Other positive spinoffs include fund of hedge funds managers and consultants, who can add value to investors in the areas of hedge fund selection and allocation among different fund strategies. 4  Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report, 2002. 5  An estimated 1.7 million high net worth individuals (defined as individuals with more than $ million in financial asset wealth) in Asia hold in aggregate $ trillion of financial assets. (Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report, 2002). 2  BIS Review 52/2002  Second, hedge funds can lead to more wide-spread use of innovative financial instruments and the development of cutting-edge technical and investment skills. Unit trusts typically go long-only on listed equities, bonds and cash. In comparison, hedge funds, with their broad investment mandates, can employ a selection of designer instruments and creative investment strategies and face little (if any) restrictions on what they can hold. Third, hedge funds can add to the liquidity and efficiency of our capital markets. The contrarian instincts of hedge fund managers provide liquidity and help curtail unsustainable asset bubbles. By seeking out arbitrage opportunities, hedge funds also improve the information flow and, consequently, the efficiency of the market. Further, specialist hedge funds that invest in unlisted stocks and unrated bonds facilitate fundraising by small, relatively unknown companies. Singapore’s regulatory approach Singapore’s approach to regulating hedge funds is risk-focused and differentiated, balancing the potential benefits with the risks that hedge funds could pose to the financial system.
Hedge fund managers are regulated like any other fund manager that manages third-party funds in 6 Singapore. Small or boutique fund managers, that manage funds for accredited investors , are subject to less stringent licensing requirements because investor protection concerns are less acute. Smaller 7 firms, with fewer than 30 qualified investors , are exempted from licensing. Hedge fund managers should find such operating structures conducive, as they are typically small outfits managing funds for a limited number of institutions and high net worth individuals. MAS applies the same risk-focused and differentiated approach to the marketing of hedge funds. MAS does not regulate offers of collective investment schemes and hedge funds to professional and institutional investors in the financial sector as these investors are adequately skilled to evaluate for themselves the investment characteristics of hedge funds. Similarly, financial institutions can offer hedge funds to sophisticated investors on the strength of an offering memo. MAS’ regulatory oversight of the marketing of hedge funds is focused on retail investors. Retail investors may not be familiar with the differences between a hedge fund and a typical collective investment scheme. In particular, key aspects such as legal structure, investment objectives, trading strategies and fees may not be fully appreciated. Unlike unit trusts where a growth fund usually invests in stocks and an income fund in bonds, there is no simple correlation between investment style and asset exposure for hedge funds.