Singapore's $53bn hedge fund industry is set for a shakeout as the city-state's planned new regulations are expected to raise costs for many smaller funds, threatening their survival.

The move would represent a partial reversal of Singapore's light-touch regulatory policy that has so far succeeded in drawing hundreds of hedge funds and spawning Asia's second-biggest hedge fund centre.

The Monetary Authority of Singapore (MAS), the industry regulator, wants fund management companies (FMCs) with more than S$250 million ($192.44 million) in assets to obtain a license, while the smaller funds will have to register with the regulator before they can start operating.

The MAS is asking all such companies to have systems to manage and monitor risks. It will also be mandatory for fund management companies, many of which are organized as hedge funds, to have at least two investment professionals and to be independently audited.

The tightening grip of the MAS would mean that many smaller hedge funds will be forced to close or merge or return outside money and convert themselves into a family office to avoid being regulated, industry executives say.