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Business trends

Singapore is top in luring ASEAN-focused fund managers

Welcoming policies in tax and corporate structure draw in venture capital

Singapore edges ahead of regional peers in drawing private equity and venture capital to the country. (Photo by Akira Kodaka)

SINGAPORE -- A decade ago, Golden Gate Ventures was one of a clutch of investors invited by Singapore's National Research Foundation, a government agency responsible for nurturing research and development in the city-state, to set up venture funds to stimulate the startup industry.

This was before startups in the Association of Southeast Asian Nations received the level of attention from investors they enjoy today, with unicorns like Bukalapak, Grab and GoTo -- digital businesses each valued at over $1 billion -- demonstrating the entrepreneurial prowess of enterprises within the 10-member bloc.

Today, Golden Gate Ventures is firmly rooted in Singapore as one of the remaining early participants of the country's purposeful drive to engineer a Silicon Valley-like environment to draw in the region's startups.

"Singapore and Golden Gate Ventures have been a good fit -- we brought the connectivity to the global startup ecosystem and Singapore provided the deep talent pool and world-class entrepreneurship policies," Vinnie Lauria, founding partner at the venture capital fund, told Nikkei Asia.

"Singapore also shares one unique quality with Silicon Valley which I've not seen anywhere else across the globe including China and Tel Aviv -- a globally diverse population of talent," he added. "Even as markets like Vietnam come to the fore in terms of growth of startup activity, Singapore will continue to play its unique connectivity role for the region."

The city-state is reaping the fruit of its drive to be a nexus for startups and access to capital. Singapore is ahead of its Southeast Asian peers and other technology powerhouses like China in drawing fund managers looking for opportunities in ASEAN's fast-growing companies.

Its developed transport links to the rest of ASEAN and beyond, as well as its advanced digital infrastructure, have made it a hub of choice for investors to explore deal-making opportunities in the region.

Observers have also pointed out Singapore's strong rule of law and high, though expensive, standard of living as factors that have drawn business leaders to the country.

Singapore has the world's densest concentration of private equity and venture capital firms focused on the bloc, according to figures compiled by U.S.-based alternative assets information service Preqin.

There were 313 fund managers with exposure to PEVC within ASEAN based in Singapore as of the first quarter, a 28.3% increase from 244 about a year ago. This was nearly twice the 164 in the rest of the Asia-Pacific region, excluding Southeast Asia and China, and the 168 based in North America during the same period.

Singapore's collection of ASEAN-focused fund managers also more than doubled the 133 in greater China and the 121 based in Europe as of the first quarter, according to Preqin's survey of active PEVC players this year.

"As a vital member of ASEAN, Singapore is a main hub and, therefore, an attractive location for fund managers operating in the region," said Ee Fai Kam, head of Asian operations at Preqin.

"A decade ago, the venture capital ecosystem in Singapore was in its early development phase and there were only a handful of international and homegrown managers. Today, Singapore is seen as the venture capital hub for ASEAN and the wider APAC region. The pool of managers is the largest in the region and growing year over year," Kam said.

The city-state's welcoming policies toward PEVC companies have been credited for the mushrooming of fund managers in the country. Singapore last year introduced the variable capital company framework, a new corporate structure for investment funds.

Experts have pointed out that the VCC structure has lower capital requirements, while also granting tax exemptions and flexibility when it came to disbursing capital to shareholders, an attractive feature for venture capitalists.

"With the introduction of VCC, Singapore's appeal as a fund management jurisdiction increases considerably," said Sanket Sinha, head of asset management at wealth and asset management service provider Lighthouse Canton. He added that while other locations have advantages such as the presence of larger businesses and tech companies, from a fund management perspective, Singapore offers a much better package.

Singapore and its fund managers are set to ride the rising tide of PEVC activity in the region if economic recovery from the COVID-19 pandemic gathers steam and progress is not stymied by virus variants.

ASEAN's deal value hit $11.7 billion in the first half of this year alone, according to a report by DealStreetAsia, a Singapore-based media company in the Nikkei group.

The six-month figure topped the $8.5 billion seen in the whole of last year and the $8.8 billion recorded in 2019.

Examples of top deals in the second quarter of this year included Singapore-based retail analytics startup Trax, retail chain VinCommerce and consumer retail platform CrownX, the latter two based in Vietnam.

Trax raised $640 million in a Series E round, with backers such as BlackRock and SoftBank Vision Fund, DealStreetAsia noted.

In the area of private equity, VinCommerce's deal was worth $410 million, with SK South East Asia Investment as an investor, while CrownX's deal was worth $400 million, with its list of investors including Alibaba Group and Baring Private Equity Asia.

While fund managers are drawn to Singapore, institutional investors eyeing opportunities in Southeast Asia still seem to prefer being based in tech powerhouses elsewhere. There were 330 of these players active in ASEAN's PEVC landscape based in North America as of the first quarter, according to Preqin.

Europe had 133 and the rest of the Asia-Pacific, excluding Southeast Asia and China, housed 150 of them. In contrast, Singapore only had 37 ASEAN-focused institutional investors, which was still more than anywhere else in the bloc and greater China.

"The U.S. has one of the most vibrant economies in the world with some of the most established investors based there, so it's unsurprising that there will be a large number of investors with exposure to PEVC in ASEAN," Aris Wong, managing director at insurance broker BMS Group Asia said.

Political tensions between the U.S. and China could, however, further propel Singapore forward as a preferred destination for PEVC activity targeting ASEAN, she said.

"With regards to certain sectors such as tech, where we are seeing increasing intervention by both the Chinese and U.S. governments, Singapore also represents a politically stable, neutral and safer option for global capital to access Asian opportunities," she said.

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