New rules set to raise costs of Singapore hedge funds

* 5-7 pct of funds need to hire second fund manager -group

* Start-ups to be most affected by proposed rules

* Fund managers have 18 months to comply with tougher rules

SINGAPORE, April 29 (Reuters) - Singapore-based hedge funds will face higher operating costs if rules proposed by the central bank are implemented, the Alternative Investment Management Association (AIMA) said on Thursday.

Singapore has become a hotspot for hedge funds and other alternative asset managers in recent years due to tax incentives and strict secrecy rules. Hedge funds in Singapore manage about $35 billion in assets, according to AIMA.

"Our member managers will be impacted by the proposed changes, particularly in the areas of capitalisation and executive staffing," AIMA Singapore Chairman Michael Coleman said in a statement.

Responding to a Reuters query, AIMA said 5-7 percent of about 140 Singapore-based hedge funds have only one fund manager and will need to find a second to comply with new regulations proposed by the Monetary Authority of Singapore (MAS).

"The start-up boutiques and the smaller firms might be affected by this requirement," it said.

This week, MAS proposed to replace its "exempt fund manager" regulatory regime for smaller funds with a new set of rules requiring all firms to have at least two full-time staff in Singapore. They are required to have a minimum of five years experience in fund management. [ID:nSGE63Q0DV]

The new rules also require firms maintain a base capital of least S$250,000 ($182,200) at all times, which "should not be considered onerous for a serious player in the fund management business", according to AIMA.

Firms with assets under management exceeding S$250 million or that manage funds for retail investors must comply with additional rules such as employing a full-time compliance officer in Singapore and setting aside risk-based capital.

The central bank said it will give affected fund managers 18 months to comply with the tougher proposed rules. ($1=1.372 Singapore Dollar) (Reporting by Kevin Lim; Editing by Anshuman Daga)