Time to turn up the volume - Whitefield Capital Management | Whitefield Capital Management

Time to turn up the volume

Feb 26, 2002

Business Times

Keynote speech by Mr Ng Kok Song, managing director of the Government of Singapore Investment Corporate, at the Investment Fund Awards dinner on February 2002
Source: Business Times, page 25
Date: 26 February 2002

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 1,000 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 fund placements
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.

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.

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.

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 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.

Fourth, the performance of our external fund managers has been more than satisfactory. For example, over the three-year period to 2001, three out of four managers of our Asian mandates outperformed their benchmarks, and the group as a whole produced an annual value-added of about 5 per cent 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
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 two to three-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 re-engineer 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 per cent to 15 per cent 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 per cent to 49 per cent.

The relative shift of 16 per cent 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 per cent. With China’s prospective growth, can you imagine how much wider the gap will be in five 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 bilingualism 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.

Proposed 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.

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.

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.

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.

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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