. in china, the government is making a massive effort to reform its soes. in south korea president kim dae jung is pushing chaebols to rationalise and consolidate, and change their traditional ways of doing business. asean countries must not lag behind, or else it will affect confidence in their investment climate. banking sector reforms besides pursuing corporate restructuring, asean economies must persevere to clean up and recapitalise unsound banks, and strengthen the banking sector. banks play a critical role in every economy. for asean economies to continue to grow, they will need new investments. these investments will require financing, by sound banks able and willing to lend to sound borrowers. the immediate priority is to speed up the resolution of the non - performing loans ( npl ) within the banking system. the process is underway, but is far from complete. even today, npls in some asean countries remain well above 20 %. as in the case of corporate restructuring, effective bankruptcy laws are essential. asset management companies ( amcs ) need sufficient power to deal expeditiously with debts which are unrecoverable. otherwise the banking problems will infect the whole economy, and drag countries into the same deep - seated malaise as japan. finding new money and writing off bad loans is the relatively easy part. it is more difficult, but equally important, for banks to put in place proper systems, structures, and prudential standards, to prevent the same problem from happening again. they need to establish rigorous credit cultures. they must lend based not on personal relationships, but on objective assessments of the borrowers ’ creditworthiness. many countries are encouraging bank mergers and consolidation as part of their plans to strengthen the financial sector. mergers can help to strengthen the commercial banks, and give them the scale to compete in the globalised financial industry. however, mergers by themselves are insufficient. unless mergers are accompanied by other measures to improve corporate governance, we will merely create one large weak bank out of several small weak ones. financial sector reforms also have to include strengthening of the supervisory system and institutions. had supervision been adequate in the first place, the problems would not have become so grave. professional and independent supervisory authorities will tighten standards of acceptable banking practices, and over time instil rigour and rectitude among all participants in the system. the supervisors have to set standards, penalise errant lenders, and remove implicit guarantees. credit discipline will foster the

have lengthened and failure rates have increased. hedge funds now require larger assets under management to breakeven and remain economically viable. managers without a strong track record will be in for a hard time. against this backdrop, some consolidation of the global hedge fund industry is to be expected. mas : recent economic developments in singapore – sep 2012 imf : world economic outlook, october 2012. hennessee hedge fund indices. bis central bankers ’ speeches long term prospects for the hedge fund industry remains positive nonetheless, if we look beyond the immediate economic challenges, the long term prospects for the alternative investment industry remain positive. a number of studies have identified a growing interest from institutional investors for yields in the alternative space. in the 2012 towers watson global pension asset study, asset allocation to alternatives in the seven largest pension fund markets has increased from 5 % in 1995 to 20 % in 2011. in another recent study, mckinsey estimates that global alternative investments across the retail and institutional segments doubled in assets under management between 2005 and 2011, to reach us $ 6. 5 trillion. this represents a compound annual growth rate of 14 % over this period, exceeding the growth of the traditional asset classes. specifically in the hedge fund space, institutional investors have increased allocations to hedge funds significantly over the last decade, from only us $ 125 billion in 2002 to approximately us $ 1. 5 trillion as of end 2011. looking forward, institutional investors in the major markets have indicated their intent to increase allocations to almost all alternative classes, including hedge funds. increased institutional participation will drive growth as hedge funds become an important part of the investment landscape. to meet the demands of institutional investors and global regulatory standards, hedge funds have taken steps to beef up their risk management and compliance functions. in a recent study by the managed funds association, bny mellon and hedgemark, 4 it was found that 79 % of global hedge funds now separate the roles of the risk manager and fund manager, with 60 % of the larger hedge funds having a dedicated risk management function. this augurs well for the hedge fund industry, as it allows the industry to grow in a more sustainable manner with strong internal control systems and risk management oversight. asia is well placed to provide capital and investment opportunities as global institutions and investors seek to address challenges resulting from structural shifts in the global economy, many are turning to asia to harness opportunities and to generate higher returns. this is due to a few reasons. firstly, asia has been leading the global recovery with growth expectations