Speech by Mr Peter Ong, Permanent Secretary for Finance at the Investment Management Association of Sinapore 12th Annual Conference

Mr Lester Gray,
Chairman of IMAS,

Mr John Doyle,
Chairman of the Conference Organising Committee,

Distinguished Guests,

1. Good morning. I am delighted to join you today for IMAS’ 12th annual conference.

Asia's Positive Outlook amidst Global Uncertainties

2. The world economy is now in the midst of an economic upturn, and analysts have forecasted that 2011 will see strong growth. The International Monetary Fund has projected the global real GDP growth in 2011 and 2012 to be about 4.5 percent^[1], with growth in the Asia Pacific region projected to average nearly 7 percent in both 2011 and 2012^[2].

3 Despite the positive growth, the IMF has warned that the world's economy remains fragile. Downside risks remain significant.

4. Amidst the global uncertainties, the investment outlook for Asia is positive.  Asian economies are seeing strong demand for exports from emerging economies in both Asia and other regions, while still-expansionary fiscal policies have ensured that domestic demand remains robust. The region's strong growth prospects in the long term continue to attract capital investments into Asia. Coupled with the positive demographics of a younger and well-educated workforce, Asia is set to lead global economic growth.

Singapore's Role as a Premier Asian Asset Management Centre Remains Intact

5. As a leading Asian hub for wealth management in the Asia-Pacific region, the strong economic recovery of the Asian region has helped Singapore's financial sector and fund management industry to recover quickly from the crisis.

6. I am pleased to announce some headline findings from the results of the 2010 Singapore Asset Management Industry survey, which showed that assets under management (AUM) by fund managers in Singapore have reached a new high of S$1.4 trillion, representing a 13% year-on-year growth. Taking a longer time frame, the five-year average growth rate for the industry was a healthy 16%.

7. The survey found that over 80% of AUM was from international sources, with more than 60% of the total assets invested in the Asia-Pacific region. These results reaffirm Singapore's position as a leading Asian investment centre for global investors.

8. The industry remains well-diversified across asset classes, with slightly over half of the assets in equities, and the remainder split across fixed income, alternatives, mutual funds and cash^[3]. In terms of the profile of fund managers operating in Singapore, in addition to the top-tier global fund houses, there is also a sizeable pool of regional and indigenous fund managers.

9. There has also been a strong expansion of the alternative investment industry over the last few years. We now have a vibrant community of alternative investment managers running a wide variety of hedge funds, private equity funds and real estate funds, which add diversity and depth to the broader asset management industry in Singapore. This diversity, as well as the strong ecosystem of ancillary service providers such as lawyers, tax advisers, prime brokers and fund administrators, helps to sustain the industry's long-term growth.

10. In terms of jobs, the fund management industry employed close to 11,200 staff in 2010, of which about 2,700 were investment professionals. This means that the number of investment professionals has grown by 6.5% year-on-year. The increase was largely due to the growth in the number of portfolio management positions.

11. All these statistics corroborate the view that the fund management industry has turned the corner and is growing at a healthy pace.  Singapore's position and reputation as a premier fund management centre has been maintained, and the industry is well-positioned to ride on Emerging Asia's secular growth story. MAS will release the full survey results at a later date.

12. Asia's economic ascendency has created an increasingly prominent high net worth segment.  According to the World Wealth Report 2010 compiled by Capgemini for Merrill Lynch, the number of millionaires in Asia Pacific surpassed Europe's for the first time in 2009. More than ever, this will generate unprecedented demand for professional money and wealth managers in the Asia Pacific region.

13. As Asian economies grow, its financial system will mature and grow in complexity, and Asian institutional investors will increase in number, size and sophistication accordingly, with greater numbers of sovereign wealth funds, pension funds, insurers, foundations, endowments, etc demanding money management services.

14. There are a few trends that will continue to drive the fund management industry in Asia. First, strong economic growth potential in Asia will attract investments from other parts of the world. Second, this will lead to wealth accumulation among individuals and corporate. Thirdly, demographic trends will generate demand for retirement planning. Fund managers based in Asia are well-placed to provide these solutions and services to harness these opportunities.

