SINGAPORE -- Singapore is only a bit larger in area than central Tokyo, yet its hedge fund environment is noticeably more vibrant.
One reason for this is the Financial Sector Incentive Scheme for Fund Managers, a set of tax incentives unique to Singapore. Hedge funds based in the city-state have plenty of cash at their disposal, a significant portion of which is flowing into Japanese assets.
In late May, about 330 executives and employees of Singapore-based hedge funds gathered for the Eurekahedge Asian Hedge Fund Awards 2015, held at the luxury Capella Singapore hotel on Sentosa Island in the south of Singapore. The gala event, hosted by Singapore-based data provider Eurekahedge, honored outstanding investors and provided participants with an opportunity to network.
Despite their different backgrounds, the participants shared a common language: investment. Ranodeb Roy, chief executive of Singapore-based hedge fund RV Capital Management, says Singapore is a great place to have an office because the tax rate is low and it is easy to get a visa. His fund invests the equivalent of about $200 million in Japan and other Asian countries.
Michael Coleman, managing director of Singapore-based, commodity-focused hedge fund RCMA Asset Management, came to the party wearing a shirt made of Indonesian batik, traditional fabric registered on Unesco's list of Intangible Cultural Heritage. When he came to Singapore as a representative of major U.S. grain company Cargill, he found it to be very livable because of the country's excellent communication environment and infrastructure, Coleman said.
According to Eurekahedge, the number of Singapore-based hedge funds jumped to 306 this year, up 30% from 2009, while their employed assets nearly doubled to about $20.9 billion. Meanwhile, the number of Japanese hedge funds rose by a little less than 10%, to 252, and their employed assets increased only 30%, to about $16.6 billion.
Singapore-based hedge funds are exempt from taxation on capital and income gains. While the corporate tax rate is 17% for regular companies, it is as low as 5-12% for hedge funds and other financial services companies. In Japan, the capital gains tax rate is 20% and the effective corporate tax rate is more than 30%.
In Singapore, the maximum rate for individual income tax is capped at 20%, and capital and income gains are tax-exempt. An executive at a Japanese hedge fund that relocated from Tokyo to Singapore said the city-state's tax breaks more than offset the higher prices there. Kei Kodachi, a senior analyst at the Nomura Institute of Capital Markets Research, said that because Singapore is more politically and economically stable, its asset management industry has more room to grow compared with that of Hong Kong, where political risk from China is a factor.
At the party, many hedge fund executives said they have high hopes for Prime Minister Shinzo Abe's economic policy and for Japanese companies' efforts to disclose more information and improve their return on equity. Singapore-based hedge funds are allocating about 15% of their portfolios to Japan, the largest investment ratio for any country. With the Nikkei Stock Average topping 20,000, investors in Singapore have even more reason to keep their eye on Japan.