An exodus of investors and investment firms from Hong Kong is threatening the city’s status as a global financial hub. Singapore is ready to step into its place
This article first appeared in the February 2023 Asia Insights Report
Hong Kong is back – or so it would like you to believe. After the exodus of more than 140,000 workers over two years of quarantines and pro-democracy protests, the government there has launched a marketing campaign to lure back investors and business.
Sweeteners include funding for international firms opening offices, new graduate visas and even free flights for tourists. The focus is not just on attracting visitors from the US or Europe though, Hong Kong is also trying to regain status in the Asia investor community as a global financial centre and bridge to the rest of the region.
It faces stiff competition from Singapore. A survey by Private Equity Wire found 70% of respondents believe Singapore is a more effective base for private equity funds operating in the region, compared to only 13% for Hong Kong. Mumbai and Beijing were third and fourth preferred locations respectively.
“Generally speaking, the government of Singapore has always been very welcoming to private equity funds,” says Lay Hong Lee, managing director at Flexstone Partners in Singapore. “In terms of startups, entrepreneurs, innovation, the ecosystem has been growing over the last 10-20 years. And with the closing from COVID in another countries, I think it has been very helpful to Singapore.”
An influx of Asia’s richest agree. According to the Singapore Department of Statistics, Singapore’s total population grew by 3.4 per cent by mid-2022, mainly due to the increase in the non-resident population.
Singapore has done a good job specifically attracting start-up founders and VC investors, says Edith Yeung, general partner at VC firm Race Capital. “Many of my VC and founder friends from mainland China have moved to Singapore as the Chinese government policy is a little bit unpredictable and the regulatory risk is high for entrepreneurs.”
South-east Asian-focused venture capital funds in particular are choosing to be headquartered in Singapore, so they can more easily connect and expand across Indonesia, Vietnam and Malaysia. High-profile investors, including Sequoia Capital, Softbank, and Accel Partners, have all established a presence in the city to take advantage of its growing startup ecosystem and fundraising has boomed as a result.
SE Asia bridge
One of the key advantages of Singapore as a centre for venture capital is its strategic location in the heart of Southeast Asia, one of the fastest-growing regions in the world. The region is home to a rapidly expanding middle class, a growing number of tech-savvy consumers, and a large pool of young, entrepreneurial talent. By establishing a presence in Singapore, venture capital funds can tap into this vast and rapidly growing market, which is projected to reach $300 billion by 2025. Traditionally a base for semiconductor and hardware manufacturing and logistics, Singapore is fast becoming a hub for software and ecommerce startups, particularly in deep tech.
Accel has made around 10 investments in southeast Asian growth and late-stage startups over the past two to three years. “While India kept us busy in the last decade, the focus is going to be on both India and Southeast Asia now. We expect both the economies to grow to a significant size,” Prayank Swaroop, partner at Accel India, was reported as saying last year.
Private equity fundraising in Singapore last year reflects the growing status of the city-status too. According to Preqin at the end of last year, it emerged as one of the rare financial hubs in the world to attract a record cash pile, mostly targeting private equity-backed real estate and early-stage VC and defying a global fundraising slump. For the first time since 2008, Singapore dethroned China in total aggregate capital raised, crowning it Asia’s fundraising star.
Hong Kong is down but not out. One top of a re-opening charm offensive, the government there is thinking long-term. In February it named the board members for the newly established Hong Kong Investment Corporation, mirroring the Government of Singapore Investment Corporation (GIC) set up in the early 1980s. But while Singapore has been criticised for soaring rents, it seems unlikely that for companies recently arrived from Hong Kong they will be in a rush to return.