Monetary Authority of Singapore Proposes Allowing Singapore Retail Investors Access to Private Market Investment Funds

Subject

Direct Fund

LIFF

Manager Requirements

Requisite License

• The manager should be a Singapore-incorporated manager holding a capital markets services license for fund management to carry on fund management business with all types of investors, including retail investors (retail LFMC).

Manager Expertise

• Minimum assets under management and relevant experience requirements will be imposed.
• MAS is seeking feedback on whether the requirements for a Direct Fund should be the same as for an LIFF, or different from an LIFF to account for more active involvement of a Direct Fund manager in exercising discretion over the investments of the Direct Fund.

• The LIFF manager, together with its related corporations, should manage at least S$1 billion of the relevant private market investments.
• The LIFF manager should have at least three full-time MAS-appointed representatives who are resident in Singapore, and each individual should have at least five years of experience in managing private market investments.
• The team managing the LIFF should be experienced in managing the relevant private market investments.

Board Independence

• A proportion of the board of directors of the Direct Fund manager or the Direct Fund, where it is constituted as a Singapore Variable Capital Company, should consist of independent directors.

• None proposed.

Fund Requirements

Incorporation Jurisdiction

• Singapore

Permissible Investments

At least two-thirds of the Direct Fund’s net asset value (NAV) should be invested in the any of the following:

• Private equity companies that meet criteria such as having a minimum valuation, gross revenue, and operating track record.
• Private credit investments that are senior, backed by collateral such as income-generating real assets, subject to protective covenants, or issued to profitable companies of a certain size and gearing limit.
• Infrastructure assets that are income-generating brown-field assets.

At least two-thirds of the LIFF’s NAV should be invested in unlisted Underlying PMI Funds that meet the following conditions:

• The Underlying PMI Fund’s investment strategy and approach is to be primarily invested (i.e., minimum two-thirds of its NAV) in long-term, illiquid assets.
• The Underlying PMI Fund’s investment assets are directly managed by a manager separate from the LIFF manager.
• The Underlying PMI Fund has other investors.

A LIFF may invest up to one-third of its NAV in liquid investments (elaborated below) and co-investments alongside its Underlying PMI Funds.

A LIFF may only invest in an underlying fund-of-funds if the latter invests directly in other single funds. Feeder funds that wholly invest in another fund and do not charge additional fees will not be counted as another layer of feeding.

The following liquid investments are permitted, subject to a one-third NAV limit:

• transferable securities;
• money market instruments;
• eligible deposits;
• other collective investment schemes currently permitted under paragraph 1.4 of Appendix 1 of the CIS Code that are listed for quotation and traded on an organized exchange or redeemable on a daily basis; and
• financial derivatives for the purposes of hedging existing positions or efficient portfolio management provided that these are not used to gear the overall portfolio.

Prohibited Investments

A Direct Fund and LIFF may not:

• use financial derivatives for purposes other than hedging or efficient portfolio management, whether directly or through underlying funds;
• engage in any securities lending or securities repurchase transactions;
• take direct or indirect exposure (in the case of an LIFF, via investments other than in Underlying PMI Funds), to property, including commodities, that are not capital market products, infrastructure assets, or (for LIFF only) real estate; or
• invest directly or indirectly in vacant land.

Concentration Limits

• A Direct Fund should not hold more than a certain investment stake in the underlying private market investment. No specific threshold has been identified in the Consultation Paper, MAS is seeking feedback on the threshold to be imposed.

An LIFF may not directly hold:

• more than 30% stake in any Underlying PMI Fund; or
• more than 30% stake in any directly held co-investments in real estate and infrastructure assets.

In addition, a Direct Fund and an LIFF should not invest in more than:

• 10% of the total outstanding shares of any single entity or trust;
• 10% of each individual issuance of debt securities of any single issuing entity or trust (or where debt securities are issued under a debt issuance program, 20% of each tranche subject to a limit of 10% of the overall program size); or
• 10% of the money market instruments of a single issuing entity or trust.

Diversification

• A Direct Fund’s aggregate exposure to a single underlying private market investment asset should generally not exceed a certain threshold. No specific threshold has been identified in the Consultation Paper, MAS is seeking feedback on the threshold to be imposed.

• An LIFF’s aggregate exposure to an underlying infrastructure or real estate asset should generally not exceed 20% of the LIFF’s NAV.
• An LIFF’s aggregate investment exposure to a single underlying entity and its group should generally not exceed 5% of the LIFF’s NAV.

In addition, the existing diversification requirements under Appendix 1 of the CIS Code will apply to investments in liquid investments. This includes (and is not limited to) the following limits:

• Direct investments in transferable securities or money market instruments issued by a single entity should not exceed 10% of the Direct Fund or LIFF’s NAV.
• Aggregate direct investments in, or exposures to, a group of entities through transferable securities, money market instruments, eligible deposits, and counterparty risk exposures arising from the use of over-the-counter financial derivatives should not exceed 20% of the Direct Fund or LIFF’s NAV.