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The Zuellig Forum 2011
Fund Management - A Pillar of Growth in Singapore?

Clifford Chance 1

Contents

1. Singapore as a global asset management centre 3

2. Introduction 4

3. Fund management 6

4. Regulatory overview 23

The Zuellig Forum 2011: Fund Management - A Pillar of Growth in Singapore? Clifford Chance 2

Singapore as a global asset
management centre

“In just over four decades, Singapore has
established a thriving financial centre of
international repute ... Singapore offers
financial institutions a pro-business
environment, excellent infrastructure, cost-
competitiveness, a highly skilled and
cosmopolitan labour force, and is
strategically located in a region of
opportunities.”

'Singapore International Financial Centre Gateway to
Opportunities in Asia and Beyond - A Well Established
and Diversified Financial Sector’

Monetary Authority of Singapore, February 2011


Introduction


Introduction – fund management as a pillar of
growth

 What is the current landscape of the asset management industry in
Singapore?
 The regulatory framework and how this may act as a catalyst for
growth.
 Current policies and initiatives: looking to the future.


Fund management


Fund management – the current landscape

 Asia-Pacific region continues
to be a key investment
destination for Singapore-
based asset managers,
accounting for 64% of total
AUM in 2010.
 Asia-Pacific seen as a
distinct investment region by
global investors.

MAS 2010 Singapore Asset Management Industry Survey


Fund management – the current landscape (cont‟d)
Assets under management, 2002-2010 (US$ trillions)
-13 7
-21 8 -6 11 -16 2

9 11
11 13 30 26 13 8

North America Europe Asia Japan and Australia
(excluding Japan and
Australia)
-1 18
-15 10 -17 8

24 22
15 13 11 13
1.3
1.1
0.9 0.9
0.3

2002 2007 2008 2009 2010

Latin America
South Africa and the Global
Middle East

Annual growth, Annual growth, Annual growth, Annual growth,
2002-2007 (%) 2008 (%) 2009 (%) 2010 (%)
Sources: BCG Global Asset Management Market Sizing database, 2011.
Note: Global includes offshore AuM, North America = Canada and the United States; Europe = Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden, Switzerland, and the United Kingdom; Asia = China, Hong Kong, India, Singapore, South Korea, and Taiwan; Latin America = Brazil, Chile,
and Mexico. For all countries whose currency is not the U.S. dollar, we applied the average 2010 exchange rate to all years. AuM numbers for 2009 differ from those in last year‟s report owing mainly to
differences in the exchange rates used. Apparent discrepancies in growth rates are due to rounding.


Alternative and passive products should keep outgrowing traditional active products
CAGR, 2010-2014 (%)

Passive products/ETFs

ETFs

Alternative products

Passive fixed Traditional
active products Hedge funds
income
Infrastructure

Passive equity Balanced Commodities
Real estate
(including REITs) Absolute return

Private equity
Fixed Quantitative
income
Structured
LDI Active
equity

Money market

Estimated size, 2010
Net revenue margin1 (basis point)
($trilllions; scale = $1 trillion
Source: BCG analysis
Note: LDI is liability-driven investment.
1Management fees net of distribution costs.



Asset allocation is shifting eastward....

Changes planned to 2011 asset allocation by European Delta
institutional investors (% of respondents) (increase minus decrease)

Government fixed income - Europe 30 63 7
Government fixed income - U.S. 22 72 6
European equity 26 63 11
Domestic equity 25 61 14
Bank loans 9 85 6
U.S. equity 23 57 20
Corporate credit - Europe 9 74 18
Corporate credit - U.S. 5 80 15
Corporate credit - rest of world 1 79 19
Asian equity 10 57 33
Government fixed income- Asian emerging … 3 69 28
Corporate credit - Asian emerging markets 2 71 27
Other emerging-market equity1 8 51 41

0 20 40 60 80 100

Percentage points
Decrease Keep the same/don‟t know Increase

Sources: Pension fund survey, December 2010; BCG analysis.
Note: Because of rounding, percentages may not total to 100.
1Equity from markets other than domestic, U.S., Europe, and Asia



