Over the last few years, public markets have experienced heavy volatility and uncertainty, with extensive global disruptions caused by the COVID-19 pandemic, escalating geopolitical tensions and inflationary pressures leading to spiking interest rates. Against this backdrop, private market fund-raising hit new records in 2021. According to Bain & Company’s Global Private Equity Report 2022, global funds raised across the full private capital spectrum hit US$1.2 trillion, a 14 per cent increase from 2020 and the highest level ever reached.
With investors continuing to search for yield and returns to hedge against inflation, Singapore is well placed to capitalise on, and ride the momentum of, the growth of private markets. In 2021, Singapore’s assets under management (AUM) in the alternatives sector (including private equity, venture capital, real estate and hedge funds) grew 31 per cent from 2019 to reach S$947 billion, as reported by the Monetary Authority of Singapore (MAS) in its 2020 Asset Management Survey. According to MAS, this trend has continued in 2021, with private equity and venture capital seeing robust AUM growth to hit S$555 billion, representing 42 per cent year-on-year growth. As of June 2022, there were a total of 428 private equity and venture capital fund management companies (FMCs) in Singapore, up 27 per cent from the start of 2021. In addition, Singapore has seen significant growth in the private wealth market, with the number of family offices based here growing from fewer than 100 five years ago, to approximately 700 in 2022.
With Singapore looking to further develop as a private markets hub, this article provides a broad overview of the key considerations that general partners (GPs) and fund managers should consider in establishing a private fund in Singapore.
Why Set Up A Private Fund In The First Place?
Given the economic uncertainties and market volatility, many investors are turning to private markets in search of higher returns. Investing in a private fund with a pool of diversified assets allows investors to reduce concentration risk in their portfolios and benefit from the experience and expertise of professional management. Setting up a private fund allows promoters, GPs and fund managers to capitalise on these trends.
For asset owners, injecting their assets into a fund vehicle facilitates the adoption of asset-light strategies and allows them to realise the value of these assets on their balance sheets, while still retaining management control of the assets through the fund manager. It also allows them to share the investment risk across a wider pool of investors, to tap on new sources of capital and to develop business relationships and partnerships with new investors.
In addition, many corporations may already have built-up expertise and track record through making their own strategic investments in enterprises and start-ups that are complementary to their main businesses, and managing their own proprietary capital through their corporate investment or venture arms. Setting up a private fund allows them to leverage such expertise to create a new income stream of management fees and carried interest.
Who Can Manage A Private Fund In Singapore?
Fund management is a regulated activity in Singapore under the Securities and Futures Act 2001 (SFA). Therefore, a FMC in Singapore will need to hold a capital markets services (CMS) licence for fund management or be registered by MAS as a registered fund management company (RFMC), unless it is otherwise exempted. There are different categories of FMCs but managers of private funds (which do not deal with retail investors) would generally fall within one of the following:
FMCs in Singapore should take the form of Singapore-incorporated companies and are required to have a permanent physical office in Singapore, with certain prescribed minimum number of directors and full-time professionals and representatives with relevant experience who are resident in Singapore.
Depending on the nature of the investments and/or investors of the relevant fund, there may be certain licensing exemptions under the SFA which a FMC managing such a fund may rely on, including the following:
What About Family Offices?
Amidst the global geopolitical risks and uncertainties in the past few years, Singapore’s reputation as a safe and stable environment to live and do business in has driven an influx of high-net-worth families to set up family offices in Singapore. While family offices would typically conduct fund management activities, MAS has stated that it is not their intention to license or regulate single family offices (SFOs) which manage the assets of only one family and which are wholly owned or controlled by members of the same family. SFOs typically rely on the related corporations licensing exemption described above or seek a specific licensing exemption from MAS if they are in substance managing funds on behalf of a single family only.
As an SFO builds up its investment track record and becomes more sophisticated and professionally run, it may look to grow into a multi-family office (MFO) and expand its services beyond a single family to manage the assets of multiple families and other external parties. MFOs would not be able to rely on the related corporations licensing exemption and will need to consider the relevant licensing requirements based on its business model.
How Can A Private Fund Be Structured?
Deciding on the structure of a private fund depends on a combination of factors, taking into account commercial, legal, regulatory and tax considerations. Some of the key factors to consider when structuring a private fund typically include the nature and location of the investments that the fund will make and how illiquid they are, whether the fund is closed-end or open-ended, investor familiarity with the structure, confidentiality and tax considerations.
