Singapore’s Development Board Preparing FoF Effort

SINGAPORE – Concerned that it’s very large communist neighbor to the north is grabbing all the attention, this tiny but powerful commercial center is trying to lure U.S. private equity firms overseas with promises of tax breaks and other financial incentives.

“We want to attract firms like Hamilton Lane, Pantheon, Horsley Bridge, Grove Street, or State Street to manage Singapore-based funds-of-funds and to build a [FoF] industry in Singapore,” says Hwee Song Chua, deputy director of a division of Singapore’s Economic Development Board (EDB).

EDB plans to bring various FoFs to Singapore on a road show to seek their participation, Chua said in an interview with Private Equity Week in EDB’s headquarters in Raffles City Tower in Singapore.

EDB plans to bring the FoF firm to Singapore soon and to make announcements before the end of the year, possibly to overlap with the annual AsiaVest Conference in Singapore, in mid-October.

Singapore’s private equity industry is already well established. More than 150 venture firms have a presence in the country. Collectively, those firms manage more than $9 billion in funds invested in Singapore and throughout Asia, Chua says.

EDB, which has worked for the last five years to attract venture firms to their tiny nation-state, is, in the words of EDB Managing Director Kheng Hwa Ko, “moving up the food chain, seeking to add higher value services and companies to the infrastructure of Singapore.”

Most private equity professionals probably know Singapore through its investment arm, the Government Investment Corp. (GIC), which lately has been an active investor in tech startups. While it has a considerably lower profile than GIC, EDB is also a significant player in private equity and venture capital.

EDB is part of Singapore’s Ministry of Trade and Industry. Chua explains that his division – EDB’s Enterprise Ecosystem Development Division – has focused on building its venture capital participationand Singapore’s venture capital industry through three investment programs over the past five years: direct investing, the Startup Enterprise Development Scheme (SEEDS), and the Techno-preneurship Investment Fund (TIF).

TIF is the largest of the three programs. It is a fund of funds with $1.3 billion committed to venture capital and private equity funds worldwide. It has made commitments to more than 60 funds, including 3i Capital Corp., DCM-Doll Capital Management, Draper Fisher Jurvetson, Granite Ventures, Sequoia Capital, TVM Techno Venture Management, Venrock Associates, Vertex Management and Walden International.

EDB’s SEEDS program invests in startups. Created in October 2001, SEEDs has committed $28 million to more than 108 portfolio companies, many of which develop emerging technology. Through the program, EDB provides matching funds of up to $300,000 (in Singapore dollars) for startup ventures.

EDB also invests directly in technology startups. It provides growth financing for companies with products and revenue in matching amounts ranging from $250,000 to $1 million.

Chua says that as EDB moves forward in its FoF development effort it is likely to employ several types of incentives, such as those it has used with the VC industry to date. Those incentives include 10-year tax exemptions on both fund management fees and capital gains made on portfolio investments, the ability to manage multiple investment efforts, and possible equity investments by EDB.

Chua cautions that there will be restrictions on FoF groups that set up shop in the country, which may again parallel those imposed on VCs accepting money from EDB. For example, FoFs would likely be required to deploy about one-third of their capital in Singapore-based companies and to hire and retain a certain percentage of their staff from Singapore’s professional community. There are other requirements with regard to taxation due to Singapore’s participation in the World Trade Organization.

While Singapore faces a severe loss of attention from the global investment community, which is at present concentrating on China, George Yeo, head of the country’s Ministry of Trade and Industry, says, “Singapore will meet its current challenges just as it has met successive challenges since the 1980s when jobs were lost to lower cost countries such as Malaysia and Thailand.”

In its attempts to build a financial and investment industry in Singapore, the country offers the benefits of a “corruption free system, transparent public policies, efficient logistics and attempts to provide a hassle-free business regulation environment” that will welcome industries such as those EDB’s new efforts hopes to attract, Yeo says.