A View Of, and From, Singapore, Part Two

This continues our interview with Peter Douglas, the founder and principal of Singapore-based investment consultant GFIA. As in Part One, we will add to the interview transcript pertinent quotations from a recent GFIA publication, its March 2012 “Asian Hedge Funds Note,” that also bears on Singapore and the broader region of which it is a part.

Quotes from the March Research Note, then, are in bold below, Douglas’ words in italics, and our questions in roman.

Research Note: China has seen a hike in number of funds in recent years, which could be partly due to a perception of impending liberalization of the economy. Many Hong Kong-based China funds has research or advisory operations within the PRC which are not captured by databases.

AAA: Let’s talk about China. It seemed earlier this year that many investors, including hedge funds, were betting heavily that there would be a ‘hard landing’ for the economy of the People’s Republic. They were using the liquid markets of Hong Kong in essence to short China, and the Hang Seng experienced a dramatic rise in January and February, which some saw as a short squeeze, when the hard landing was late in coming. Where do you stand: hard landing or soft?

Douglas: In Asia, and in much of the rest of the world for that matter, this is THE question. It’s a little bit out of my area of authority as a consultant to hedge funds, so you’ll have to understand that my views are a synthesis of the views of the fund managers to whom I speak.

And what they say is that China is very hard to read, very opaque. Chinese data is often hard to read, or manipulated. One manager said to me, ‘the only reliable data coming out of China is apocryphal data.’

Managers presently don’t see an implosion, although there is a slow down. China’s economy has been growing by rough 8 or 9, even 10 percent each year for the last 15 years. It would be a miracle of biblical proportions if this pace had not created certain distortions. There will be blips and bubble bursts going forward, but in a sector specific way.

Research Note: Threats of increased regulation, decreasing public acceptance, and tax hikes, in the West are certainly a cause for concern and have prompted some financial professionals to relocate to Asia. The regulatory environment in most Asian jurisdictions is unlikely to turn unfriendly, even though the trend is for regulation to increase.

AAA: What if I’m interested, as a fund manager, in marketing my services to Asian investors, families, and institutions? What is the regulatory regime for that like in Singapore at present, and how does it compare to UCITS and AIFMD in Europe?

Douglas: For most skill-based managers who want to market to sophisticated investors, Singapore is a great environment. It has a “private placement light” regime that is largely insensitive to product structure and managers merely need to register their existing product.

AAA: Have there been any talks about developing an Asian ‘passport’ system analogous to what the Europeans have done in UCITS? So that somebody in Singapore who wanted to market in, say, Tokyo, would not have to start from scratch?

Douglas: [Light chuckle]. One can’t really call them ‘talks.’ Trial balloons of that sort have been floated from time to time, but with no result. I don’t think you’ll see anything like that in my lifetime. First there would be a heck of a lot of history to overcome. But even putting that aside (you could say the same of Europe), it is worth remembering that UCITS is almost unique as a successful joint endeavor of the EU. It is almost the exception to the rule of a union that has in many respects failed to create true economic homogeneity. At any rate, it doesn’t inspire emulation in east Asia.

AAA: Thank you very much.

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