Singapore - a growing Asian hub for alternative investments

2005 to 2009: Newly raised capital 2005 to 2010: Newly raised capital of
of hedge funds in Asia private equity in Asia

USD billions Share USD billions Share

Hong Kong 8.5 48% China 57 31%

Singapore 5.3 30% Hong Kong 38 21%

Japan 2.7 15% India 29 16%

South Korea 0.4 2% Singapore 25 13%

India 0.4 2% Japan 17 9%

China 0.3 2% South Korea 11 6%

Source: McKinsey Global Wealth Database; team analysis


Assets Under Management

2005 2006 2007 2008 2009 2010

MAS 2010 Singapore Asset Management Industry Survey:
 Total Assets Under Management (“AUM”) by Singapore-based managers as at end-2010
were S$1.4 trillion compared to S$1.2 trillion as at end-2009.
 2010 represented a new high in Singapore's asset management industry.


(cont‟d)

The Economist Intelligence Unit, September 2011


(cont‟d)

With the breadth of products and offerings
increasing.....
 Singapore is now the 2nd largest offshore RMB
settlement centre after Hong Kong.
 Singapore represents ~50% of Asia‟s OTC
commodity derivatives trading volume.
 Singapore asset management industry grew by
16% (vs. 13% in Hong Kong) from 2005-10.
 Attractive tax exemption for trust clients was
launched in 2006, tax exemptions for onshore
funds.


Fund management – the regulatory framework

The Monetary Authority of Singapore
(the “MAS”)
 Singapore‟s central bank
 Integrated supervision of financial services
and financial stability surveillance
 Development of Singapore as an international
financial centre


(cont‟d)

Securities and Futures Act (the “SFA”)
Overview
 Regulates the securities and futures industry in Singapore.
 Reduces compliance costs and creates a flexible regulatory
framework, by implementing a single modular licensing framework.
 Market intermediaries are required to hold a single modular licence,
instead of multiple licences, to engage in the regulated activities listed
in the SFA.
Licensing requirements
 No person shall carry on business in any regulated activity or hold
himself out as carrying on such business unless he is the holder of a
capital markets services licence for that regulated activity.
 Regulated activities include:
i. fund management; and
ii. dealing in securities

(cont‟d)

Exemptions
Onshore Singapore hedge fund managers qualify as Exempt Fund
Managers under the SFA and are not required to hold capital markets
services licence to carry on business in fund management provided that:
 They act for no more than 30 Qualified Investor clients
 A Qualified Investor includes:
i. a private fund (each fund managed by a Singapore manager
counts as ONE Qualified Investor, i.e. no “look through” to
underlying investors); and
ii. An Accredited Investor
 An Accredited Investor includes:
i. an individual with net assets exceeding S$2 million/income in
previous 12 months not less than S$300,000; or
ii. a corporation with net assets exceeding S$10 million


(cont‟d)

Financial Advisers Act (the “FAA”)
Overview
 Governs financial advisory activities in respect of investment
products, the distribution or marketing of specific investment products
such as life insurance policies and collective investment schemes.
 Streamlined licensing framework as only one licence is required to
give advice on a spectrum of products.
Licensing requirements
 No person may act as a financial adviser in Singapore in respect of
any financial advisory service unless he is authorised to do so in
respect of that financial advisory service by a financial adviser‟s
licence or is an exempt financial adviser.


(cont‟d)

 Financial advisory services include:
i. advising others on investment products
ii. advising others by issuing research reports or analyses concerning
investment products; and
iii. marketing of any collective investment scheme.
Exemptions
 Financial advisers who are exempt from the requirement to hold a
financial advisers licence include:
i. a holder of a capital markets services licence under the SFA;
ii. a securities exchange, a futures exchange, or a recognised market
operator; and
iii. 30 qualified investors exemption.


as a catalyst for growth?

