MAS Issues Guidelines For Retail Hedge Funds And Retail Futures And Options Funds
Singapore, 5 December 2002. The Monetary Authority of Singapore (MAS) today issued revised guidelines for retail hedge funds. The guidelines take into account public comments and feedback received from an earlier consultation that commenced on 13 August 2002. The new guidelines lower the minimum subscription levels for hedge fund-of-funds (FOHF) and capital protected or guaranteed hedge funds. They also require enhanced disclosures in prospectuses and marketing materials of hedge funds on the unique features of investing in a hedge fund as compared to other types of collective investment schemes, the risks involved and risk controls.
2 The revised guidelines recognise that features such as diversification and capital preservation through a third-party guarantee or investments in fixed income instruments can reduce the risk of investing in a hedge fund. The existing guidelines for the offer of hedge funds to retail investors did not differentiate between single hedge funds, FOHF and capital protected or guaranteed funds. The new guidelines specify different minimum subscription levels for these three types of hedge funds as follows:
a) single hedge funds, may be offered with a minimum initial subscription of S$100,000 per investor;
b) FOHF, which may be offered with a minimum initial subscription of S$20,000 per investor; and
c) capital protected and capital guaranteed hedge funds, for which there will be no minimum subscription.
3 All three types of hedge funds must disclose their intended investment strategy in the prospectus. They must also make clear, prominent disclosure of the different risks of hedge funds compared to other types of schemes. Details of their risk management, procedures to monitor investments and internal controls must also be disclosed. In both prospectuses and marketing materials, warning statements that hedge funds may not be suitable for all types of investors and are not intended to be a complete investment strategy for any investor must be prominently stated.
4 As part of its review of regulations to facilitate the offer of new products, the MAS also issued guidelines for futures and options funds. The futures and options fund guidelines cater to schemes whose primary objective is to invest in financial and / or commodity derivative contracts. The total contract value should not exceed 110% of the assets of the futures and options funds. In addition, futures and options funds should hold at least 30% in liquid assets to meet margin requirements. As a general rule, futures and options funds should be diversified across instruments and maturity periods. This does not apply for futures and options funds investing with a narrow focus and such funds should disclose this fact in their prospectuses.