Hedge-Fund Startups Adapt to New Singapore Rules

When Gaurav Bansal’s lawyers told

him about Singapore’s tightened hedge-fund rules introduced in

August 2012, he faced the prospect of spiraling costs to meet

the demands for starting his own fund.

The solution was to sign up with Swiss-Asia Financial

Services Pte, which provides infrastructure, office space and

services to meet compliance requirements and is licensed by the

Monetary Authority of Singapore.

“The regulatory change threw a spanner in the works,”

said Bansal, 40, who started his Salmon Global Fund with $4

million of assets in March under the Swiss-Asia Financial

umbrella. “They really came to my rescue.”

Bansal is among managers of smaller startup funds in

Singapore, Asia’s biggest hedge-fund hub after Hong Kong, who

are turning to such platforms to reduce costs. Swiss-Asia

Financial signed up 20 managers seeking to start their own funds

in the past nine months, while the number of new funds set up

more than doubled to seven last year at Gordian Capital

Singapore Pte, according to the companies.

“If you have less than $40 million in assets under

management and you are launching a fund aimed at global

investors, it has become much more difficult,” said Mark Voumard, chief executive officer of Gordian Capital. A platform

“that allows managers to focus on their skill set is both a

cost-effective and efficient option.”

Stricter Regulation

Asia-based hedge funds oversaw a combined $79.7 billion as

of March, having recovered by 41 percent from the April 2009

trough, according to Eurekahedge Pte. In Singapore, 288 fund-management companies had $15.3 billion of assets under

management as of March, compared with $25.2 billion managed by

447 firms in Hong Kong, the Singapore-based data provider said.

“The investor network that platforms can offer should also

be viewed as a key driver to joining a platform,” said Omar

Taheri, business development manager at Swiss-Asia Financial.

“After all, raising capital is still one of the most difficult

tasks when you start a hedge fund.”

The tighter regulations introduced by the MAS in 2012

mainly affected smaller entities that were previously known as

exempt fund managers.

Under the previous rules, companies seeking to start under

the exempt status were “encouraged” to have at least two

professionals with a minimum of five years of experience,

according to Singapore-based law firm Colin Ng Partners LLP.

They weren’t subject to audit requirements, business conduct

rules or restrictions on assets under management. The only

relevant rules were that they weren’t allowed to have more than

30 qualified investors as clients.

Tightened Regulations

Under the tightened regulations, registered fund management

companies must have at least two relevant professionals with a

certain level of experience. In addition, they aren’t allowed to

manage more than S$250 million ($200 million) or have more than

30 qualified investors as clients, as opposed to licensed funds

managers, who have no such restrictions.

Registered managers also have to meet certain capital

requirements, need to implement a compliance and risk management

framework and are subject to tighter reporting, accounting and

auditing requirements, according to the regulator.

The city-state had about 540 exempt fund managers under the

old rules, an estimate by PricewaterhouseCoopers LLP showed.

About 200 of the exempt-status managers chose to become

registered, while about 190 of them obtained a fund-manager

license with higher requirements and unlimited assets under

management, it said.

‘Terminal’ Change

About 90 fund managers who were exempt shut down, joined

other companies such as family offices or signed up with a

platform, while the remaining 60 have either applied for a

license or to become a registered fund manager, according to the

consulting firm.

“For 80 percent of the exempt fund managers the change in

regulation made no difference,” said Peter Douglas, principal

of Singapore-based research firm GFIA Pte. “For 20 percent it

was terminal.”

Not all newer fund managers are linking up with partners

providing non-investment services. Integral Capital Pte started

a long-only fund in 2011 under the old regime and chose to

become a registered fund manager when the new rules were

introduced, even with the higher costs, said Talib Dohadwala, a

founding partner at the Singapore-based company. The stricter

regulations mandate an audited financial statement as well as a

risk management audit, both done by an external firm that could

cost more than S$15,000, according to Dohadwala.

“We wanted to be independent and run our business

autonomously,” said Dohadwala. “We felt from the beginning

that we could meet the requirements under the new regime.”

Proper Regulations

The new regulations are making Singapore a more sustainable

and robust environment for fund managers, according to Bill

Jamieson, a partner at Colin Ng Partners.

“I don’t think those regulations are overkill,” Jamieson

said. “Singapore, being a proper financial market, needs proper

regulation.”

Bansal found a cost-effective solution by joining Swiss-Asia Financial.

“If you do it exactly by the book and set up a registered

office with the amount of space that is required as for the

regulations and employees it would easily cost between S$250,000

and S$300,000 per year,” Bansal said. “By setting up business

with the platform I save more than half of that amount.”

‘Saving Money’

Five out of 20 that have signed up with Swiss-Asia

Financial are either already in business or about to start,

Chief Operating Officer Steve Knabl said in Singapore. That

compares with one fund a year starting in previous years, he

said, adding that the company has seen a “dramatic increase of

interest.”

“The challenge we are having is some fund managers are not

willing to pay our platform fees,” said Taheri, adding that

managers should realize they can save money going with a

platform rather than setting up on their own.

Roshan Padamadan also started the Luminance Global Fund,

which invests in liquid securities including stocks, bonds and

derivatives, in January with Swiss-Asia Financial. He chose to

start through the company because it allows him to focus on his

investments.

“If you run your own hedge fund, you have to devote about

half of your time and energy to administration and

organization,” said Padamadan, who started with initial capital

of about $1 million and now manages $1.55 million. “Working on

a platform, you can spend much more time on the actual

investment process. I prefer to keep my head clear for that.”

Archimedean Point

Anil Ponnampalam, manager of the Archimedean Point Fund,

said that investing under a licensed company helps dispel

investors’ concerns that a new fund’s operations may not be

robust. Ponnampalam started his Asia-focused long-short equity

fund with Gordian Capital this month, he said.

“It’s about mitigating the business and operational risks

to allow me to focus on the performance as an investment

manager,” Ponnampalam said. “I owe that to every investor in

my fund.”

Gordian Capital, which typically attracted three new funds

on average annually, saw the number grow to seven new funds in

2013, Voumard said. Two have already started this year and two

more will begin soon, he said. Inquiries have also doubled to

about 100 managers seeking to start in the past 12 months, he

said.

“If you either have a small asset size or no interest in

building an organization, then some kind of a platform deal is

very sensible,” Douglas said.

To contact the reporter on this story:

Klaus Wille in Singapore at

kwille@bloomberg.net

To contact the editors responsible for this story:

Andreea Papuc at

apapuc1@bloomberg.net

Tomoko Yamazaki, Lars Klemming

Hedge-Fund Startups Adapt to New Singapore Rules