MAS seeks feedback on proposals giving retail investors access to private market assets

Retail investors in Singapore may soon be able to channel funds into private market assets, which have largely been the domain of richer individuals and the likes of pension and endowment funds.

Rising interest in the asset class is leading the Monetary Authority of Singapore (MAS) to ask for feedback on a regulatory framework that would give retail investors access to private markets. This will be through authorised long-term investment funds (LIFs).

The central bank said in a statement on Thursday (Mar 27): “Recently, MAS has observed growing interest from retail investors in such investments, and interest from experienced industry players to offer private market investment fund products to retail investors.”

MAS has issued a consultation paper proposing an LIF framework for private market investment funds; this is adapted from existing requirements to suit the asset’s characteristics and the needs of retail investors when investing in these funds.

It has identified two potential structures: The first is a direct fund, which makes direct private market investments. This gives 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.

This “is beneficial for investors who may wish to tap the LIFF manager’s expertise in selecting and monitoring a diversified portfolio of private market investment funds,” MAS said.

As the two structures may require different regulatory safeguards, MAS is consulting on the appropriate regulatory requirements that each needs. It is also seeking views on the scope of private market investment assets that can be suitably offered to retail investors.

Lack of liquidity

To address the lack of liquidity in private market assets, one of MAS’ proposals is for unlisted direct funds and LIFFs to provide redemption opportunities for retail investors annually, within gating limits. These limits refer to the caps on the amount of capital investors can redeem from a fund during a specific period.

MAS has also proposed criteria on the fund managers’ expertise and disclosure requirements.

Long Pee Hua, partner at law firm Allen & Gledhill, referring to the real estate investment trusts trading here, told The Business Times: The funds could “capitalise on a combination of Singapore’s success in the S-Reit space and the growing private funds market.”

She added: “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.”

MAS’ move follows those in the UK and Europe, where regulators allowed or enhanced retail investors’ access to private markets in 2023.

The broadening of access to retail investors has its risks. Earlier this month, the Financial Conduct Authority in the UK published a review on valuation practices in the private markets, where it found potential conflicts in areas including investor marketing, secured borrowing, asset transfers and redemptions.

Moonfare, a digital platform offering private market investments to accredited investors in countries including Singapore, cautioned that the asset class does not suit those with a short-term view.

“Long-term asset ownership is effectively what private markets are about,” Sanjay Gupta, chief investment officer at the Berlin-based company, told BT. “This doesn’t square well with short-term fluctuations, or short-term views, period. We have programmed liquidity into our offering. But liquidity is never guaranteed.”

Accredited investors only

Accredited investors refer to individuals who meet at least one of these criteria: a minimum annual income of S$300,000; net personal assets exceeding S$2 million with a maximum of S$1 million from their primary residence; net financial assets of more than S$1 million; or who hold a joint account with an accredited investor.

While Gupta added that Moonfare welcomes Singapore’s regulatory efforts to open up the private markets, he did not say if the platform will offer products for retail investors.

Still, the surge of private assets into the mainstream financial landscape seems unstoppable, particularly as companies seek other means of raising capital instead of selling shares on stock markets.

Already, the global investor appetite for private market assets – which broadly span categories such as private equity, private credit, real estate and infrastructure – has been expanding in recent years. Data provider Preqin’s November 2024 survey showed that 50 per cent of private equity investors were planning to commit more capital to the asset class this year.

Industry estimates project that the assets under management in private markets will exceed US$20 trillion globally in 2030, from US$13.1 trillion in June 2023 – and this follows its expansion at a rate of nearly 14 per cent a year since 2013.

The rising investor interest in private markets is mirrored in Singapore. Bank of Singapore recorded double-digit year-on-year growth in their clients’ investments into alternatives in 2024, and UOB clients’ allocation to private-market funds almost doubled.

Those who are not private banking clients can invest in private market funds and other deals on various digital platforms, sometimes with just US$5,000. However, they must be accredited investors.

Evolution of private markets

The first private market firms were founded in the US after World War II, with the aim of investing venture capital in early-stage American companies. The advent of large institutional investors in the 1980s transformed private markets as managers began allocating parts of their multi-billion dollar portfolios in private equity for the leveraged buyouts of companies.

Such investors typically comprise pension funds, sovereign wealth funds and insurance companies that are willing to park funds in these illiquid assets, for returns that generally top what publicly-traded instruments can generate in the long term.

Data from US private markets investment firm Hamilton Lane shows that US$1 invested in 2015 in various markets would have generated the highest return in private equity in 2024. At US$3.96, that would be 12.8 per cent higher than investing in the S&P 500, even though the index jumped 23 per cent in 2024 alone.

Investing US$1 in the MSCI World Index however, would have generated higher returns than in private credit and private real estate.

Equity market review

MAS’ proposal comes as Singapore is looking at ways to rejuvenate its stock market. The central bank notes that the measures will give investors more options in building well-diversified portfolios.

The proposal also creates a pathway for the potential listing of private market investment funds.

Singapore has announced initiatives to revitalise its stock market, after drawing in 2024 the lowest number of initial public offerings since 2011. Four companies raised a total of S$45.9 million on Catalist, the so-called junior board on the Singapore Exchange, last year. On the other hand, 20 companies delisted.

The deadline for submitting feedback to the MAS’ private markets proposal is May 26.

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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