How Is A Fund Taxed In Singapore?
A Singapore FMC could create a taxable presence, regardless of whether the fund it manages is resident in Singapore or offshore. Therefore, income and gains of the fund derived from the activities of a FMC in Singapore may be taxable in Singapore. Nevertheless, the fund may be able to reduce its tax liability by qualifying for tax incentives which exempt the fund from tax on certain prescribed specified income from designated investments of the fund.
Some of the available tax incentive schemes for funds in Singapore include:
Family offices managing their investments through fund structures and which meet the conditions for the relevant schemes may also qualify for the tax incentives.
How Can I Market A Private Fund To Investors?
The offering of interests in a private fund in Singapore is likely to constitute an offering of units in a collective investment scheme under the SFA and would be subject to onerous prospectus registration requirements unless certain “safe harbour” exemptions apply. The “safe harbour” exemptions that are typically relied upon by private funds include the following:
In addition to the prospectus registration requirements above, the act of marketing interests in a private fund to investors in Singapore may amount to dealing in capital markets products, which is a regulated activity under the SFA. Consequently, an entity which markets interests in a private fund (such as a fund distributor or a placement agent) will need to hold a CMS licence for dealing in capital markets products issued by MAS, unless exempted. Licensed FMCs (including VCFMs) and RFMCs are exempt from such licensing requirements if they only market funds which they manage themselves or funds managed by their related corporations. Alternatively, to broaden their potential investor base, FMCs may consider appointing a licensed distributor / placement agent to market the fund more widely. With an increasing number of digital asset exchanges being established in Singapore, we have also observed a trend of some FMCs working with such digital asset exchanges to conduct part of the fund-raising through an offering and listing of tokenised interests in their funds on such a digital asset exchange. Due consideration should be given to the sort of licensing requirements that may apply in such a transaction and the split of the roles and responsibilities between the FMC and the digital asset exchange.
As part of the Financial Services Industry Transformation Map 2025 launched by MAS in September 2022, MAS is taking steps to develop Singapore as a full-service private markets hub, including enhancing the VCC regime and other fund structures to cater to the fund management industry as well as to develop private credit strategies to complement private equity and venture capital funding. This illustrates Singapore’s commitment to further grow and develop itself as a leading fund management hub, conducive for both investment management platforms and as a fund domicile. With its clear and transparent regulatory environment, strong adherence to rule of law and pro-business and stable government, Singapore is increasingly being seen as a fund hub of choice and provides a launchpad for fund managers to expand and invest in the region.
Jerry has been practising as a corporate lawyer since 1993. Jerry’s main areas of practice cover capital markets, mergers and acquisitions, and investment funds; and he has advised on numerous international and domestic transactions. Jerry joined the Firm as a Partner in 2001 from an international firm in Hong Kong. Jerry heads the Firm’s REITs Practice and Investment Funds Practice. He was formerly Co-Head of the Financial Services Department, Deputy Managing Partner and Joint Managing Partner of the Firm prior to assuming the current role of Managing Partner. Jerry is the leading authority on REITs and business trusts, and has been involved in the listing of almost all the REITs and business trusts in the Singapore market. He was the lead counsel of Hutchinson Port Holdings Trust in the largest IPO in South-east Asia to-date. Jerry has also been involved in almost all the secondary offerings and convertible bond issues by Singapore REITs and business trusts. He has further advised on a number of REIT listings in Malaysia as international counsel. Jerry regularly advises on M&A and private equity transactions, establishment of private funds, complex securitisation and structured finance transactions, and corporate governance. Jerry advised several REIT mergers including the merger of OUE Commercial Real Estate Investment Trust and OUE Hospitality Trust, the merger of Frasers Logistics & Industrial Trust and Frasers Commercial Trust, and the merger of CapitaLand Mall Trust and CapitaLand Commercial Trust.
Jonathan’s practice encompasses investment funds and capital markets with a focus on private funds, REITs and business trusts. He advises fund managers, financial institutions and property developers on the structuring and establishment of private funds. In addition, he has worked on many initial public offerings of REITs and business trusts, as well as their subsequent acquisitions/disposals and fund-raisings by way of secondary offerings, structured finance and convertible/perpetual securities offerings. He also regularly advises on the regulatory and compliance matters for investment funds, REITs and business trusts. Jonathan joined the Firm after being called to the Singapore Bar in 2011 and has been a Partner since 2017.