LOS ANGELES — If access to capital is the key to a thriving business sector, then the strongest region in the world today is Hong Kong, the leader on the 2006 Milken Institute Capital Access Index.
In the global competition to create the best markets for entrepreneurs, Hong Kong, which was first on the 2004 index, moved back to the No. 1 slot, up from second last year. Singapore rose from third to second place. The United Kingdom, ranking first in 2005, slipped back to third for the 2006 rankings, while the United States dropped from fourth to fifth because of an increase in the lending rate.
The big story is Canada, which rose from 10th place in 2005 to fourth on the latest index, and shows the most improvement in scores for alternative sources of capital (moving from 30th place to 15th) and access to international capital (from 40th place to 18th).
New arrivals to the top 10 are Switzerland and the Netherlands. The top 10 markets (with 2005 ranking):
- 1. Hong Kong (2)
2. Singapore (3)
3. United Kingdom (1)
4. Canada (10)
5. United States (4)
6. Australia (7)
7. Switzerland (12)
8. Netherlands (13)
9. Ireland (10)
10. Sweden (5)
This year′s index, which measures the breadth, depth and vitality of capital markets around the world, shows a bit of reshuffling in the top 10 because of the relative progress many nations have made in controlling inflation and reducing interest-rate volatility.
"Remaining competitive in today′s global market requires open, efficient capital markets, well-functioning financial institutions, and few impediments to the competitive trading of goods and services," said Glenn Yago, Director of Capital Studies. "The shifts in the top rankings show the effort that is being made in such markets as Hong Kong, Singapore and Canada, among others."
First developed in 1998, the Milken Institute Capital Access Index ranks countries around the world in terms of the financial infrastructures that support entrepreneurial activity by providing access to capital. Factors in the ranking include macroeconomic environments, financial and banking institutions, the development of the equity and bond markets and alternative capital sources.
Other highlights from this year′s index include:
- The United Arab Emirates (28th) shows the greatest rise in absolute score, based on an improvement in its economic institutions.
- Lebanon, moving from 48th last year to 33rd this year, shows the largest improvement in relative ranking based on its improved banking environment.
- Emerging Asian countries now account for three of the top 20 rankings: Malaysia (13th), Thailand (19th) and South Korea (20th).
- African countries continue to struggle at the bottom of the index; sixteen of the 20 lowest-ranking countries are African.
In addition to the Capital Access Index, the Milken Institute releases an annual analytical report on one aspect of entrepreneurial finance. This year, Hedge Funds and Global Financial Markets provides an in-depth look at global hedge-fund industry data, examining a data set assembled by HedgeFund.net that starts with eight hedge funds with $57 million in assets in 1981 and grows to 6,445 funds with $969 billion in assets as of June 2006.
The analysis provides a breakdown of the industry in terms of size, age, domicile, location, strategies, management fees, lockup periods and other characteristics. Additionally, it provides insight on the relationship between selected characteristics of hedge funds and both the fund′s returns and likelihood of surviving.
Insights from the analysis include:
- Management fees and performance incentives are positively associated with the likelihood of a fund being alive.
- Funds domiciled outside the United States and funds with assets invested outside the United States are associated with higher survival probability, even after controlling for different fund strategies.
On the subject of governmental regulation, the report says, "The returns of hedge funds have been relatively high over the years, but so, too, have the risks. This should not necessarily be a cause for societal alarm, however, since the investors putting money into hedge funds can bear high risks."
The 2006 Capital Access Index and Hedge Funds and Global Financial Markets are available here.