Singapore Confirms Lower Hedge Fund Investment Limits

by Mary Swire, Investors Offshore, Hong Kong

23 September 2002

The Monetary Authority of Singapore (MAS) announced last week that it will be issuing new guidelines for retail hedge funds shortly, by the end of this year. The revised guidelines will enhance disclosure in hedge fund prospectuses and marketing materials and foster the development of the hedge fund industry in Singapore.

Speaking at the inaugural Hedge Funds World Singapore conference, Ms Yeo Lian Sim, the Deputy Managing Director (Market Conduct) of MAS, said that MAS' approach to regulating retail hedge funds is built on three pillars - enhanced disclosure, enabling and flexible regulation and enlightened investors.

She said the new retail hedge fund guidelines will enhance disclosure by requiring specific key information to be disclosed in both prospectuses and marketing materials. This will include the material differences between the hedge fund offered and traditional funds, as well as fees and charges. For funds of hedge funds, the method for achieving diversification must also be disclosed. These requirements build on the disclosure-based regime introduced by Part XIII of the Securities and Futures Act (SFA) on offers of investments, which came into effect on 1 July 2002.

Ms Yeo added that the new guidelines will align our hedge fund regulations with international best practice, and foster the development of the hedge fund industry in Singapore.

The guidelines will include a flexible diversification rule for retail funds of hedge funds: the fund should either invest with no fewer than 15 hedge fund managers or have not more than 8% of its assets allocated to a single hedge fund manager. This will facilitate the entry of foreign funds of hedge funds into the Singapore market.

Ms Yeo noted that features such as diversification and capital protection would likely reduce the risk of investing in hedge funds. The revised guidelines will therefore set differentiated minimum subscription levels that are commensurate with the risk involved:

• single hedge funds: S$100,000 per investor;
• funds of hedge funds: S$20,000 per investor; and
• capital protected or capital guaranteed funds: no minimum subscription.

Other key features of the guidelines include providing for redemptions at least once every quarter, limiting the liability of investors to their investment in the hedge fund, and minimum professional qualifications for hedge fund managers.

Ms Yeo concluded that to realise the untapped potential in the Asian hedge fund market, more needs to be done to educate the investing public about the nature of hedge funds and their role in an overall wealth management strategy. The industry has a major role to play in this effort.

Following the annoucement, ABN AMRO was reported to be considering a relaunch of its ABN AMRO Multi Strategy Fund, originally launched in August, to benefit from the lower minimum investment rules. Currently the fund has a S$100,000 minimum, but under the new rules would qualify for the S$20,000 minimum investment criteria.

United Kingdom and Netherlands-based ABN AMRO Asset management, a unit of ABN AMRO Bank N.V., carries out global asset management activities on behalf of institutional, private and retail clients and employs over 2,000 people in 33 countries. ABN AMRO Asset Management has an international network, which is coordinated through seven regional production centers located in Amsterdam, London, Chicago, Sao Paolo Hong Kong, Atlanta and Singapore.

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