Singapore's Economic Review Committee, a high-powered task force established by Goh Chok-Tong, prime minister, to shape the country's strategic outlook, has just released its recommendations for bolstering Singapore's role as a global wealth management centre. Some of these recommendations are sweeping.
First, the ERC has concluded that Singapore needs to refocus itself from being a trading centre for foreign exchange and investment banking to become a regional leader in wealth management, global processing and risk management. This is a response to positives such as its ability to attract global fund management firms and private banks.
But it is primarily negative factors that the ERC has highlighted. The shift of economic activity to North Asia has highlighted the threat of Singapore becoming irrelevant, and market volumes in its traditional financial service activities have shrunk globally.
Below find the key recommendations in the three areas Singaporean authorities wish to enhance.
First the government wants to expand its assistance to building a fund management industry by not just favouring large global players but also providing incentives to small- and mid-sized managers - by providing seed capital or taking equity stakes.
It also calls for the Government Investment Corporation and the Monetary Authority of Singapore - the country's biggest institutional investors - to provide mandates to fund managers other than just handing out Asia ex-Japan briefs to Singapore-based fund managers. (This is interesting because usually GIC and MAS refuse to talk about what kind of mandates they provide.)
Taxes on domestically sourced investment income, or on foreign-sourced income that is remitted to Singapore, should be abolished.
ERC wants CPF members to have the choice to invest in life-cycle funds appropriate to an individual member's risk appetite and investment time horizon. (This is a radical change because ever since CPF was launched in 1955, all investments have been uniform; moreover they have not been transparent. This will require a major change in mindset for CPF bureaucrats.)
The ERC has made numerous recommendations to boost the local hedge fund industry. First, it calls for introducing limited partnership structures to entice the establishment of hedge funds. Second, it wants the Trustees Act reformed to allow local institutions to get into alternative investments.
The ERC took a special shine to private equity. It wants to streamline taxes for private equity funds and provide favourable tax treatment to their capital gains. It also wants to scrap onerous requirements about size and staff for these funds. And it calls for Temasek Holdings, the government-owned investment giant, to use private equity as an option to help government-linked corporations spin off non-core assets, to help them globalize.
The ERC says processing is now fragmented around the region and fears cost-cutting will take away back-office jobs. On the plus side, Singapore has the telecommunication infrastructure, IT capabilities and an educated English-speaking workforce. More can be done, however, such as:
The government is urged to sponsor the establishment of universal processing centres. Singapore should focus on technology development, high value-added processing and middle-office activities, and it can outsource the grunt work to India and China.
The ERC calls for the establishment of the Asia Risk Exchange (ARX) to provide the physical facility and capital to accept, take and facilitate the exchange of risks between financial institutions and capital markets. Banks can hedge portfolio and credit risks, insurers can hedge or insure catastrophe and sudden event risks. The ERC adds that the government should now conduct a feasibility study for establishing ARX.
Last, the ERC report has also highlighted the need to keep Singapore an attractive place to do business, and supports moves to host more conferences, improve training and education, and lay out minimum standards and an accreditation system for financial service industry workers.
Whew, that's a lot, isn't it?