Susan Soh, Chairman of IMAS Executive Committee
Ladies and gentlemen
A very good morning to all and thank you to IMAS for inviting me here today.
Primed for innovation and growth
1. The global asset management industry has emerged strongly from the pandemic and Singapore is no exception. With Asia hosting some of the fastest-growing economies in the world, the industry is primed for further innovation and growth.
2. This is not to say there are no headwinds. The ongoing uncertainty and volatility in global markets pose challenges for investment managers – the situation in Ukraine shows no sign of abating, and investors have to deal with inflation, economic slowdown and soaring energy prices.
3. But amid these challenges, let’s not forget the tailwinds. If we look further out in the horizon, there is tremendous potential for asset and wealth management in Asia. Investable assets continue to grow. Capital and wealth are flowing into Singapore from the region and globally. More funds and family offices have set up in Singapore since the Variable Capital Companies (VCCs) framework was launched, and there is now an even wider diversity of ecosystem players.
4. IMAS has done a commendable job working with the various stakeholders to strengthen Singapore’s position as a leading asset management hub to access pan-Asian and global opportunities. The association has been driving digital transformation and talent development, enhancing the industry’s capabilities.
5. With stronger public and private partnerships across the ecosystem, we are also seeing further deepening of investment expertise in technology and new economy sectors. This is a critical success factor for Singapore in attracting new economy companies to set up and raise capital in Singapore.
Technology can disrupt and enable
6. Susan noted in her welcome speech that technology is seen by asset managers as both an enabler and disruptor.
7. If we use robo-advisory as an example, when it first started, not everyone embraced it immediately, but now it’s part of almost every asset manager’s offering. Two years ago, before Covid, who would have thought that wealth managers can onboard new clients and provide financial advice, all without meeting them in person? But now, it is part of the toolkit.
8. Technology and digital innovation are re-shaping financial markets and services. Like many other industries, the asset management industry is embracing it and evolving with it. It is not a question of when, but how and to what extent.
9. Last month, I was in the U.S. for a global derivatives conference and customer meetings. The four topics that constantly came up in our discussions with global investors were crypto, cloud, carbon and China.
10. Today, I will share my thoughts along these 4 Cs, drawing from SGX’s experience, which I hope will be of relevance and benefit to everyone here.
Confidence in Crypto
11. First, crypto. In Asia, institutional and retail participation in crypto continues to rise. Your customers may also have requested for access to digital assets.
12. While SGX has not offered crypto futures like the other exchanges in the U.S. and Europe, we have been exploring and monitoring this space closely to develop the right products that meet the needs of our customers. As a global derivatives exchange, we want to capitalise on our strengths in the market infrastructure and risk management, to bring trust and efficiency in price discovery to the digital-assets space. Beyond looking at crypto as an asset or investment, store of value or payment, I believe it is more important for us to look at how we can leverage the technology behind crypto and digital assets.
13. Tokenisation, for instance, can open up markets, increase liquidity and make the settlement process more efficient. A case in point is the tokenisation of private markets.
14. One example is ADDX, of which SGX Group is an early-stage investor. Using blockchain and smart contract technology, ADDX offers fractional access to a suite of private market assets including private equity, venture capital, private debt, real estate and cryptocurrency futures. ADDX recently launched private market services for wealth managers and we see this as a direction of travel for asset managers, as they seek to provide new and differentiated products and services to clients.
15. Decentralised finance, or DeFi, is another development that has attracted widespread attention. DeFi puts so-called traditional finance applications on the blockchain, and can become a platform for more innovative, inclusive, and transparent financial services.
16. While DeFi presents significant opportunities, its promises cannot be realised in a single step. There would be some trial and error and experimentation. Ecosystems need to be ready for an entirely new DeFi-run financial system that is independent of the traditional financial infrastructure. Policymakers need to agree on standardisation and regulation to address risks, and put in place safeguards to boost trust and ensure market stability. Until then, centralised and decentralised financial markets will co-exist and we will need to see how we can bring the best of these two worlds together.
17. At SGX Group, we are using technology to transform the efficiency of capital markets and advance Asia’s capital markets infrastructure. We have teamed up with Temasek to establish Marketnode, a digital asset joint venture that is building next-generation financial market infrastructure – for the ecosystem, by the ecosystem.
18. Marketnode is focusing on practical solutions to pain points faced by market participants today, starting first in the fixed income space. Together with partner institutions, Marketnode is building out an end-to-end DLT-enabled fixed income infrastructure. It is also working with MAS and other industry partners to launch Fundnode towards the end of the year, which aims to be the world’s first DLT-enabled fund processing utility.
19. Asset managers today face inefficiencies such as in client onboarding or back office operations, for which blockchain, distributed ledgers and smart contracts may offer solutions. The World Economic Forum estimates that up to 10% of global GDP will be stored and transacted via DLT by 2027, while tokenised markets could potentially be worth as much as USD24 trillion. Clearly, this technology cannot be ignored.
Adoption of Cloud and Other New Technologies
20. Second, let me touch briefly on cloud technology and other technologies.
21. Cloud technology is not new and offers many benefits, including data centralisation, increased scalability and improved accessibility. New technologies such as artificial intelligence and machine learning are also being deployed in asset management globally, in areas such as risk management and compliance, asset allocation and portfolio construction, as well as customer analytics.
22. For exchanges, there has been much discussion about moving data, trading and clearing services onto the cloud. As an established infrastructure provider, we want to maintain the strengths which market participants trust us for, such as reliability and stability, while harnessing the improvements that new technologies bring. Moving to cloud would impact our market participants and we are highly cognisant that it is a decision that must be undertaken together with them.
