The hedge funds industry has seen tremendous growth in Asia in the past few years. China continues to be a big magnet for investors around the globe, and Singapore has become the leading hedge fund hub for Asia Pacific. Singapore out-ranked London as the world’s second global financial center after New York in the Bloomberg Global Poll recently. The ascent of Singapore as a global financial hub is a reflection of Singapore government’s concerted effort to establish a friendly regulatory and tax regime in Singapore to attract foreign funds, and consequently many hedge funds managers have chosen to relocate and set up hedge funds companies in Singapore.
Definition of a Hedge Fund
Monetary Authority of Singapore (MAS) which serves as the central bank in Singapore is also the regulatory body for the investments industry. The definition for a hedge fund in the Code on Collective Investment Schemes by MAS is "a hedge fund seeks to deliver an "absolute" return independent of the directional move of equity, fixed income or cash markets." The MAS describes the characteristics of a hedge fund as one that:
- Involves financial strategies to leverage, short sell, arbitrage, trade derivatives, and
- Involves investment options other than bonds, listed equities and cash.
Hedge Fund Structure
The two principal hedge fund structures are the Onshore Funds and the Offshore Funds.
Onshore Funds are established in Singapore, and therefore subject to Singapore's regulations and licensing requirements. The funds are largely targeted to domestic investors but can be marketed to foreign investors too.
Offshore funds, on the other hand, are formed in offshore jurisdictions, and therefore subject to regulations and licensing requirements in the respective jurisdictions. Offshore funds can be offered to domestic investors in Singapore only under certain conditions.
Onshore Hedge Fund Licensing Requirements
Fund managers with less than 30 qualified investors are not required to obtain licensing in Singapore. All other larger fund managers, be it individual or corporation, are required to obtain at least one of the two available licenses to conduct regulated financial services in Singapore.
The two licenses issued by MAS are:
- Capital Markets Services License (CMS)
- Financial Advisers License (FA)
Fund managers that conduct services under exemption have no capital requirements but will have to comply to the code of conduct and protocol in accordance with the Securities and Futures Act (SFA) and Financial Advisers Act (FAA).
Capital Markets License adheres to the SFA, and is designated for finance professionals involved in the following activities:
- Securities trading
- Futures contract trading
- Foreign currency trading
- Funds management
- Securities financing
- Real estate investment trust
- Corporate finance advising
Financial Advisers License adheres to the FAA, and is designated for finance professionals involved in the following activities:
- Marketing of unit trusts
- Offering of life insurance products
- Provision of advisement on investment products including life insurance policies, foreign exchange contracts, etc.
- Issuance of investment reports
Offshore Hedge Fund Licensing Requirements
Offshore fund managers must be licensed by their respective jurisdictions to offer Offshore Funds to Singapore investors.
Hedge Fund Marketing Regulations
The minimum regulations for Onshore Funds managers in Singapore are as follows:
- Disclosure requirements in all marketing materials to declare risks involved in hedge fund investments.
- Qualifications of fund managers to include at least 2 executives, of which each must have a minimum of 5 years of hedge fund management experience.
- The liability of investors is limited to the investment subscribed to the scheme.
- Initial subscription for each type of funds is as follows:
- Single Hedge Funds: S$100,000 per investor
- Fund of Hedge Funds (FoHF): S$20,000 per investor
- Capital protected/guaranteed hedge funds: No minimum subscription amount
- Diversification of FoHFs across at least 15 hedge fund managers.
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