Market maker fund the missing piece for Temasek-backed 65 Equity Partners?
Singapore’s 65 Equity Partners (65EP) establishing a market maker fund (MMF) can catalyse further liquidity in Singapore equities. It also mutually reinforces existing efforts to augment the domestic equities market.
Reports of Singapore special purpose acquisition company (SPAC) listing applications by Temasek-linked entities — French asset manager Tikehau Capital, Vertex Venture Holdings, and Novo Tellus Capital Partners — is a welcome signal for the direction of government support.
Tikehau Capital has experience in SPACs, having launched Pegasus Europe on Euronext Amsterdam in April 2021. That SPAC raised ~€500 million (US$580 million) and targets asset management, fintech, insurance services, and diversified financial services.
The Singapore SPAC will apparently resemble Pegasus Europe, which also shares a common sponsor as Pegasus Europe in the form of Financiere Agache, the family office of Bernard Arnault, who owns luxury brand group LVMH.
To date, Temasek-backed 65EP has assets under management (AUM) of S$4.5 billion (US$3.3 billion). It also manages the Local Enterprise Fund @ 65, a S$1 billion (US$740 million) fund, and Anchor Fund @ 65, and a S$1.5 billion (US$1.1 billion) co-investment fund focused on pre-IPO funding rounds. It’s a positive signal for private and public equity markets.
Temasek-linked entities being involved signals state support for the local IPO market and generates public visibility for listed companies. It’s also simpler for the sell-side to generate trading interest, enabling liquidity for investors across the institutional, private and retail segments. According to the Sovereign Wealth Fund Institute (SWFI), as at November 2021, Temasek Holdings has assets under management of US$484.441 billion, while Global SWF reports an AUM of US$283 billlion.
Additionally, market reports indicate 65EP plans to raise money from external investors within three years. A Bloomberg report suggests this will create a “…new global investor with a broad mandate to support businesses that are willing to expand into Singapore and join the local stock exchange…”, with teams in the UK and US.
Additionally, Temasek’s general partner (GP) interests in Heliconia Capital Management, Tower Capital Asia and Novo Tellus Capital Partners will reportedly be consolidated into 65EP. But the missing piece in these developments is a market maker fund.
Singapore equities ecosystem
In an October 2021 SCMP commentary, William Bratton, former head of APAC equity research at HSBC, argued that Singapore’s ‘zombie stock market’ was inhibited by three factors.
These are a small domestic economy; no apparent advantage in terms of capital or information availability due to localised information flows; and a diminished equity ecosystem, in terms of inadequate equity research and finance media capacity.
Yet Singapore’s finance centre has carved niches for itself in forex — eclipsing Tokyo and Hong Kong which serve as natural centres for Japanese Yen and Chinese Renminbi — as well as a global hub for property stocks — the largest real estate cluster in Asia ex-Japan — in addition to deep strengths in iron ore, Chinese equity, and Taiwan futures derivatives. Something that Hong Kong has yet to match.
But unlike regional peers and rival hubs, its domestic equities do not enjoy state-supported liquidity where capital is recycled by large domestic institutional investors. There is liquidity, but not necessarily in its domestic securities market.
Dariusz Wójcik, an economic geography specialist at Oxford University, argues that relative sizes of securities industries determine the hierarchy of financial centres. More important centres possess larger, deeper capital markets able to sustain more complex activities than smaller peers. And across diverse asset classes, the equities ecosystem is the critical element which determines financial significance.
Again, Singapore’s finance centre is an outlier, ranking fifth among the ten leading global finance centres by the Global Financial Centers Index in 2021. Notably, Singapore ranks higher than Shenzhen, Tokyo, Frankfurt, Sydney and Zurich, all with equity markets in the trillionaire range.
In Singapore’s context, where equity markets and their liquidity do matter is in stimulating economic development. “Examining the effect of stock market development on economic growth in Thailand”, published by e-BANGI in 2020, highlights how stock turnover ratio and the total value of the traded stock contributes to economic development. The natural step is to augment liquidity in Singapore equities as a means of ameliorating the anemic economic growth of the 2010s.
There is still significant room for the growth of our equities ecosystem and finance centre as a whole, especially in sub-sectors like asset management, equity research and trading. Finance centres in Europe like Stockholm, Frankfurt and Zurich, despite ranking lower than Singapore, are all home to equity markets with aggregate market caps in excess of US$2 trillion as at August 2021, according to Statista data.
Catalyst: Market maker fund
To catalyse upon the measures already introduced to support the market, introducing an MMF to enhance liquidity for listed companies is the lynchpin.
Whether for a select basket of stock or supporting the broader market through index funds tracking the FTSE ST All Share Index and ST Catalist Index, this is comfortably within the ambit of 65EP. And one approach that even the Monetary Authority of Singapore (MAS) can explore, given precedents established by the Bank of Japan and Swiss National Bank with their equity investments.
This matches moves by Dubai to support the Dubai Financial Market (DFM). The first week of November 2021 saw Dubai announce plans to launch a 2 billion dirham (US$545 million) market-maker fund to boost trading on the DFM, coupled with plans for public share sales of 10 state-backed companies. This is meant to make it more competitive against larger regional bourses in Saudi Arabia and Abu Dhabi, which see larger listings and strong liquidity.
Much like Singapore, through the 2010s Dubai experienced de-listings and a lacklustre IPO market, which raised questions of its viability and relevance. The move boosted DFM shares and its benchmark DGM General Index. Separately, Dubai has also approved a 1 billion dirham (US$272.25 million) fund to encourage tech listing on the DFM.
Following the example of Sequoia Capital and its restructuring, 65EP, Temasek or the Monetary Authority of Singapore (MAS) can easily implement a single, permanent fund structure. The fund can maintain an open-ended liquid portfolio made up of public positions in a selection of enduring Singapore enterprises and ETFs.
This can in turn allocate capital to a series of closed-end sub-funds with positions in different vehicles, asset classes and strategies. Returns from investments can be recycled into this central vehicle, which will redeploy into future investments, creating a continuous feedback loop.
A market maker fund is the missing piece for 65EP and the synergist for an equities ecosystem that has been lacking for years. Establishing it is mutually enhancing to other elements in the system, as well as existing measures to boost the market.
