Considerations for Alternative Investments During COVID-19: Singapore Perspective

Singapore has always been an attractive city-state for the alternative investment industry due to the positive growth outlook, sound business and regulatory environment, wide distribution channels, financial incentives, robust infrastructure and more.  Despite the global COVID-19 pandemic that especially impacted Asia, the outlook for Singapore in the alternative investment space appears promising for a variety of reasons, including healthy fund launch activity, global investors looking at Asia-focused funds, and new family offices being set up there.

FUND LAUNCHES

Singapore has experienced an influx of new fund launches. Saw Meng Tee, Managing Partner, EisnerAmper Singapore, said although the investment strategies varied, since the fourth quarter of 2019 there have been more funds focused on distressed asset investing.

“As a reference, out of the at least 25 funds who have engaged with us over the period, about ten of them have expressed interest in investing in distressed assets,” he said. 

He added many are using the variable capital companies (VCC) structure, a more operationally and tax-efficient fund structure, which became available to all investors in January taking advantage of the available tax incentive for funds exempting “designated investments” from tax. The list of designated investments includes shares, bonds and derivatives. A key exclusion is immovable property in Singapore.

FUNDRAISING

With the COVID-19 pandemic, fundraising for Singapore funds, just like funds across the globe, has proved challenging. However, there is hope for funds there to receive inflows, especially from European allocators.

“European allocators maintain a requirement for Asian opportunity sets and continue to pursue as productively as currently possible,” according to a capital introductions professional. “Allocators have indicated that traveling to Asia is high on the agenda once restrictions are lifted.”

Meng Tee added that valuation expectation should also be tempered during this time.

“Even strong companies listed on the stock exchanges have been battered 30-40% so you might have to reset your expectations,” he said. “Perhaps you should try to raise less during this period and then try to raise more at a later period when you are further along the development roadmap. If you have done your cashflow realistically, you would have a better grasp on what you need to progress.”

FAMILY OFFICES

Singapore has also seen an influx of new family offices, both completely new ones being created in the city-state or existing ones transferring over from other areas of East Asia as part of their risk mitigation strategy. Financial services professionals concur that reasons cited for the risk mitigation strategy include the very large public protests and violent disturbances in Hong Kong, which was historically a key hub for family offices, along with key changes in the Cayman laws which EisnerAmper reported on and finally, the welcoming and stable investment environment in Singapore.