Awash in private wealth, could Singapore surpass Switzerland as a global career hub for funds business?
Vast amounts of private wealth have been pouring into Singapore in recent years. Can the Lion City overtake Switzerland as the world’s most important centre for private banking? The jury is still out on whether this will happen, but there’s no question that the inflow of cash will continue.
So what accounts for Singapore’s growing popularity as a monetary safe haven for the world’s rich and famous?
“This is due to its sound financial system, low taxes, money exiting fiscal paradises and increasing uncertainty in other places,” says Jan Simon, professor of financial management at IESE Business School at the University of Navarra in Barcelona, Spain. But it is difficult to say if Singapore has an actual chance of surpassing Switzerland as a centre for private banking, and if so, when that would happen, owing to the “function of many variables”, the professor adds.
The Capital Conservator Group of Companies estimates that the total amount of private assets under management in Singapore is close to US$300 billion. While that is still a far cry from the US$1.7 trillion under management by private Swiss banks, it still represents 5 per cent of the world’s total estimated private wealth – not bad for a country with a population of just over 5 million people.
The influx of all of this cash has been a boon to Singapore’s private banking industry. According to Capital Conservator, the number of banks in the city-state has doubled to more than 40 over the past eight years, with private banking assets growing six-fold. Much of this money comes from entrepreneurs and wealthy families in mainland China, Hong Kong, Indonesia, Malaysia, the Philippines, and Thailand. This money would traditionally have gone to private banks in Switzerland or Britain.
But some of the money is coming from farther afield. According to April Rudin, CEO of The Rudin Group, well-heeled Americans, Australians, and Germans have also discovered Singapore – attracted as much by its lifestyle as by its banks. Singapore has a great infrastructure with fabulous beaches, world-class casinos, excellent restaurants, and shopping malls chock-a-block with high-end boutiques.
“Singapore has been a longstanding banking hub and centre of international settlements,” Rudin recently wrote in the Huffington Post. “Much of the growth has been viral and the recent German and American inquiries into Swiss banking have cast a new light on Singapore as an offshore destination of funds for either tax or secrecy reasons.”
One of the world’s most important financial centres, Switzerland has a 200-year tradition of private banking. Politically neutral, the country offers a stable economic environment that has allowed its banking sector to prosper. Thanks to the Swiss tradition of banking privacy, an estimated one third of the world’s offshore funds – or funds held outside their country of origin – are held in Switzerland, the Swiss Bankers Association estimates.
“The banks are hugely important to the Swiss economy in many respects,” the association said in its latest report, entitled SwissBanking. “As employers, they offer a host of skilled jobs paying above-average salaries. As taxpayers, they provide a considerable portion of public sector funding. And, finally, as driver of value added and centres of innovation, they generate momentum for the entire economy.”
But Switzerland’s tradition of banking secrecy has been under siege in recent years as officials in other parts of Europe and the US put pressure on the country to reveal information on their citizens holding assets in Swiss banks.
Switzerland has, in fact, been in a diplomatic standoff with the US over offshore tax evasion by rich Americans, who have long stashed investments in the tiny country as a way of getting around paying taxes in the US. More than a dozen banks in Switzerland are “suspected of aiding American clients evade millions of dollars in taxes on earnings from assets held in undeclared off-shore accounts”, USA Today reported.
Singapore, meanwhile, is an established financial hub and a global centre for private banking. With strong economic fundamentals, it is politically stable and has a favourable regulatory environment. Its private banking industry, in fact, has been closely patterned after Swiss private-banking model. As wealthy investors pull their cash out of Switzerland, will the tiny Alpine country’s loss be Singapore’s gain?
The Monetary Authority of Singapore says assets under management in the city-state grew by 22 per cent in 2012 to S$1.63 trillion (HK$10.03 trillion) from S$1.34 trillion in 2011.
Most telling of all, perhaps, was the decision by the Swiss National Bank (SNB) to open its first overseas branch in Singapore in mid-2013. A number of locations in Asia-Pacific were considered. Singapore was chosen because it was one of the largest financial markets in the region, it’s at the heart of emerging economies in Southeast Asia, and it had a stable legal environment, SNB said.
“Against the background of the sharp expansion in foreign exchange reserves and the growing importance of Asian financial markets, SNB has decided to open a branch in Singapore, to ensure a more efficient management of its assets in the Asia-Pacific region,” the bank said in a press release.
“A local presence will allow the SNB to extend its coverage of markets in Asia, and will facilitate its round-the-clock operations on the foreign exchange market – for example, to enforce the minimum exchange rate.”
Since 2009, the SNB’s foreign exchange reserves have increased substantially, the bank pointed out.
“Singapore wealth management is growing in sophistication, but it is still in a learning phase,” says Patrick Winters, formerly of Capital Conservator and now a Bloomberg reporter.
“During the mid 2000s, when Singapore’s private banking industry was growing rapidly, it was alleged that there were not enough bankers to meet demand. Singapore private banks were instead employing local hairdressers and car salesmen with good people skills and turning them into private bankers."