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     FrontPage Edition: Sun 26 November 2006

Expansion of the hedge fund industry in Singapore

Source: www.mas.gov.sg

Opening Remarks by Mr Ong Chong Tee, Deputy Managing Director, Monetary Authority of Singapore Launch of the BNP Paribas Hedge Fund Centre at Singapore Management University 22 Nov 2006
I am delighted to be here, to deliver the opening remarks for the launch of the BNP Paribas Hedge Fund Centre at the Singapore Management University.
The establishment of this Centre is timely, given the increased global demand for hedge fund and absolute return products, as well as the growing interest in hedge fund activities.
The tag "hedge fund" itself has and still evoked a mix of emotions.
To some, these are greedy, relentless and at times, heartless exploiters of market imperfection, while to others, they offer hope for higher returns, improved diversification and enhanced liquidity in the financial marketplace.
Whatever one's feelings or bias toward hedge funds and their activities, the phenomenal growth of the global hedge fund industry cannot be ignored.
Estimates of assets managed by hedge funds around the world put the figure at about US$1.2 trillion, which is at least twice the level about 5 years ago.
And projections are for hedge fund assets to grow even further, with some expecting another US$250 billion to be poured into hedge fund investments over the next 5 years.
The US$1 trillion may not seem all that big compared to the US$12 trillion mutual fund industry. But because hedge funds tend to trade their portfolios more aggressively, they account for a disproportionately large share of trading volumes.
Estimates have it for example, that hedge funds account for some 40-50% daily turnover on the New York and London stock exchanges, about a fifth of credit default swap volumes, and a third of US speculative grade bond.
In the fixed income universe, it is noteworthy that hedge funds and banks' proprietary desks sometimes account for the subscription of more than 20% or more of ultra-long bond holdings (30-50 year bonds) at primary issuance.
So whether as an investor searching for higher absolute returns, or as a shareholder affected by corporate activisim from a large hedge fund manager, or as a prime broker or counterparty to the hedge funds having to manage risk exposures, or as a central banker and financial regulator watchful of any potential systemic risks to overall financial stability; there is a heightened desire from many stakeholders to de-mystify the world of hedge funds and to better understand their strategies and performances.
The setting up of this Centre here in Singapore, also reinforced my own view that Asia will offer increasing opportunities to hedge funds, for both investment and talent.
The hedge fund activity in Asia is still relatively small, managing under US$100 billion or less than 10% of global hedge fund assets-under-management.
Opportunities will abound as Asian markets de-regulate. The rise of China, India and the recovery of Japan has captured investors' excitement. South-east Asian countries have emerged from the Asian currency crisis with more confident economic growth prospects.
Asian finance and central bank officials are working together on joint initiatives targeting at creating deeper and broader financial markets. So the extent of hedge fund activities in Asian markets will increase, which mean research and thinking relating to hedge funds using developed markets data may have to be modified.
In Singapore, we have seen a steady increase in the number of hedge fund managers - from a handful 5 years ago to over a 100 now.
It is not only small boutique firms but many large well-known hedge funds have also set up operations in Singapore, drawn by a pro-innovation and competitive business environment, high regulatory standards and trusted legal regime, and the available talent pool.
With this expansion of the hedge fund industry in Singapore, it is important to continuously build the pipeline of expertise and the upgrading of skills.
I am therefore happy to note that the BNP Paribas Hedge Fund Centre at SMU will be conducting both financial research and education to advance knowledge, raise understanding and promote transparency in the hedge fund industry.
I am pleased to note also, that the Centre will conduct an annual Hedge Fund Executive Training Programme, similar to the programme in London Business School. I am sure you will hear more details over this morning.
Allow me to end my brief remarks by saying that the MAS, has, and will continue to work closely with our financial institution partners and industry associations to deepen and expand financial research and training in various fields and market sectors, including the hedge fund space.
In this regard, I commend both BNP Paribas and SMU for the proactive role in setting up this Hedge Fund Centre and may I wish this collaboration every success.

Source: www.mas.gov.sg News 22 Nov 2006

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