What's going to drive Singapore's investment management sector in 2022
DESPITE market volatility and price movement dramatically accelerating at certain industry and asset class levels during the Covid-19 pandemic, the investment management sector has fared well in 2021.
While the overall outlook remains promising as we begin 2022, uncertainty around the Omicron variant, along with a host of other rapidly evolving dynamics, will continue to test leaders as they strategise for the future.
In this article, we explore 3 trends that we believe will play important roles in driving the evolution of Singapore's investment management sector in the year ahead.
Trend 1: The rise of digital assets
In recent months, we have seen non-fungible tokens (NFTs) enter the spotlight by offering a powerful new means to represent digital property. Theoretically speaking, any asset that can be represented digitally - art, tweets, and even soundbites - can be issued as an NFT to be bought and sold. Typically traded in digital marketplaces, cryptocurrencies are the main medium of exchange for these alternative assets.
By creating new revenue streams for artists, sports associations, fashion companies, and video game developers, NFTs are beginning to gain the attention of many prominent investors and crypto-focused funds, both within Singapore and across the wider South-east Asia region. Within the last year, for example, we have witnessed a series of successful funding rounds conducted by local and regional NFT startups.
While exciting in their own right, NFTs remain unregulated and volatile - and are therefore unlikely to reach widespread adoption in the short term. But to write them off completely would be to ignore the broader shift towards digital assets. Based on our marketplace observations, there has been a surging appetite among investment houses and fintech firms to set up funds with digital asset mandates in Singapore.
Indeed, with its status as an established financial centre, availability of skilled talent, and robust but practical regulatory approach towards fintech, Singapore is well-poised to benefit as a first-mover in the digital assets fund management space.
Having said that, several additional moves may also help to boost its competitive advantage. These include, for instance, updating and extending statutory frameworks, such as the Financial Sector Incentive Scheme, to incorporate and incentivise digital assets activities.
In addition, Singapore could also consider extending its funds exemptions - that is, exemption of the qualifying income of investment funds from tax, subject to the funds being managed by a Singapore fund manager and other conditions - to attract digital asset managers.
These exemptions arguably already apply to certain classes of digital assets, such as tokenised equity and tokenised debt securities, but guidance is lacking on this issue. Furthermore, many types of cryptocurrencies and digital tokens cannot be characterised in such a manner, and therefore income derived from such assets do not quality for tax exemptions.
Trend 2: 'Onshorisation' of funds
Historically, the Cayman Islands and British Virgin Islands have been the jurisdictions of choice for many offshore fund vehicles.
In recent years, however, concerns over several high-profile data leaks, such as the Paradise Papers and Panama Papers, and various initiatives spearheaded by the Organisation for Economic Co-operation and Development (OECD) and European Union (EU) have led to a shift towards the "onshorisation" of funds.
Notable recent developments include, but are not limited to, updates to the EU list of non-cooperative tax jurisdictions - and its resultant economic substance rules - that have resulted in increased maintenance and regulatory costs associated with such structures, as well as increasing scrutiny from various regulatory bodies and tax authorities on fund structures involving offshore jurisdictions.
A growing number of funds are looking for jurisdictions to onshore their structures, and Singapore is emerging as one of the preferred locations for global fund managers.
One of the reasons is its favourable legal environment, enhanced not least by the inward re-domiciliation regime that took effect from October 2017, and the more recent introduction of the Variable Capital Company (VCC) corporate structure in January 2020. The VCC scheme, in particular, has proven to be a success: at least 300 VCCs have been incorporated in the 2 years since its launch.
As the trend towards "onshorisation" continues, we fully expect the VCC scheme to continue to play an important role in facilitating the movement of funds - especially those managed by asset managers with a pan-Asian strategy and presence - into Singapore, although specific fund structures may vary depending on the idiosyncratic preferences of a funds' investors, as well as its operational and tax requirements.
Trend 3: The return to the workplace transition
Like many other industries, the investment management sector is facing the return to the workplace transition. Most firms currently have hybrid approaches in place, but the question remains as to what the future of work in the investment management sector will look like as Singapore heads towards a greater degree of reopening in 2022.
Indeed, our observations have revealed several interesting cultural dynamics at play. Specifically, we believe that a majority of investment management firms are likely to declare and implement strategies at either end of the spectrum - that is, either majority back as soon as possible, or highly flexible on return to the workplace arrangement.
While the choices that individual investment management firms select will ultimately depend on their respective business priorities and other talent needs, those who eventually choose a more hybrid end-state will likely need to double down on their talent communications to support employees in adapting to the greater level of uncertainty.
Overall, many firms are also currently considering how they can incorporate other talent-centric initiatives to meet longer-term strategic goals while making the return to workplace transition. Key areas of focus include but are not limited to quantifiably addressing the firm's vision and purpose, including along environmental, social, and governance (ESG) dimensions, and adopting a more personalised approach to talent upskilling.
At this juncture, a cautionary note is perhaps in order. As investment management firms deliberate their return-to-workplace strategy, they should also give due care and consideration to the accompanying regulatory and tax implications of any changes to their workplace model - especially with respect to the creation of permanent establishment risks.
Get In Touch
For more information please contact Michael Velten.
michael@veltenadvisors.com
+6590687547
391B Orchard Rd, Level 22, Ngee Ann City Tower B, Singapore 238874