 Exempt fund manager and exempt financial adviser regimes offer
flexibility for new entrants to Singapore.
 Taxation policy:
i. clear rules on tax exemptions (including a tax exemption scheme for
new start-up companies)
ii. incentives for Singapore-resident fund managers including:
• a concessionary tax rate of 10% for fund management and
investment advisory activities;
• tax exemption on specified income for qualifying offshore
funds managed by Singapore-resident fund managers; and
iii. growth of Singapore as a fund domicile: Cayman Islands of the East?
 Ease of establishment: Singapore is an efficient and generally lower-
cost location for a start-up compared to other jurisdictions.


Fund management – recent policies and
initiatives

Maintaining Singapore’s strong fund management
performance…
 MAS proposed revised regulatory regime for fund
management companies (including new risk management
frameworks for fund managers, independent auditing of fund
management companies and new examinations for
representatives of licensed retail fund management
companies)…

“ensuring that [the] regulatory regime keeps pace with global
developments and (helping) to promote the sustainable
growth of Singapore's fund management industry”

MAS Annual Report 2010/2011


Fund management – recent policies and
initiatives (cont‟d)

Targeting Asian clients…..
 Strong preference for home-market investing –
asset managers should concentrate on local Asian
assets.
 Gaining access to more restricted markets (such as
China) by finding the right partner “optimally
structuring the partnership agreement are critical to
capturing distribution advantages”
 Growth of Asian sovereign wealth funds –
“diversifying, reducing exposure to the US dollar
and focusing on alternatives and emerging markets”

The Boston Consulting Group, „Building Success‟, 2011

Regulatory Overview


Regulatory Overview

 Global Regulatory Themes – the G20 agenda
 AIFMD
 Private Funds Regulation


Global regulatory themes

Market Securities Volcker and
Capital Short selling MiFID II
abuse Law Directive lookalikes

Investor and
Recovery
depositor Clearing CRAs Depositaries Liquidity
fund
protection

Retail
SEPA Corporate OTC CCPs and
distribution
migration governance derivatives CSDs
review

Independent
FSOC and Prospectus
UCITS Commission Bank taxes RRPs
OFR Directive
on Banking

New Insolvency Responsible Collateral
Remuneration Bail-ins
regulators laws lending law directive

Financial Client money
T2S Solvency II Private funds Transparency
groups and assets


G20 commitments

Fundamental elements of global regulatory reform agreed at Pittsburgh G20
meeting

 Strengthening bank capital and liquidity standards
 Addressing systemically important financial institutions and resolutions
 Improving OTC derivatives markets and core financial market infrastructures
 Reforming compensation practices to support financial stability
 Strengthening adherence to international supervisory and regulatory standards
Role of the Financial Stability Board (FSB)

 The FSB is responsible for co-ordinating and promoting the monitoring of the
implementation of the G20 and FSB financial reforms and for reporting on it to
the G20
 Priority areas - Basel III, OTC Reforms, compensation practices, policy
measures for G-SIFIs; resolution frameworks and shadow banking - will
undergo more intensive monitoring and detailed reporting


Implementation of G20 commitments

US EU
CRD IV
Dodd Frank Act
Crisis Management
Directive
OTC Derivatives
Regulation
MiFID II and MiFIR
CRD III
Credit Rating Agencies
Regulation
AIFMD / UCITS V


Proposals in the EU Legislative Pipeline

17
• PRIPs
•
14 •
•
•
UCITS Review
CRA 3
CRA 1 Implementation
Data Protection Directive
• Fair Value Accounting

