Singapore hedge fund sector set to shrink on tighter regs

Singapore's $53 billion hedge fund industry is set for a shakeout as the city-state's planned new regulations are expected to raise costs for scores of already stretched smaller funds, threatening their survival. The move would represent a partial reversal of Singapore's light-touch regulatory policy that has so far succeeded in drawing hundreds of hedge funds and spawning Asia's second-biggest hedge fund centre.
And while the changes will bring Singapore's rules on par with other major financial centres and are meant to ensure the fund industry's long-term stability, it will mean hedge funds will face more challenges in Asia as they try to grow collective assets to levels attained before the 2008 financial crisis.
The tightening grip of the Monetary Authority of Singapore (MAS), the industry regulator, would mean that many smaller hedge funds will be forced to close or merge or return outside money and convert themselves into a family office to avoid being regulated, industry executives say.
"You will get an initial wave of consolidation when people realise that they are just not going to make it," said Peter Douglas, founder of Singapore-based hedge fund consultancy GFIA.
The MAS wants fund management companies (FMCs) with more than S$250 million ($192.44 million) in assets to obtain a license, while the smaller funds will have to register with the regulator before they can start operating.
All funds will have to be independently audited.
The MAS is asking all such companies to have systems to manage and monitor risks. It will also be mandatory for fund management companies, many of which are organised as hedge funds, to have at least two investment professionals.
The regulator has consulted the industry on the new rules and intends to implement them in early 2012. The move will "achieve long-term sustainability of the fund management industry", the MAS has said.
In the near term though, as much as 15 percent of the nearly 400 hedge funds in Singapore might decide to shut as the rules come into force, said GFIA's Douglas.