Published in Asia Asset Management October 2007
Singapore university endowment funds and funds belonging to different local foundations are becoming increasingly important sources of funds for the asset management industry here.
“As more and more foundations set up and as they become bigger, they could be a source of funds for the industry,” pointed out Lawrence Au, senior vice president and Asia business executive at Northern Trust in Singapore. “Singapore is at the beginning stages of this.”
This, according to Mr Au, is a good sign because in order for fund management companies to want to establish operations in Singapore there must be a meaningful market. “There must be local funds to manage,” he elaborated.
In most cases, a healthy fund management industry owes itself to pensions, Mr Au observed. In the case of Singapore, there is only one pension fund so if there are no other sources of funds, then you cannot grow a fund management industry, he explained.
According to the Monetary Authority of Singapore’s 2006 Singapore Asset Management Industry survey, assets managed by Singapore-based asset managers grew by 24% to reach S$891 billion as at end-2006, compared to S$720 billion as at end-2005. About 84% of the total AUM was sourced from outside Singapore, the report said.
The republic’s three local universities, the National University of Singapore (NUS), the Singapore Management University (SMU) and the Nanyang Technological University (NTU) are becoming noteworthy sources of funds.
They have all recently been corporatised which gives them greater autonomy to manage their affairs and increased responsibility to generate their own funding. “The government is encouraging them to be self dependent,” commented Mr Au.
The universities are increasingly looking further afield in an effort to diversify risk and maximise returns on their investments. The conservative approach is passe and investment officers now want to know how their portfolios can be enhanced.
In a presentation given at an Investment Management Association of Singapore (IMAS) conference earlier this year, Nicholas Kong, deputy chief investment officer at the NUS said that the target allocation for its fund policy portfolio is 80% equity and 20% fixed income.
Within the equity allocation, 35% has been earmarked for public equity, 20% for marketable alternative assets, 12.5% for non-marketable alternative assets and 12.5% for inflation hedges. All of the fixed income allocation is earmarked for global bonds.
The long-term financial objectives of the fund are to preserve its inflation-adjusted purchasing power while providing a relatively stable, predictable and constant stream of earnings in line with future spending needs, Mr Kong said.
Over the long term, the fund hopes to achieve a total return in excess of its spending. The NUS endowment fund was established in May 2001. As of 30 November last year, it had under S$2 billion of assets under management and 10 staff.
Unlike the universities, statutory boards in Singapore do not manage their own funds. Both the Jurong Town Corporation and the Singapore Tourism Board told Asia Asset Management through their media spokespersons that any fund surpluses that they have are passed back to the Ministries to which they report. The statutory boards are allocated a budget within which they endeavour to work, they said.
In the case of government-linked companies (GLCs) in Singapore, not many of them invest in portfolio investments, according to Northern Trust’s Mr Au, preferring instead to buy companies overseas. “They see this as a better use of surplus funds,” he commented.
Singapore Telecommunications Limited (SingTel) has major investments in the leading mobile operators in the region. It owns a 21.39% stake in Advanced Info Service in Thailand, 44.52% of Globe Telecom in the Philippines, 30.45% of Bharti in India, 35% of Telkomsel in Indonesia, 45% of Bangladesh’s Pacific Bangladesh Telecom and 30% of Pakistan’s Warid Telecom.
“Our regional associates have been a major source of growth for us,” revealed Andrienne Tho, senior corporate communications manager at SingTel. “Our guidance on our associates is that they are expected to grow at a double-digit level and they have been delivering on that,” she added.
“As a strategic investor, we take a long-term pragmatic approach with regard to our investments. We work with strong partners to leverage their knowledge of the local markets. For investments where we have minority shareholding, we look for governance rights and Board representation,” Ms Tho continued.
While remaining focussed on Asia, SingTel has been exploring new markets such as those with low tele-densities and large populations. Its recent acquisition of 30% of Warid Telecom is an example of this.
Pakistan has a large population base of over 160 million and a low cellular penetration of 41 per cent. SingTel has partnered the Abu Dhabi Group, one of the largest foreign investors in Pakistan, for this acquisition.
“Warid Telecom is an attractive business with strong brand recognition,” remarked Ms Tho. “It is a synergistic partnership that leverages SingTel’s expertise in emerging markets.”
Meanwhile, Temasek Holdings announced in August that its net portfolio value had grown to US$108 billion, up from US$80 billion a year ago, and that its total shareholder return by market value for the year was 27%.
The investment arm of the Singapore government continues to reshape its portfolio and increased its exposure to Asia (ex-Singapore and Japan) to 40%, up from 34% previously. Exposure to Singapore was increased from S$57 billion last year to S$62 billion as at end March this year, contributing 38% to its total portfolio.