Singapore's fund management industry faces stiff challenges ahead

THE asset management industry in Singapore is a major pillar of the finance sector. Based on the latest survey by the Monetary Authority of Singapore (MAS), growth seemed healthy: assets rose by 7 per cent in 2016 to S$2.7 trillion. But a closer look at the data yields a more nuanced picture. The bulk of assets which sits in traditionally managed mandates rose just 3 per cent.

Alternative assets including hedge funds, private equity and venture capital funds grew at a far more rapid clip of over 17 per cent. Alternatives' share of assets is about 17 per cent or about S$479 billion. Even more sobering is the snapshot of net inflows - S$116 billion, the lowest level in the past five years. Of this, alternative assets accounted for the bulk in 2016 and inflows into traditional active managers were "generally lower", said MAS. Net inflows peaked in 2014 at S$408 billion.

The fund management industry's muted growth is something of a puzzle. Asset markets turned in a creditable performance in 2016. The MSCI All Countries World Index returned nearly 8 per cent and the MSCI Asia ex-Japan Index over 5 per cent. This suggests that the 3 per cent rise in the industry's traditionally managed assets comprised mostly market appreciation rather than net inflows. Singapore's growing affluence, rapidly ageing population and its pressing need for retirement savings should in theory provide a positive backdrop for asset management, despite a relatively small population base. But data in the CPF Investment Scheme shows the opposite - that is, the use of CPF savings for investments has dropped steadily. In the second quarter of 2017, the total balance in the Ordinary Account stood at S$122.9 billion. Funds in the CPFIS-OA (Ordinary Account) stood at S$17.4 billion in the second quarter of 2017, compared to S$27.16 billion at its peak in 2007. Singapore's success as a regional and global booking centre for wealth management should also have underpinned an expansion in fund firms' assets. But the landscape is challenging and success in asset gathering is far from assured for a few reasons.