Singapore has much to recommend it as a centre for asset managers to set up business - and home for their families. Already, Singapore is one of the world’s biggest foreign exchange trading centres, and many private banks have chosen Singapore for their Asian headquarters. And one leading management consultant predicts that the city-state will overtake Boston and London within 15 years to be the world’s second-biggest asset management centre, after New York.

But can Singapore realise its potential? It’s a small country a long way from the rapidly growing pool of savings in China and India.

Nevetheless, Singapore has a lot going for it. There’s common law, lots of sun (and reliable air conditioning too), great food, a host of good international schools, and its roads, public transport and airport leave many visitors from Western countries envious. It’s clean, English is common, and is one of the most politically stable places in an often volatile region.

(Human rights groups may not like the government’s tough attitude to crime and the way it treats political opponents, but their complaints seem to have made little impact on the financial community.)

Singapore shares many characteristics with Hong Kong — another centre of Chinese-dominated enterprise with a business-friendly government and a British colonial heritage. The rivalry is obvious when you pick up a copy of a Singapore paper. The city-state has made an enormous effort to woo hedge funds, for example. The media proudly report when another investment manager leaves the polluted air of Hong Kong behind for a healthier life for him or her and family in Singapore.

The consultant PricewaterhouseCoopers believes Singapore has a bright future. Its recent report ‘See The Future’ outlined how world-class industry clusters — from education to film to cars — could develop between now and 2040. PwC predicted that Singapore would surpass London and Boston as an asset management hub by 2025 to take the number two spot after New York. PwC said the lead would continue to widen: assets domiciled in Singapore would increase from US$50bn this year to more than $250bn in 2040, it projected. Tougher rules in Europe and North America would drive that growth.

“The threat of stricter regulation in some western financial markets has also created opportunities for Asian and South East Asian markets, which are campaigning to attract funds to the region,” it said. “Perhaps even more important is the potential for organic growth in Asia - driven by strong economic performance and large stock of private and public capital.

“Existing asset management clusters in Hong Kong, Tokyo and Beijing should continue to grow — but will be more likely to service more insular domestic markets.”

Nevertheless PwC said Hong Kong would continue to be important rival to Singapore, helped by its proximity to China — the report noted 65% of Asian fund launches were in the former British colony in the first half of this year. But Singapore seemed aware that it needed to catch up if it were to fulfil its potential.

“With the Singaporean government actively promoting the city as a global centre for asset management and with a higher existing value of assets under management, Singapore is well-placed to compete with Hong Kong going forward,” the report said.

And Singapore’s position close to the rapidly developing countries of Indonesia, Malaysia and Thailand would help it “to attract internationally footloose capital.”

Soo Nam Ng, managing director and chief investment officer of Nikko Asset Management in Singapore, says the position at the cross-roads between North Asia, South Asia, Europe and Australia.

“There’s a huge community of Indian fund managers here,” he says. “There’s a constant flow of people coming through Singapore on their way to other parts of the region. That’s noticeably picked up in the past decade.”

Singapore’s Economic Development Board offers tax breaks and other benefits to multinationals that set up regional headquarters in the city. Ng says this makes life easier for fund managers: as analysts are more likely to locate in Singapore if the offices of many of the companies they follow are easy to visit.

But Singapore has challenges to overcome if it is to achieve its ambitions as an asset management hub. For a start, it’s a small domestic market. The population is approaching five million. But more than a million of them are not Singaporean. Many are domestic helpers from countries such as the Philippines or construction workers from South Asia who do the jobs that Singaporeans shun. Then there are the high-calibre expatriates coyly described as “foreign talent”.

The government says imported specialists are necessary, as there is no way that Singapore, with its small pool of talent, could ever provide enough people with the right skills. (But their presence does create resentment among native Singaporeans especially when the recent economic downturn — a historically rare occurrence in Singapore — pushed up unemployment.)

The Singapore Stock Exchange (SGX) is still small compared to London, New York and Tokyo. Foreign listings are few, compared to Hong Kong, for example, which accounted for around half of the fresh money raised globally through initial public offerings this year.

In its favour, the SGX is technologically savvy — and its proposed merger with the Australian stock market operator would create much more scale. But that has many opponents. Australia has ambitions too — some of the country’s politicians and financial industry leaders worry that Sydney would be sidelined as a trading centre in favour of Singapore if the merger succeeds.

And then there’s the problem of the distance. As Nikko’s Ng says, China is only a phone call away. But one Hong Kong-based chief executive of a leading regional fund manager is sceptical; “North Asia is now the prize,” he says. It’s essential to be in the neighbourhood, and not thousands of kilometres to the South.

“When I first started in the region, Singapore was the first place you went to raise money. Now Singapore is fourth on your list, after South Korea, China and Hong Kong. That reflects the rise of government investment agencies in North Asia”. He thinks this is a permanent shift. “Just look at the size and the scale of pension funds in North Asia. For example, Taiwan’s is massive and growing quickly.”

He says many managers set up shop in Singapore expecting a big slice of the business of the city-state’s giant sovereign wealth funds. That hasn’t materialised as government agencies have developed their own expertise. “They are managing more and more of their money in-house.”

But Nikko’s Ng is optimistic. The challenge for Singapore is to preserve living conditions and the gentle-touch regulation that makes it an attractive place to do business. If not, companies will up sticks. “Fund managers are very internationally mobile,” he says. “But the environment is not.”

Singapore’s export-led development has created an enormous pool of money that needs to be managed. Asset managers understandably might find it attractive to be neighbours with the country’s two giant sovereign wealth funds.

GIC has invested several hundred billion dollars of Singapore’s foreign reserves in international markets and direct investments, most always in association with local partners. Its sister organisation, Temasek Holdings (which prefers to describe itself as an Asia investment house) manages US$145bn.

And then there’s Singapore’s pioneering compulsory retirement savings scheme, the 55-year-old Central Provident Fund, with US$134bn of assets.

The prospect of their mandates is attractive. but global asset managers are now targeting sovereign assets in north Asia as well.

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