23. I bring up cloud, not so much to discuss its benefits, but to use it as an example to illustrate the importance of customer-centric solutions and stakeholder engagement.
24. There will always be stakeholders and customers who take the view that they are very happy with the traditional methods and that new technologies could be more hype than substance. We must be careful we do not fall into the trap of creating a solution to a problem that doesn’t exist.
25. Technology and innovation come with a price tag. While AUM may grow, so too will costs and pressure on margins. The digitalisation journey is not an easy one, and we have to strike a balance between innovation, tangible benefits, risks and reward. Throughout this journey, what is key is that we have to put customers at the heart of everything we do.
Managing Climate and Carbon
26. My third point is on climate and carbon.
27. Based on the IMAS survey, many members are interested in fintech solutions that provide ESG datasets and tools, which can help quantify impact and improve transparencies in disclosures.
28. Investors, especially the next-generation millennials, are looking to invest their money in an impactful way. Last year, flows into ESG funds in Asia more than doubled to over US$100 billion[1].
29. The asset management industry plays an important role in mobilising capital to facilitate Asia’s transition to a low-carbon future; one of which is the development of green financing solutions customised for Asia. In the area of ESG, IMAS has embarked on a number of initiatives to build sustainability knowledge and capabilities.
30. Globally and in particular in Asia, public-private collaboration is essential for real progress in climate mitigation efforts.
31. Last year, SGX RegCo did a public consultation on 27 core ESG metrics and a portal for issuers to input ESG data. Though not mandated, the metrics are a starting point for what companies can disclose in their sustainability reports.
33. We are now partnering with MAS to develop this ESG portal, which is one of the four digital platforms under Project Greenprint to address the need for quality data on sustainability. With the ESG portal, investors can access ESG data in a structured format, as reported by issuers, in accordance with aligned metrics and disclosure requirements. This portal will not only make information more accessible and comparable, but would also save costs, make data more transparent, and simplify decision-making for investors.
34. In January this year, Marketnode also launched Greennode. This is an ESG bond database with more than 300 issuers and 500 bonds, which is seeing healthy interest from asset managers. In the pipeline is Greennode RMB, the first global onshore China ESG bond data platform in Chinese and English, established through a partnership with onshore China partners.
35. In our engagement with our customers and the investment community, there is always significant interest in carbon trading.
36. Investors and stakeholders are becoming increasingly sophisticated in their understanding of corporate climate action. They want to understand how companies are using carbon credits in their transition plans, and have confidence that companies are using credible carbon credits.
37. To fill the gap in the market for high quality carbon credits, SGX Group, together with partners DBS, Standard Chartered and Temasek, established Climate Impact X, a global carbon exchange and marketplace. CIX is harnessing technologies such as satellite monitoring and machine learning to deliver transparent data around project impact and risk.
Enhancing Connectivity with China
38. This brings me to my fourth and final point – China.
39. Notwithstanding the current uncertainties surrounding the outlook on its financial markets, China remains hugely important for investors as the second largest economy in the world. With China expected to drive long-term growth of Asia, investors want to participate in the opportunities, and welcome ways to navigate the investment landscape.
40. SGX Group is a strong proponent of strategic partnerships to support the internationalisation of China and facilitate greater access into the China market.
41. In 2020, we welcomed the listing of the world’s largest Chinese pure government bond ETF on SGX. This ETF issued by CSOP Asset Management was the first ETF to utilise the VCC framework and has since garnered AUM of about S$2 billion.
42. We have also signed a MOU with Shenzhen Stock Exchange to establish an ETF link, offering investors on both exchanges with a wide range of investment options. We will jointly develop and promote ETFs, which link locally listed ETFs to ones listed on the other exchange. This allows domestic ETF issuers to tap on cross-border capital flows, and investors to access overseas-listed ETFs via domestic exchanges.
43. This is not our first partnership with another exchange and will certainly not be the last. Over the past 30 years, we have been collaborating with exchanges such as the CME Group, Nasdaq, the London Stock Exchange Group and Cboe. The more we collaborate, the more our global network grows, and the more our customers benefit.
Collaborate to compete
44. Today’s challenges can no longer be addressed by one country, one industry or one company. Competition should not only be about winners and losers; the ecosystem matters.
45. As a founding member of IMAS, SGX has a long history of collaboration with, and have always been supportive of, IMAS’ initiatives.
46. On behalf of SGX, I wish to congratulate IMAS as it celebrates its 25th anniversary. It is apt that IMAS is launching the “Let’s Invest Together!” game, which is the culmination of many months of cross-industry effort, collaborating to create the first of many innovative solutions for the benefit of the industry.
47. As a prototype, while there may be room for further enhancements, but I am sure it would go a long way in raising financial literacy amongst the investing public through gamification.
In Conclusion
48. I hope today’s summit will help the industry to find new ways to create value for your customers and stakeholders. As the industry collaborates to compete, I am optimistic that the industry will grow from strength to strength, and pave the way for Singapore to be the largest asset management centre in Asia. Thank you.
END
[1] https://www.invesco.com/apac/en/institutional/insights/esg/greenwashing-in-esg-investing-an-asia-perspective.html | Morgan Stanley “Sustainability AUM in APAC”, Asia Sustainability: Sustainability AUM in Asia Pacific totalled US$103bn in 2021 (ms.com) (Data as of Jan 2022