•
•
ESRB implementation
EIOPA implementation
•
•
Hedge accounting
Commission Green Paper on
Corporate Governance for Listed &
15
•
•
ESMA implementation
Omnibus II
implementation •
non-Listed Companies & Investors‟
Role
Consumer Rights Directive
• Insurance Mediation Directive
• Insurance Guarantee Schemes
• Framework for crisis
9
• CRA 2 Regulation • Sanctions for violations of EU • Bank insolvency regime
• VAT & Financial management II
financial services rules
• Review IORP Directive • Insolvency Regulation
Services • Collective redress mechanisms - • Collective Redress for
• Financial • Pensions Portability Directive
common legal principles breach of EU Anti Trust rules
Conglomerates • Transparency Directive Review
• Horizontal cooperation agreements • Collective Redress scheme
Directive Review • Insurance Accounting
• Alternative Dispute Resolutions for financial services
• Deposit Guarantee • E-Commerce Directive Review
(ADR) Schemes
• CRD 4 • Directive on reorganization
Schemes • Transparency of debtors assets / and winding up of insurance
• EMIR • IFRS/US GAAP convergence
Attachment of bank accounts undertakings
• Short selling and CDS • Commission Green Paper on
• Savings Tax Directive Review • European Contract Law
• Anti-Discrimination Corporate Governance of
• Permanent crisis resolution • Unfair Commercial Practices
Directive Financial Institutions
mechanism Directive
• CRD 3 • Shareholder Rights Directive
• Financial inclusion • Securities Law Directive
• AIFMD • MIFID 2
• Market Abuse Directive Review • CSD Regulation
• Short selling
• Bank levy, FTT & FAT

2010 H1 2011 H2 2011 2012 Onwards

Key EU legislation - timetable

H2 2011 2012 2013
Proposed text CRD IV
MiFID II, MAD II
Crisis Management

Agreed text Short selling EMIR
CRD IV
MiFID II, MAD II
Crisis
Management
Implementation Short selling EMIR
CRD IV
Crisis
Management


AIFMD
Current Status
 Directive entered into force 21 July 2011
 ESMA preparing draft technical advice which will form the basis of the
Commission‟s implementing legislation
 ESMA held two consultations on technical advice during summer
2011
 Next Steps: ESMA to report to the Commission by 16 November 2011
 Implementing legislation Summer 2012?


Application of the Alternative Investment Fund
Managers Directive (AIFMD)

Location of Location of
Application of AIFMD
Fund Manager
EU EU  AIFMD applies in full from mid 2013.
Non-EU Non-EU  If no marketing to EU investors post 2013: AIFMD will
not apply.
 If marketing to EU investors post 2013:
o Provisions on transparency and on portfolio
companies;
o Co-operation arrangements to be in place
between regulators in non-EU jurisdiction and
those in all EU jurisdictions where the fund is
marketed;
o Non-EU jurisdiction must not be AML
blacklisted.
 Full compliance required if marketing to EU investors
post passporting (phase-in period between 2015 and
2018).


Application of the Alternative Investment Fund
Managers Directive (AIFMD)
Location of
Location of Fund Application of AIFMD
Manager
Non-EU EU  AIFMD applies in full (except provisions on depositaries which
only apply post passporting).
 If no marketing to EU investors post 2013:
o Co-operation arrangements to be in place between the
Home State regulator of the AIFM and the regulator in
the jurisdiction of the AIF.
 If no marketing to EU investors post 2013:
o Co-operation arrangements to be in place between
Home State regulator of the AIFM and the regulator in
the jurisdiction of the AIF;
o Non-EU jurisdiction must not be AML blacklisted.
o Agreement compliant with OECD Model Tax Convention
to be in place between relevant jurisdictions (if
marketing under passport).
EU Non-EU  AIFMD applies in full from 2015 at latest. Non-EU Manager will
need to be authorised by relevant EU regulator, and will need to
appoint a legal representative in the EU. Other requirements:
o Co-operation arrangements to be in place between
regulators in EU member state of reference, Home State
of EU AIF and regulator in jurisdiction of non-EU AIFM;
o Non-EU jurisdiction must not be AML blacklisted;
o Agreement compliant with OECD Model Tax Convention
to be in place between relevant jurisdictions.
 Pre [2015], as for Non-EU / Non-EU


What next?

EU
 MiFID II
 MiFIR
 MAD II
 Break up of the Euro?

US
 Final rules for Volcker and OTC Derivatives Reform
 Capital requirements for SIFIs
 Judicial challenges to Dodd-Frank rulemaking


Questions and answers……………


Ho Han Ming, Singapore

Partner
Ho Han Ming

T: +54 6410 2283
E: HanMing.Ho
@cliffordchance.com


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