REFILE - Singapore to open up private markets
The Monetary Authority of Singapore is seeking feedback for a proposal to broaden private market investment access to retail investors, a move that has largely been supported by market players.
Under the proposal, retail investors would be able to buy private market products through either a direct fund or a fund-of-funds. The MAS's definition of private market investments includes private equity, private credit, real estate and infrastructure.
The new initiative comes in response to growing interest from retail investors and from investment platforms that want to offer the asset class.
BlackRock (citing figures from Preqin) projects that private markets will grow from US$13trn globally as of last September to more than US$20trn by 2030. Analysts say the potential for higher returns and lower volatility are driving interest for such investments.
“You invest in the real economy and you can really target your investment strategies to very specific companies or infrastructure projects,” said Eric Deram, managing partner and CEO of Flexstone Partners, an affiliate of Natixis Investment Managers which invests exclusively in private markets.
At present, these investments are available only to institutional and accredited investors in Singapore, given their risks and long-term nature.
To qualify as an accredited investor requires an annual income of S$300,000 (US$224,200) or net personal assets exceeding S$2m, or net financial assets of over S$1m and a joint account with an accredited investor.
Market players have generally welcomed the proposal.
“The fact of the matter is that there are many, many more private companies than public companies, so not having exposure to private markets means that investors miss out on a sizeable investment universe,” said Hugh Chung, chief investment officer of Singapore-based digital wealth platform Endowus.
Noting growing interest from global investors for private market investments, Endowus launched two new portfolios earlier this year, one for private equity and one for private credit, with plans for more to come.
Other players are catching up to this, too.
Flexstone Partners, which already offers private market funds to accredited and institutional investors, would be keen to launch a fund for retail investors in Singapore if regulations allow for it.
It launched an evergreen, open-ended private equity fund in France last December after the European Union introduced amendments to the European Long-Term Investment Funds framework which made it easier for retail investors to access such funds.
“Looking at [the] evolution of regulation on a global basis, for sure, our intention would be at some point to extend our product to other geographies … potentially Singapore if the environment allows it,” said Deram.
Liquidity risks
Access to private markets has always been limited for a reason, namely the limited liquidity and associated risks of such products.
The life cycle of a private equity fund typically spans a decade from fundraising until its assets are divested and the fund is liquidated.
The timeline sometimes changes, depending on whether exit conditions are favourable.
“Even 10 years is often a challenge,” said Dean Collins, managing partner of law firm Dechert’s Singapore office, who specialises in private equity.
Funds sometimes had to seek an extension on their timelines, and even then might need to sell at a discount to secondary purchasers, he said.
Unlisted funds often have quarterly or less frequent redemption events.
“If you have no liquidity requirements, then that’s fine. But I don’t think that’s how retail investors necessarily think. We’ve seen many instances where many high-net-worth investors go into products they don’t really understand and [get] disappointed as a result,” said Collins.
For these reasons, Singapore is considering ways it can offer investors access to private market investment assets that have lower risks.
These include limiting a long-term investment fund to investing primarily in private equity companies that meet criteria regarding their minimum valuation, gross revenue, and operating track record; private credit investments that are senior, backed by collateral such as income-generating real assets; or infrastructure assets that are income-generating brownfield assets rather than new projects.
The MAS also listed other manager, product and disclosure requirements and leverage limits. An unlisted long-term investment fund-of-funds should offer to redeem units at least once a year, with at least 10% of the fund’s total assets be offered annually, it said.
Industry players are largely supportive of the proposed framework, though some raise concerns around fee structures, given that private market investment funds typically charge higher fees than other publicly traded funds. Fees could increase the more widely distributed they are on different platforms.
“A much broader distribution has a cost and therefore you have higher fees,” said Flexstone’s Deram.
“If we pile on fees on an expensive asset class then these types of products will never take off,” he said.
Funds will also have to find ways to offer low minimum denominations to cater to retail needs.
“The less complex the product becomes, the lower the minimum and premium required … there [will be] a fair fee that still needs to be charged,” said Chung at Endowus.