How Luxembourg-domiciled funds can access Singapore retirement market

It is little surprise that asset managers view Singapore as favourably as they do. For global and Singaporean asset managers, the country’s retirement funds represent a valuable opportunity.

It is little surprise that asset managers view Singapore as favourably as they do. The city state is a key financial centre at the heart of a region that is primed for further growth.

Equally, it is no coincidence that Singapore has for years appeared in the IMF’s top 10 wealthiest nations when ranked by GDP per capita. Mid 2023, it ranked fifth at USD 91,100, behind only Luxembourg, Ireland, Norway and Switzerland.[1]

For global and Singaporean asset managers, the country’s retirement funds represent a valuable opportunity. Many of the former, however, struggle to overcome the barriers to entry in this market, which has very specific regulatory and structural requirements that non-Singaporean funds may not be familiar with.

In this article, we will outline what’s at stake, explain the main challenges and show how to overcome them.

Two target opportunities in Singapore’s retirement fund market

Singapore’s retirement fund market is comprised of the following, two largest schemes:

The Central Provident Fund (CPF):

This is Singapore’s national social security savings scheme and the predominant investment vehicle for retirement savings. It is for Singaporean citizens and permanent residents, and held assets of SGD 544bn  on behalf of its 4.2m members at the end of 2022 [2] . In 2022, investment flows from CPF accounts totaled SGD 25.4bn.

The Supplementary Retirement Scheme (SRS):

This additional, voluntary scheme complements the CPF, and is private sector operated [3] . It is for Singaporean citizens, permanent residents and foreigners who derive any form of income in Singapore, and their contributions can be used to buy a range of investment instruments. The SRS’s assets were SGD 16bn as of 2022 [4].

How can funds offer asset management capabilities to these schemes? Most importantly, they must be approved by the authorities, notably the Monetary Authority of Singapore (MAS), which is both regulator and central bank and by CPF Board in order to be eligible for CPF Investment Schemes (CPFIS).  Among the 97 funds listed under CPF Investment Schemes (CPFIS), 56 are Singapore-domiciled, while the remaining 41 are recognised schemes based in Luxembourg [5].

The first step, then, is to get regulatory approval. However, that is not the only challenge.

Four challenges for Luxembourg-based UCITS targeting Singapore retirement market

Given that nearly 40% of the funds included under CPFIS are Luxembourg-based, it is fair to say that Luxembourg-domiciled funds are very well regarded in Singapore. Despite this brand recognition, many Luxembourg-based UCITS funds may not have tried to access this market.

Although many Luxembourg-based funds are recognised for distribution in Singapore – which means asset managers can leverage their Luxembourg fund range and directly distribute across Singapore without needing to set up a domestic fund – this is not enough on its own. Fund managers must also:

  • Understand the regulations enforced by MAS and the CPF about distributing their fund in Singapore and about offering it to CPF participants and/or SRS investors.
  • Prepare the required documentation and obtain the requisite approvals from MAS and the CPF board to distribute.
  • Establish their fund in line with Luxembourg-Singapore regulations and meet the necessary operational requirements to be able to distribute in Singapore.
  • Ensuring operational efficiency, for example through building a standardised operating model to cope with local requirements, establishing a single entry point despite operating in two locations; and developing the capacity to distribute funds cross-border.

These challenges can require a lot of time and effort for individual funds and/or fund promoters to overcome.

Choosing a partner with fund expertise in Singapore and Luxembourg

An alternative approach involves choosing a partner that combines global reach with local knowledge and expertise. In this way, asset managers can build a bridge across the regions with the support of a global and local partner; something, BNP Paribas’ Securities Services business in Singapore has done for its clients since 2009.

This approach enables our Luxembourg-based entity focus on its strengths – its expertise with UCITS and looking after regulatory matters in Luxembourg – while our Singapore-based teams provide local expertise and support.

In Singapore, our experts can advise and update the asset manager Singapore market specific practices. They can bring valuable knowledge and on-the-ground relationship to help the fund secure approval.  In terms of fund distribution, a Singapore-based entity can support the asset manager when contact is required with local parties such as agent banks or distributors.

Eventually, the right partner for an asset manager can ensure operational efficiency by offering a global solution with a standardised model across locations, bringing the ability to distribute funds cross-border and eliminating issues around working hours in different timezones.

Transcript

Empowering Asset managers: services in Singapore and Luxembourg

Singapore

  • 5th wealthiest nation[1]
  • Two opportunities in retirement fund market
    • The Central Provident Fund (CPF) scheme with 4.2m members
    • The Supplementary Retirement Scheme (SRS)
  • 40% of the CPF funds are based in Luxembourg

Four key challenges for Luxembourg-based UCITS

  • Understand the regulations about
    distributing funds in Singapore and
    offering them to CPF or SRS investors
  • Obtain the requisite approvals by local authorities
  • Establish funds in line with
    • Luxembourg-Singapore regulations
  • Ensure operational efficiency

Securities Services at BNP Paribas
Awarded by some of the industry’s most prestigious publications in Asia

  • A bridge across regions with
    local knowledge and expertise
    in Singapore and Luxembourg
  • A standardised operating model, bringing the ability to distribute funds cross-border

[1] Ranked by GDP per capita, 2023, Source : IMF

BNP Paribas in Asia

Awarded by some of the industry’s most prestigious publications

Best Global Custodian, Asia Pacific, 2016-2021, 2023 , by the Asia Asset Management

Best Fund Trustee by the Asset in 2021 and 2022

Custodian of the Year in Asia-Pacific, 2021, by The Asset Servicing Times 


[1] See: https://www.imf.org/external/datamapper/NGDPDPC@WEO/ADVEC (June 2023)

[2] See: https://www.cpf.gov.sg/member/infohub/reports-and-statistics/cpf-statistics

[3] See: https://www.mof.gov.sg/schemes/individuals/supplementary-retirement-scheme

[4] https://www-mof-gov-sg-admin.cwp.sg/docs/default-source/default-document-library/schemes/individuals/supplementary-retirement-scheme/compiled-srs-statistics.pdf (December 2022)

[5] Source: CPF, https://www.cpf.gov.sg/content/dam/web/member/business-partners/documents/RCSUT_ListA.pdf