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Singapore or Hong Kong? A Conundrum
Tuesday, 31 March 2009 14:01

The Far East offers a variety of excellent business locations. But that can create as many problems as it solves  

In 2005, we at Custom House decided for a number of reasons – not the least being the cost of operating in Dublin – to ‘go global’ and open offices in Chicago and Singapore.  The Chicago office, which opened in the summer of 2005, now has almost 70 people, whereas the Singapore venture, which opened its doors in May 2007, now employs over 60.

Many people have asked why Singapore, rather than Hong Kong, which I knew better, being a fairly regular visitor since the early 70s.  So, why did we choose Singapore?

For many years there has been a reasonably friendly rivalry between Singapore and Hong Kong, with both trying to establish themselves as the financial hub – the Switzerland, if you like – of South East Asia. It now appears that they have each carved out their own positions with substantially different characteristics.

Hong Kong, which was always a great manufacturing centre, has, over the years – and I mean 30 or 40 years – transferred the actual manufacturing of most of its export products to mainland China.

Furthermore, Hong Kong is today the gateway into China, both in manufacturing and financial services. Hong Kong has always been strong in these areas, although that may be changing.
Having said that, there has been a trend over the past few years for those targeting the Chinese market to go direct to Beijing or Shanghai, thus bypassing Hong Kong. Taking everything else into account, I can envisage Hong Kong becoming less and less important and influential in the region.  

Singapore selection

Singapore, on the other hand, has grown as a financial rather than a manufacturing centre. The city has consequently attracted not only specialist fund administrators such as ourselves, but also the private banking arm of many of the world’s leading banks and an increasing population of investment managers, particularly hedge fund managers. There are a number of reasons for this. Perhaps I should explain what our thought process was when we elected to open in Singapore, rather than anywhere else in the region.

Four or five years ago I visited Hong Kong, Singapore and Sydney, the three major financial centre in South East Asia – I exclude Tokyo from the equation, as it has its own cultural and expense problems. I was also planning to visit Brunei, because I had been invited by the Brunei powers that be to consider establishing a fund administration office there. However, having agreed a date to visit, which was changed several times, I was told after I had arrived in the region that they would have to put off the meeting for another month. I tore that page out of my diary and address book. Given the attitude when they were trying to sell the attraction of the place, it was horrifying to think what would have happened if we had gone ahead and set up in Brunei.

The choice therefore boiled down to three regions. There is no doubt that Sydney came top of the pile in terms of lifestyle and being a very attractive place to work. But that was cancelled out by the fact that it is relatively expensive, highly taxed and a vast distance from absolutely everywhere, including South-East Asia – or at least Hong Kong and Singapore, where many of the clients would be situated.  

I then considered Hong Kong, a supremely exciting city and a very vibrant place to work.  However, it was very much more expensive than Singapore and although I was not hindered or obstructed by anybody in the Government, or the Regulator, they also did not seem particularly interested in the fact that we were considering opening an operation there.  

When I went to Singapore I found an entirely different situation and atmosphere. Apart from being a less expensive zone in which to operate, the Singapore government and the Monetary Authority of Singapore, in particular, were very pro-active and keen to meet and encourage us to set up.  This was a pleasant change from the ambivalent attitude of the Hong Kong authorities.  Furthermore, I felt – and this is a personal opinion – that, politically, Singapore was more stable than Hong Kong. The Chinese Government has, on more than one occasion, shown that they are capable of changing the goalposts without any consideration for their expatriate supporters. I also found that the education of potential staff in Singapore was much more focused, as were the staff themselves. As an administrator I found this immensely attractive.

We opened in Singapore in April 2007 and when I went back to Hong Kong at the beginning of 2008, I was struck and appalled by the incredible pollution. This made me even more pleased that we had selected Singapore. I understand that the majority of the pollution stems from factories on the mainland, many of which are funded by and producing products for Hong Kong companies. Perhaps Hong Kong has created its own problem in this respect. It has certainly had a dramatic effect on hedge fund managers emigrating from Hong Kong to Singapore.  

This is because the majority of successful hedge fund managers are aged between early 30s and mid-40s and have relatively young wives with relatively young children. When Mrs. Manager wakes up on a Wednesday morning and cannot see Kowloon from their apartment on the Peak, she has good grounds for demanding a change. Mr. Manager is then given an ultimatum that either he moves with Mrs. Manager and their two little baby Managers to Singapore, where the environment is very much more eco-friendly, or she will return to Fulham or Connecticut, with the kids. Mr. Manager may be a very hard-nosed dealer, but this is a battle he will never win. So we have seen a relatively large immigration of hedge fund managers from Hong Kong to Singapore.

This has also been accompanied by a migration of Japanese managers who, I understand, were escaping a somewhat complex tax structure in Japan. Although that may have been resolved by recent changes in local legislation, the trend has started. The influx of managers and administrators in Singapore did, for a while, push up costs, but still not enough to put people off. The recent decline in the property market has helped substantially.

From Custom House’s point of view, having an office in Singapore has proved absolutely invaluable. The original idea of opening this office was to capture local South East Asian hedge fund business. That didn’t actually start to happen for at least 18 months, because all the staff – and we now have over 60 - were initially focused on serving our daily dealing funds. This we were able to do because the Custom House offices in Singapore, Dublin and Chicago all work off the same system (PFS-PAXUS) and thus each office can speak to the other electronically.

In effect, Custom House’s office opens at midnight on a Sunday, Dublin time, when Singapore starts its Monday morning. It closes at midnight on Friday, Dublin time, when Chicago goes home for the weekend. Thus, it can offer a 24/5 service to its clients. For daily dealing funds, this means that, providing we can get the data from the Fund’s brokers, we are able to capture all the trades and reconcile and price the Fund’s positions in Singapore, before rolling the book to Dublin and Chicago where the NAVs are calculated. Chicago then reports the numbers to the client at 3.30pm on T+1. We currently provide daily dealing NAVs for over 100 funds, including sub-funds, which is more than 25% of all the funds and sub-funds that we administer. I believe this is almost unique in the industry. We wouldn’t be able to do it without the Singapore office.

Like everywhere else in the world, Singapore has suffered from the current financial debacle and economic downturn. Nevertheless, we envisage that hedge funds will grow over the next year or so. After all, on average they produce circa 15/20% Alpha, although there may not be much seen before the third quarter of this year. We expect that, after a short period of reflection, we should be back on the growth path – but who knows?

A final anecdote - an example of why I consider Singaporean staff to be impressive.  We had a candidate for a job who had been placed third in Singapore in the ACCA exam, and 8th in the entire world. This meant that there are two other people in Singapore who were in the top seven. Even more surprising, this individual, when offered an administration job, asked if he could start in “Reconciliations”, so that he could understand what everybody was doing from the ground up. A very old-fashioned approach, which I applaud. It is not an attitude we have experienced recently in Dublin, although those days may return.

 

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