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Six years ago, Business Times inaugurated this annual investment
fund awards. At that time, our financial community was gearing up to spur
the development of the Singapore fund management industry. Despite a very
difficult economic environment in Asia, we have made good progress over the
last six years.
According to MAS survey data, in 1997, we had 160 fund management companies
operating in Singapore with assets under management of S$124 billion. By the
year 2000, there were 215 fund management companies investing S$276 billion.
In terms of professional expertise, we now have a pool of about 1000 fund
managers and investment analysts, compared with about 800 in 1997. The data
excludes GIC's funds of over US$100 billion and over 200 investment professionals.
Much of the credit for this progress should go to my colleagues at MAS. MAS
identified fund management as critical to the future growth of the financial
services sector. They then mobilised the support of the government to provide
suitable tax incentives to fund managers and investors and to liberalise the
investment of CPF funds. The MAS Financial Centre Development Department led
by Teo Swee Lian worked energetically to draw the attention of global fund
managers to the business opportunities of operating in Singapore.
GIC's Placement of Funds with Singapore Fund Managers
GIC, too, made a contribution. In 1997, we committed to place out for external
management by Singapore-based fund managers S$25 billion over a period of
three to five years. Subsequently, the MAS reinforced the GIC effort by allocating
S$10 billion of their own funds for external management. In addition, various
statutory boards and government-linked organisations like Temasek Holdings
have collectively placed out more than S$7 billion of their surplus funds
to private sector fund managers. The public sector as a group has thus made
available about S$40 billion to the Singapore fund management industry.
Tonight, I like to share with you our experience in GIC in this outplacement
exercise. I would highlight four features.
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First, against the GIC target of
S$25 billion, we reached S$21 billion at end 2001. Our intentions were
hamstrung by the aftermath of the economic and currency crises of 1997/98.
The Asian financial markets, particularly in South East Asia, faded
away in significance from the radar screens of investors and fund managers.
Fewer fund management companies came to Asia in search of new operating
locations to expand their business. |
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| (b) |
Second, we currently have a pool
of 54 Singapore-based fund managers who manage a total of 144 mandates
for GIC. We have had notable success in attracting numerous major global
fund managers to Singapore. These include organisations such as the
Capital Group, Wellington, Alliance Capital,
PIMCO, FFTW, Dresdner RCM as part of the Allianz Group, JP Morgan Fleming
Asset Management, Schroders, Deutsche Asset Management, Morgan Stanley
Asset Management, Goldman Sachs Asset Management, Morley Fund Management,
Citigroup, Rothschilds, Aberdeen and Henderson. If these reputable and
substantial organisations grow their operations in Singapore, we would
be strongly placed to be a premier fund management centre in Asia. |
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| (c) |
Third, an even more encouraging development
has been the success of several home-grown boutique fund managers. Names
such as APS under Wong Kok Hoi, Pheim under Dr Tan Chong Koay, Pacific
under Ho Tian Yee, Whitefield under Benjamin Ng, and Target under Teng
Ngiek Lian are the local entrepreneurs of the fund management industry.
They have pulled through the difficult period of infancy and show promise
of developing into viable and successful enterprises. GIC is delighted
to have been associated with their growth by providing them much-needed
funds to compile their track records. They have justified our confidence
in them by turning in investment results ranging from satisfactory to
outstanding. More importantly, on the strength of their track record,
they can now compete for more business elsewhere to take them to greater
heights. GIC will continue to support their growth while looking to
foster even more of such entreprises. |
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| (d) |
Fourth, the performance of our external
fund managers has been more than satisfactory. For example, over the
three-year period to 2001, 3 out of 4 managers of our Asian mandates
outperformed their benchmarks, and the group as a whole produced an
annual value-added of about 5% against the benchmarks. |
What are GIC's outplacement plans going forward?
We expect to put out a further S$2 billion this year and probably next year
as well, which would complete the S$25 billion target by 2003. But let me
give this assurance to firms looking to set up in Singapore. If you meet our
criteria, we have the funds to go beyond S$25 billion. This assurance applies
as well to existing managers who deliver on their commitments and turn in
good performance. You will be suitably rewarded.
Future Challenges for the Fund Management Industry
Let me now offer some comments on what the future portends for our fund management
industry and the business challenges ahead. At the GIC, our assessment is
that the Asian stock markets are positioned for a 2-3 year period of superior
performance once global economic growth resumes. The profit potential of most
Asian companies who survived the crises has improved markedly, although the
record of corporate restructuring varies greatly from country to country and
from company to company. In addition to this positive outlook for corporate
profitability, most Asian markets are priced at historically cheap valuations
vis-a-vis the American and European markets. We also have favourable liquidity
conditions. With interest rates at such low levels, funds are likely to flow
into equities once risk-aversion diminishes. If my prognosis proves correct,
we would have a much better market environment to propel the next stage of
developing our fund management industry.
