, they must have had an office in Singapore for at least the prior three years and a minimum of S$500 million ($340 million) under management in their Singapore office.
The CPF is a broad social security savings system that not only provides for members' future retirement, but also allows them to finance a home and pay for health care. It is funded through employer and employee contributions that total 40% of workers' pay.
Members must keep a specified minimum amount in their general CPF accounts, but any amount above that can be used for different purposes, such as home ownership.
While members receive a market-related interest-rate, now 2.5%, on the accounts, the government has been liberalizing amounts that can be invested in the market.
In January, the scope will be expanded further.
As of January, CPF participants with at least S$50,000 can invest through approved unit trusts in foreign stocks and bonds listed in Singapore, up to a 20% limit. Fund management accounts with balances of more than S$200,000 will be able to invest in foreign stocks and bonds traded in Singapore and in selected Asian regional markets.
Starting in January 1997, approved unit trusts will be allowed to invest in equities traded on regional markets, and the foreign limit will be raised to 40%.
And, in January 1999, approved unit trusts will able to invest outside of Asia, with the foreign limit raised to 50%. Fund management accounts also will have freedom to invest outside of Asia.
These announced new rules are the second wave of liberalization measures; last year, new rules allowed a higher portion of CPF assets to be invested in local Singapore stocks.
Over time, a private pension system also is expected to grow as companies take advantage of tax deductions on contributions to them. (Investment income on corporate pension funds is also tax-free.) Companies can also deduct their contributions to the CPF.
While experts say it should take time to build a private pension industry in Singapore, at least a few companies, especially those offering above-average wages, such those in the oil, high-technology, and perhaps banking industries, are likely to establish funded plans soon.
"There is room for additional company retirement benefits in Singapore," said Roger Atkins, an international consultant with the Wyatt Co. in Washington. On one hand, CPF benefits are relatively generous, because total contributions equal 40% of a worker's pay. But CPF rules cap the amount of salary on which contributions are made, meaning higher-paid workers wouldn't get the full 40% of salary contributed to their CPF accounts.
In addition, interest on CPF savings - now only 2.5% - may be too modest; it may be insufficient to keep pace with employees' salary increases.
But new pension and CPF investment rules should address some retirement issues - just in time to help boost Singapore's stature as a financial center.
As its broad strategy, Singapore appears to be seizing a unique opportunity - to use the new liberalizations to compete better as a financial center. Although Hong Kong has been widely viewed as Southeast Asia's financial mecca, costs - particularly office rents - have become unpalatable even as fears linger about Hong Kong's future under Chinese sovereignty after July 1997.
"There has always been a rivalry between Hong Kong and Singapore over where the regional financial center should be. But Singapore has not been as successful as it would have liked to be in the last few years," said Grahame Stott, managing director of the Wyatt Co. Hong Kong Ltd. "More managers are still setting up in Hong Kong. But with 1997 coming and Hong Kong looking expensive, Singapore" is now starting to look more economically attractive. That's why "it's applying the sweetener (to the financial community) now," he maintains.
Mr. Stott believes that with Singapore's liberalization measures, some international managers could benefit, and a few have started winning international investment accounts from the government. But for now the opportunity still is limited. "Maybe there would be room for two or three new players in that market" - on top of what he estimates to be six or seven international firms already active in Singapore. But in Mr. Stott's view, Singapore "wouldn't be the first stopping off place for reps from the U.S. or anywhere else."
Aeltus Investment Management Inc., Hartford, Conn., isn't rushing to seek business in Singapore. According to Orlando Lobo, Aeltus' vice president-international business, the firm is waiting right now because opportunities there will take time to develop.
WorldInvest, London, also won't alter its marketing strategy to target Singapore. According to Susan Leader, U.S. marketing director, the firm has sufficient business in its existing markets and isn't seeking new ones now.
But Paul Durham, a vice president with BT Funds Management Ltd., Sydney, views Singapore's liberalizations as a "very exciting opportunity, although it will take a few years to develop." In fact, BT recently won an international small-capitalization stock account of undisclosed size from the Government of Singapore Investment Corp.
BT already has an office in Singapore, which is mainly used for trading. But very shortly, BT Funds Management officials plan to visit Singapore to explore prospects for gaining additional business and to determine what steps would be needed to do so.
About three months ago, Morgan Stanley Asset Management Singapore Ltd. received an investment advisers' license, allowing it to manage local money, including CPF assets. Until then, the office was managing $3.4 billion in regional investments, all from foreigners.
Now Morgan Stanley plans to launch an equity fund targeted to this market. Most likely, it will invest in regional Asian markets, said Vice President Kiat-Seng Seah. "While this won't be a short-term phenomenon, there is going to be more and more money coming into the private sector over time," he said.
Credit Lyonnais International Asset Management (Singapore) Ltd. already has been moving to capitalize on the perceived opportunity in Singapore. The firm has four Asian regional emerging markets funds domiciled there, and in the past year the office has grown from about 10 people to about 30. Recently, the firm won an assignment from the Government of Singapore Investment Corp. to manage a $50 million Asia-except-Japan equities account.
Reports Julia Sze, investment manager in San Francisco for Credit Lyonnais International Asset Management (Asia) Ltd.: Between January 1993 and June of this year, Singaporeans invested a total of S$683.7 million in unit trusts; of that, Credit Lyonnais International Asset Management (Singapore) Ltd. garnered S$282.8 million.