A recent government investment initiative in Singapore, aimed at wooing more foreign funds from Hong Kong, has met with skepticism.
The initiative raises the amount of government money invested with Singapore-based foreign fund management firms from S$10 billion (U.S.$6 billion) to S$35 billion (U.S.$21 billion). But fund managers in Hong Kong say the latest fund attractions are not enough to lure firms to Singapore.
In late February, the Government of Singapore Investment Corp., or GIC, announced that it was to increase the amount of funds to be made available to private fund managers by up to HK$165.9 billion (U.S.$21 billion) over the coming three years.
When the announcement was made by Singapore's Deputy Prime Minister and Chairman of the Singapore Investment Management Association, Lee Hsien Loong, he said that, "The incentive of additional funds from GIC should encourage firms to shift funds to Singapore."
However, the funds will be made available only to firms with offices in the Lion City. An additional condition also states that foreign fund managers that are granted mandates by the GIC should bring into the country their own additional funds to be managed in Singapore.
The outsourcing of GIC's extra funds and planned fund-management tax incentives have been coolly received by Singapore's rival finance center, Hong Kong, where industry experts see the move as a blatant attempt to woo away funds and firms. Those experts say the benefits are not enough to persuade firms to close shop in Hong Kong.
Keith Swailes, executive director at William M. Mercer Ltd., investment consultants based in Singapore, said he does not visualize a steady stream of firms abandoning Hong Kong.
"The Singapore government identified the S$35 billion as money that has been previously managed internally by GIC and they're offering that out for management, but it will be steadily and over the years to managers committed to Singapore. It won't be an overnight thing which will boost one firm's coffers immediately," he said.
"I personally don't know of any firms that are planning to close down in Hong Kong to move to Singapore because of this. However, if some Hong Kong firms do move in the near future, I don't believe that it is purely because of this financial carrot being dangled by Singapore. Instead, it would more likely be because this is just one more financial carrot rather than their sole aim."
Since GIC started placing funds to private fund managers in 1994, it has largely been at the expense of Hong Kong. With further tax incentives and relaxed financial benefits, this has resulted in total funds under management in Singapore growing from around S$18 billion in 1990 to S$123 billion at the end of 1997. Singapore's fund management industry is calculated to be a third of the size of Hong Kong's.
A Singapore-based fund manager who asked not to be named said that fund management firms in Singapore were anxiously gearing up to compete for the additional S$35 billion from the GIC. He believes firms that are already established in Singapore should be granted a better chance of business than newcomers.
"Why should the money go to outsiders? I can see the attraction in the government wanting to expand and lure new business, but firms who have put their money and taken risks in Singapore -- long before it became fashionable -- should be rewarded for their foresight and loyalty," he said.
Stuart Leckie, managing director at RCP & Partners in Hong Kong, summed up the mood of Hong Kong fund managers, saying firms should not only consider the possible financial gain, but also remember that, "There are still a lot of issues to be addressed, such as what proportion of the fund is in equities or fixed income. Over what period will this happen? Are the setting up costs more expensive? Are there better people available? And so on."
GIC is renowned, Mr. Leckie said, "for being very tough with fees, and they could be just dangling a carrot.
"It's good that Singapore is becoming more open and regulations are changing, but Hong Kong still is and remains the largest, more sophisticated and experienced fund management center."
Desmond Chan Kwok-kit, pension subcommittee chairman of the Hong Kong Investment Funds Association, said he does not see the latest Singapore fund changes as a major threat to the Hong Kong fund management industry.
"So far, I haven't seen or heard of any Hong Kong fund firms moving from here to Singapore specifically because of these new incentives," he said.
The incentives alone would not cause a firm to transfer offices, Mr. Chan said. "However, if it was a new firm which was setting up in Asia then that could be different."
Singapore's Deputy Prime Minister Mr. Lee said the country's fund management attractions are only one aspect of the Monetary Authority of Singapore's review of the island city's finance sector, and that a detailed study into the fund management industry is under way.
Mr. Lee, who also is the son of Singapore's president Lee Kuan Yew, said the government aims to develop Singapore into the "premier fund management hub in Asia over the next five to 10 years."
The country plans to achieve this by improving regulations, outsourcing more GIC funds, liberalizing the CPF Unit Trust Scheme, enhancing distribution channels, developing the country's equity and bond markets, improving links in the private sector and offering tax incentives to promote fund management, he said.
Despite the country's high-profile role as a finance center, Mr. Lee said, Singapore "manages only a small fraction of the funds sourced from Asia or invested in Asia. Only 10 fund management companies here manage more than S$3 billion.