But over the long term, the future growth rate of the industry will depend
on how successfully we reengineer our expertise to meet new competitive challenges.
I am referring to the fast-changing investment landscape in Asia. Between
1997 and 2001, the combined market capitalisation of the traditional ASEAN
markets shrank from 22% to 15% of the MSCI Asia ex Japan index. Over the same
period, the North Asian markets (comprising Hongkong, Taiwan, Korea and China)
have expanded their share from 40% to 49%. The relative shift of 16% in favour
of North Asia is significant. This trend becomes even more alarming when you
realise that China's contribution to the North Asian number in 2001 was only
5.4%. With China's prospective growth, can you imagine how much wider the
gap will be in 5 to 10 years time? The wake-up call that China sprang on the
manufacturing industry rings equally loudly for the fund management industry.
How can we respond to this challenge? We must move quickly to expand and upgrade
our capacity to cover a wider universe of markets well beyond our traditional
focus on the ASEAN markets. Our investment professionals (research analysts,
portfolio managers, traders, client relationship managers) must be geared
up to exploit the opportunities in the faster growing markets up north. Unless
we do so, we will be marginalised.
The China challenge behooves us in Singapore to restructure our economy. In
financial services, particularly in fund management, I am hopeful that we
can remain competitive. In fact, for our fund managers, I think China presents
more opportunities than threats. We are not without
our strengths. We have a headstart in financial services of over 30 years.
We have built an infrastructure comprising skilled and experienced human resources,
support services, and tested markets. We have earned the trust and confidence
of investors and financial intermediaries in our political stability, economic
resilience, and the integrity of our judicial and regulatory systems. Where
else in Asia can you find a government that is as pro-active and supportive
of businesses and foreign investors? We should not forget either that our
education policy of compulsory bi-lingualism in our schools has now given
us a comparative advantage of most young executives being bilingual in English
and Mandarin.
The China challenge behooves us in Singapore to restructure our economy. In
financial services, particularly in fund management, I am hopeful that we
can remain competitive. In fact, for our fund managers, I think China presents
more opportunities than threats. We are not without our strengths. We have
a headstart in financial services of over 30 years. We have built an infrastructure
comprising skilled and experienced human resources, support services, and
tested markets. We have earned the trust and confidence of investors and financial
intermediaries in our political stability, economic resilience, and the integrity
of our judicial and regulatory systems. Where else in Asia can you find a
government that is as pro-active and supportive of businesses and foreign
investors? We should not forget either that our education policy of compulsory
bi-lingualism in our schools has now given us a comparative advantage of most
young executives being bilingual in English and Mandarin.
For sure, we have our limitations as well, such as the size of our economy
and a limited talent pool. But we have overcome these limitations before.
London in Europe has over time consolidated its position as the hub for European
and global institutional fund management. Singapore should aspire to be the
hub for Asian fund management. We still have a long way to go, but we have
come some distance already.
GIC Proposal to establish "The Singapore Investment Forum"
I like to conclude with an invitation from the GIC to Singapore-based fund
managers. Let us work together on an initiative to liven up the fund management
scene. I propose that we establish a regular investment forum to bring together
our investment professionals to interact and exchange views and ideas. Let
us call it the Singapore Investment Forum. Here are some preliminary thoughts
on how such a forum can proceed.
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Each forum will focus on a useful topic or theme involving
some presentations, an active Q&A session and a moderated discussion.
For example, we could have a topic such as Asian banking stocks, or
the Asian semi-conductor industry or Asian corporate bonds. To keep
the forum practical and useful, the discussions will revolve around
actionable ideas such as sector bets and security selection. |
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Each forum will focus on a useful topic or theme involving
some presentations, an active Q&A session and a moderated discussion.
For example, we could have a topic such as Asian banking stocks, or
the Asian semi-conductor industry or Asian corporate bonds. To keep
the forum practical and useful, the discussions will revolve around
actionable ideas such as sector bets and security selection. |
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To begin with, GIC will host the forum at our corporate
headquarters. We will make available as well our research analysts and
portfolio managers to make presentations and participate in the discussions.
We will also help to invite government leaders, corporate CEOs, buy-side
and sell-side analysts and strategists, to address the forum. |
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A monthly forum seems optimal. To keep the logistics
manageable, each forum can be limited to about 20-30 participants who
will be expected to contribute actively to the discussions. |
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We can involve the media selectively
so as to make the proceedings available to a wider audience. |
I would like feedback from fund managers to my proposal. If there is good
interest, GIC will discuss with the Investment Management Association how
best to get the forum moving. We can start as early as next month.
GIC is making this further gesture to the fund management industry because
we view your success and vitality as important for Singapore. It is also about
time we turn up the volume of the "buzz" in Singapore.
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