How to Start a Hedge Fund in Singapore
Updated on Tuesday 26th March 2019
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The legal system available in Singapore provides a suitable investment framework created with the purpose of attracting local and foreign businessmen in this country willing to invest in an investment fund. Businessmen interested in investing in Singapore through a hedge fund startup have several options in this sense, as they can set up an offshore or an onshore hedge fund.
Regulations for hedge funds in Singapore
Singapore is a large international financial centre, in which foreign investors can benefit from numerous investment regulations. The legislation for investments in this jurisdiction is given by the Monetary Authority of Singapore (MAS). Investors who are interested in how to start as a hedge fund in Singapore will need to establish the fund through the regulations provided by the Singapore Code on Collective Investment Schemes, which defines a hedge fund as having certain characteristics.
A hedge fund registered in Singapore needs to search for methods of obtaining the highest return on investment and its investments will be carried out in assets which are considered non-mainstream (this means that the fund will not invest in equities, bonds and cash). The main rules of law regulating a hedge fund startup in Singapore are the following:
- the Securities and Futures Act, Chapter 289 – it defines this type of fund as a collective investment scheme;
- Securities and Futures (Offers of Investments) Regulations 2005 and the Financial Advisers Act, Chapter 110;
- the Financial Advisers Regulations, but also the Collective Investment Schemes Code;
- under the applicable legislation, a hedge fund must have a prospectus;
- the prospectus of the fund needs to comply with the Third Schedule of the Securities and Futures (Offers of Investments) Regulations 2005.
Types of hedge funds in Singapore
The regulatory framework applicable in Singapore provides two types of hedge funds: onshore hedge funds and offshore hedge funds. The onshore hedge funds are considered domestic legal entities and they can be incorporated as one of the following: closed-ended funds, open-ended unit trust funds or limited liability partnerships. Businessmen who are considering starting a hedge fund in Singapore must know that in the case of a domestic hedge fund, the main applicable regulations are prescribed by the local authorities.
What are the valuation principles for hedge funds in Singapore?
Investors who are interested in how to start an investment fund in this country should also appoint a hedge fund manager. Among other responsibilities, the hedge fund manager has to correctly calculate the fund’s net asset value. The valuation principles regarding the net assets of a fund have to follow the procedures imposed by the Institute of Singapore of Chartered Accountants.
Are there any transparency measures for Singapore hedge funds?
Yes, there are a set of transparency measures that must be taken by the fund’s representatives when the fund is offered to investors in Singapore (more specifically, to retail investors). Thus, it is necessary to prepare information concerning the differences between the hedge funds and other types of collective investments schemes, the risks associated with performing investments through the respective fund and the monitoring procedures.
At the same time, the fund’s representatives also have to disclose the internal procedures and the control measures which are created in order to verify if the fund can meet its objectives. Investors must also prepare a declaration concerning their liability in regards to the fund’s debts (which, in this case, is limited to the value of their investment) and other similar matters.
Are there any marketing requirements in Singapore?
Yes, investors who want to market their funds in Singapore have to respect several requirements, depending on the type of hedge fund registered here. In the case of an onshore hedge fund, it is required to have a financial adviser’s license, this being the general rule applicable for this vehicle; however, exemptions can apply.
Foreign investors should know that only onshore hedge funds can be marketed in Singapore, and the fund can engage in financial activities with retail, institutional or accredited investors. In the case of an offshore hedge fund, this regulation does not apply.
What are the requirements for appointing a hedge fund manager in Singapore?
In order to appoint a hedge fund manager in a local vehicle, the person must comply with the applicable legislation. Thus, he or she has to be the holder of a capital markets license, which is prescribed by the Securities Futures Act. The license is not required as long as the person is registered by the MAS as a Registered Fund Management Company. The basic requirements necessary for a hedge fund manager who wants to benefit from a license or to be registered with the local institution are:
- having a company registered in Singapore and complying with the capital requirements;
- the minimum share capital in this case ranges from $ 250,000 - $ 1 million, based on the types of management activities that will be carried out by the fund manager;
- proving that it complies with the risk requirements and in this sense it is necessary to have financial resources that can cover the operational risk;
- hiring a team of professionals that meets the required expertise in the financial field;
- comply with the audit requirements applicable in Singapore and meet the standards in the field of audit.
Incorporation requirements in Singapore
The procedure on how to start a fund in Singapore registered as a hedge fund will require a license, but only in the case in which the vehicle has more than 30 investors. In the situation in which a license will be required, the investors may obtain one of the following licenses: Capital Market Services License or the Financial Advisers License.
When is the Capital Market Services License necessary?
The Capital Market Services License is a legal document that needs to be obtained by a hedge fund startup in Singapore as long as it develops operations that are related to specific financial sectors. The license is necessary when dealing with securities (securities financing, custodial services related to securities), futures contracts, providing corporate advice in the financial field or for real estate investments.
Who needs a Financial Advisers License in Singapore?
The other type of license for hedge funds is the Financial Advisers License, a document which is prescribed for investment activities related to reports on investment products, life insurance related activities, marketing CIS in Singapore or providing advice on various investment instruments.
It is important to know that the license will also be required in the case of an offshore hedge fund, even though the vehicle runs under the legal requirements of a foreign jurisdiction. Businessmen interested in receiving further advice on how to start an investment fund are invited to contact our team of affiliates in Singapore for more details on the hedge fund regulations.