15. Against this backdrop, Singapore's standing as an international financial centre will continue to be underscored by our high regulatory standards, robust governance and legal framework, world-class infrastructure, highly-trained industry professionals and the government's strong partnership with the industry.

Post-crisis Challenges and How the Industry Should Respond

16. However, the asset management industry will have to overcome challenges that have arisen as a result of the global financial crisis.

17. First, investors have become more savvy and also more risk-focused. They are demanding greater transparency from their fund managers, and are putting greater focus on managers' abilities to manage risks, particularly counter-party credit risk and liquidity risk. In order to continue attracting funds, managers must provide a clear indication of the strategy, risk and performance of funds and demonstrate to investors the investments are properly managed.

18. Second, the asset management industry faces tighter regulations which have been implemented globally, post-financial crisis.  However, the change in regulatory requirements should be seen in a positive context as increased supervision and heightened corporate governance standards will help restore investor confidence and trust in professional money managers.

19. In response to these challenges, the asset management industry needs to build long-term trust relationships with their investors.  More robust risk management practices, stronger corporate governance frameworks and enhanced transparency, as well as higher disclosure standards will bolster investors' confidence in their fund managers.

20. The industry should also seek to develop tailored investment products and solutions that would help clients to achieve their long-term investment goals effectively while keeping within their overall risk appetite.

21. Next, business models will have to be reviewed to allow for more for more scale and sustainability to cope with the rise in compliance and transaction costs.

Supporting the Industry's Long Term Development

22. We are taking a few initiatives to help support the industry’s long-term development.

23. First, building up the talent pipeline and enhancing competencies for the industry. Success in the investment management world often hinges on finding the right talent and the right competencies. In order to develop the pool of available talen t for the industry, MAS has launched initiatives such as the Financial Training Scheme, which co-funds training costs for industry professionals to pursue recognized accreditation programs such as the Chartered Alternative Investment Analyst (CAIA) and other technical training.

24. Second, reviewing the regulatory framework to ensure that it remains relevant. MAS has concluded public consultations on its proposed enhancements to the regulatory framework for the fund management industry. The revised framework calibrates the level of supervision and capital requirements to the size and complexity of the fund manager, its potential market impact and the sophistication of its client base. The proposed enhancements will help raise the standards and quality of the fund management industry in Singapore.

25. Third, enhancing financial research. Unlike developed markets, Asia is highly diverse, with countries at vastly differing stages of economic development. This creates a strong need to step up the understanding of Asian financial markets. The MAS has identified the need for more relevant Asian-focused research to facilitate the growth of the industry, and has taken steps to encourage the buildup of research capabilities here in Singapore. This includes the Risk Management Institute (RMI), BNP Paribas Hedge Fund Centre, the EDHEC-Risk Institute and the NUS Centre for Asset Management Research and Investments (CAMRI). We hope this will help build intellectual capital and develop innovative solutions through industry-academia collaboration.

26. Last but not least, Singapore will also continue to build on its role as a hub for Asian investments by supporting regional initiatives aimed at improving the depth and liquidity of Asian capital markets. Singapore has been actively involved in various regional projects and initiatives across multiple fora. This includes efforts to link regional stock exchanges, participating in ASEAN initiatives to develop its bond markets, and working with the World Bank to promote public-private partnerships (PPP) in funding regional infrastructure projects.

Conclusion

27. In conclusion, the industry and MAS must continue to work together to lay a stronger foundation for the long-term competitiveness of the industry and in so doing, ensure that Singapore remains a competitive and compelling centre for asset management.

28. On this note, I wish all of you a fruitful conference ahead. Thank you.

^[1] IMF World Economic Outlook, Apr 2011

^[2] IMF Regional Economic Outlook (Asia and Pacific), Apr 2011

^[3] Equities: 51%, Fixed income: 16%, Cash/Money Markets: 12%, Alternatives: 13%, Mutual funds: 8%