Alternative assets account for bulk of inflows to Singapore funds: MAS

Singapore

SINGAPORE's fund management industry posted a respectable 7 per cent growth in assets to S$2.7 trillion in 2016, thanks in large part to improved valuations.

However, net fund inflows were the lowest since 2012 at S$116 billion, the latest survey of the fund management industry by the Monetary Authority of Singapore (MAS) has found. Private market managers who manage alternative assets such as real estate, private equity (PE) and venture capital (VC) funds, accounted for the bulk of net inflows.

Since 2011, net inflows peaked in 2014 at S$408 billion. In 2015, net inflows amounted to S$203 billion.

Traditional fund management grew a modest 3 per cent in 2016. The bright spot continued to be alternative assets, which expanded by 17 per cent to S$478 billion.

Lion Global Investors chief marketing officer Lim Shyong Piau, who is also honorary secretary of the Invesment Management Association of Singapore, said traditional fund managers are grappling with intense competition in the long-only space.

"Traditional long-only funds, whether global, regional or single country, are very mature products. They've been around since the 1980s or 1990s. Most investors are already exposed to them or have allocated to them." His views are his own and do not represent those of Lion Global or Imas.

He added that more investors are also opting for cheaper market exposure - or "beta" - through passive instruments such as indexed exchange traded funds. Investors in search of the elusive alpha have flocked to alternative assets such as PE. "Every dollar allocated to alternatives means one dollar less for traditional.''

He said managers have the potential to attract assets through longer term thematic funds such as infrastructure, and total or absolute return strategies.

Within the alternative sector, assets under management (AUM) in VC, real estate and PE expanded by 32, 30 and 14 per cent, respectively. AUM grew robustly on the back of buoyant deal making, said the survey. The assets of VC and PE reflect only drawn- down capital.

Capital raising remained strong; VC and PE managers reported $2 billion and $23 billion of dry powder, which are equivalent to 40 and 15 per cent of drawn-down AUM, respectively. Dry powder refers to capital that is contractually committed but undrawn.

In 2016, PE investments in South-east Asia soared to US$6.8 billion, from US$4.8 billion in 2015, according to the annual Southeast Asia Private Equity Report by Bain & Company and the Singapore Venture Capital and Private Equity Association (SVCA). This year was expected to be strong as well.

In terms of the industry's overall AUM, 78 per cent of assets was sourced from outside Singapore. Fifty-five per cent was sourced from the Asia-Pacific, 19 per cent from North America and 17 per cent from Europe.

The Asia-Pacific continued to be the key investment destination, accounting for 66 per cent of AUM. Within the region, 39 per cent was invested in Asean. Allocation to equities dropped slightly from 43 to 42 per cent. Alternatives' share rose from 20 to 21 per cent. The bond allocation was unchanged at 23 per cent as investors sought stable returns.

The MAS is taking steps to enhance Singapore's attractiveness as a base for VC and PE firms. Earlier this year, it sought industry feedback on a framework to simplify the authorisation process and regulatory regime for VC firms.

It also seeks to establish Singapore as an enterprise financing hub to support the next generation of Asian growth companies. This includes building a pipeline of alternative market platforms to facilitate pre-IPO exits and capital recycling. MAS also aims to deepen capabilities in areas such as sustainable investing and finance.