MAS proposing a regulatory framework for retail investors who wish to invest in private markets, taking into consideration the valuation, revenue and operating track record of PE companies.

The Monetary Authority of Singapore (MAS) is seeking feedback on a proposed regulatory framework for retail investors to invest in private market investment funds, providing them with a wider set of investment choices.

Under the current regulatory framework for funds, retail investors in Singapore have limited access to private market investments such as private equity, private credit and infrastructure. Recently, MAS has observed growing interest from retail investors for such investments, and interest from experienced industry players to offer private market investment fund products to retail investors.

To respond to this interest, MAS has proposed a Long-term Investment Fund (LIF) framework for private market investment funds.

Two possible fund structures have been proposed that can cater to different investor preferences. The first option is a fund structure that makes direct private market investments (Direct Fund), which allows for greater visibility of the underlying assets.

The second option is a long-term investment fund-of-funds (LIFF) structure that primarily invests in other private market investment funds, which is beneficial for investors who may wish to tap on the LIFF manager’s expertise in selecting and monitoring a diversified portfolio of private market investment funds.

MAS is consulting on the appropriate regulatory requirements needed for each type of private market fund, the scope of the private assets and the appropriate managers of these funds that can be suitably offered to retail investors.

"Our current legislation does not allow for private market investment funds to be offered to retail investors in Singapore and we have been involved in the consultation process with MAS for some prospective sponsors and fund managers on a framework to democratise investments typically available only to institutional investors and accredited investors through private wealth channels — the release of the consultation is timely as part of the steps to revitalise our equity markets. We will be closely reviewing the consultation paper and will submit our feedback to MAS," says Long Pee Hua, partner at Allen & Gledhill. 

In the consultation paper, it is proposed that the managers of the Direct Fund should be a retail licensed fund management company (LFMC) with a certain track record and minimum AUM, and experience managing private market investments.

MAS is seeking views on whether a Direct Fund manager should have a minimum investment stake in the Direct Fund, and whether a minimum percentage of the fund should be held institutional and accredited investors.

Interestingly, these are similar to optional practices adopted by the S-REITs when they first listed back in the 2000s, though they are not conditions imposed on the REIT sponsors themselves. A minimum investment stake by the manager of the Direct Fund would indicate alignment with the funds’ retail and institutional investors.

Long agrees that the new Direct Funds and their managers could capitalise on a combination of Singapore’s success in the S-REIT space and growing private funds market.

"While guidance can be taken from the principles under the existing S-REIT legal framework in terms of what has worked for the public markets, the Singapore markets, from both the sponsors’ and investors’ perspectives, are also now ready for an investment funds product that has thus far been available in other jurisdictions like Australia and Europe, but with rules that take into account the Singapore context," she adds. 

Redemptions

The European Union introduced the European Long Term Investment Fund (ELTIF) 2.0 in January 2024 and implemented in October 2024, which made it easier for redemptions, depending on the liquid assets in the portfolio.

In Singapore, under the proposals, if the fund is unlisted, the manager should offer to redeem units at least once a year. 

At least a portion of the fund’s total assets should be offered annually (i.e. a gating limit must be at least a certain percentage for an annual redemption). The redemption requests should be paid to investors within 90 days from the dealing day the redemption request is accepted. If the fund is listed, it can be closed-end without a redemption policy. Listing rules under the Singapore Exchange S68 would apply.

Other proposals in the MAS's consultative paper include the LIF investing in private equity companies that have 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; or infrastructure assets that are income-generating brownfield assets.

It is proposed that LIFF managers must also hold a retail LFMC, manage at least $1 billion of relevant private market Investments and have at least three full-time representatives who are residents of Singapore and each have at least five years of experience in managing private market investments.

Notably, Azalea, which launched the popular Astrea bonds series, invests in funds of funds.

MAS says in a press release that the proposed LIF framework aims to support the development of a robust and sustainable market for retail private market investment funds.

“While not directly related to the equities market review group’s measures, this proposal is complementary as it will equip investors with a wider variety of choicees in building well-diversified portfolios, while also creating a pathway for the potential listing of private market investment funds,” the MAS statement adds.

"While retail investors could already access complex products on overseas stock markets, the difference now is that they will get to access for example, a 'unicorn' company through a platform that is established and subject to regulatory oversight here and managed by a fund manager that is licensed here. This gives retail investors the benefit of a regulatory framework that should be well balanced. For example, setting parameters that require sufficient diversification in underlying investments and limiting over-exposure to any one product, and also allowing investors to leverage off the expertise and track record of reputable fund managers," Long explains.