Informed clients key to unlocking retail access to private funds

They need to understand the risks, not just the allure, of these funds.

Mass affluent clients who wish to invest in private market funds should be informed about the high-return and high-risk nature of these products — preferably in plain English — so they know what they are getting themselves into.

Singapore’s central bank plans to open private market funds to people who, according to PricewaterhouseCoopers International Ltd. have $130,767 (US$100,000) to $1.31m (US$1m) in liquid assets — not enough to be considered high-net worth — and they need to be empowered amidst influencer-driven misinformation, analysts said.

“Access to private markets comes with inherent risks and requires a certain level of risk tolerance,” Henry Tan, group CEO and chief innovation officer at CLA Global TS Holdings Pte. Ltd., told Singapore Business Review. “The public must be educated on these differences and should not assume that the same principles apply as in public markets.”

“The reason is that the regulatory framework for private markets, especially regarding disclosure and independent board members, is usually not present,” he said in an emailed response. 

The Monetary Authority of Singapore (MAS) had received at least eight complaints against financial influencers as of early April, surpassing the five-per-year average in the past half decade.

Despite the inherent risks of private funds, investors gain access to high-potential growth-stage companies absent on public markets, presenting unique opportunities to boost their investment portfolio.

Tan said the central bank should require “plain-language” explanations of liquidity risks and fee structures from financial advisers, platforms and institutions. 

Malcolm Koo, chief executive officer at CGS International Securities Singapore, said classifying fund risks would ensure retail investors are matched with suitable products and receive adequate disclosure and education.

Education should go beyond investors to all relevant stakeholders to ensure the framework’s long-term success, said Josephine Law, a counsel at Sidley Austin LLP. She also urged industry groups to standardise forms and disclosures.

Amanda Ong, Singapore country head at Arta Finance, suggested using templates to report fees, performance, redemption timelines, and risks.

Banks and wealth platforms should be transparent about their fees and adopt a no-commission sales model to serve mass affluent clients more effectively in the private market space, she added.

Under the central bank’s proposal to open private market funds to retail investors, unlisted long-term investment funds must offer redemptions at least yearly, which is a “pragmatic balance” between illiquidity and investor access, Law said.

The MAS framework includes direct funds and long-term investment fund-of-funds.

Anne Yeo, head of funds and investment management at law firm Rajah & Tann Singapore, said investors should evaluate the portfolio fit and the manager’s experience to determine which option is more suitable.

Direct investments may offer higher returns but carry greater risks and lower liquidity, whilst fund-of-funds have lower risks and returns, Tan said.

Ong said diversification would drive interest since conventional 60/40 portfolios often fall short in volatile markets. She cited research showing that a 40/30/30 mix of stocks, bonds, and alternatives tends to outperform, especially during high inflation.

Retail investors globally are gaining access to alternative investments once reserved for institutions—a trend known as “retailisation,” Yeo said, adding that the central bank initiative aligns Singapore with leading markets and adds depth to its equity space.

Tan said the move would boost capital flows into startups and private businesses, fueling innovation in fintech. He expects banks and robo-advisors to create private-market products for mass affluent clients.

Law expects strong interest in the framework from more sophisticated retail investors.

Traditional alternative fund managers eyeing retail capital would have to upgrade their MAS licence, enhance compliance processes, and hire experienced private market professionals, she added.

Ong said managers should partner with or build their own tech platforms to streamline capital calls, drawdowns, and investor communications.