MAS Seeks Public Comment on Guidelines for Retail Hedge Funds
Singapore, 13 August 2002. The Monetary Authority of Singapore (MAS) today commenced public consultation on proposed revised guidelines for retail hedge funds. The proposed guidelines will differentiate between single hedge funds, fund-of-hedge-funds ('FoHF') and capital protected or capital guaranteed hedge funds.
2 The proposed guidelines will also enhance the disclosure requirements for prospectuses and marketing materials. The prospectus of a hedge fund must clearly disclose the investment objective, inherent risks and material differences between the hedge fund and traditional funds, in plain and simple language. In relation to FoHF, the guidelines require diversification and the method of achieving adequate diversification to be disclosed in the prospectus.
3 Other key features of the proposed guidelines include providing for redemptions at least once every quarter, requirements as to risk management and controls, limiting the liability of investors to their investment in the hedge fund and new minimum subscription requirements.
4 Guidelines for retail hedge funds were first introduced in June 2001 in response to interest expressed by the financial industry. The potentially higher risks of hedge funds make them more appropriate for investors who are able to bear such risks. As such, a minimum subscription of S$100,000 on their offer was required.
5 The proposed guidelines recognise that features such as diversification and capital preservation through a third-party guarantee or investments in fixed income instruments are likely to reduce the risk of investing in a hedge fund and should not warrant the same minimum subscription requirement. The onus is still on the investor to ensure that investing in a hedge fund is suitable for his specific investment needs and risk appetite. Accordingly, clear and full disclosure of risks continues to be important in the proposed guidelines.
6 Under the proposed guidelines, retail hedge funds will be differentiated as follows:
a) single hedge funds, which 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, whether single hedge funds or FoHF, for which there will be no minimum subscription.
7 The proposed guidelines will not apply to hedge funds that are offered only to institutional and sophisticated investors as restricted schemes.