[SINGAPORE] The Monetary Authority of Singapore’s (MAS) proposal to let retail investors access private markets could see such investors favour semi-liquid funds that offer periodic redemption opportunities, said experts.
These funds are open-ended and provide ongoing access, where investors can stay invested for as long as they choose. These funds are therefore also known as evergreen funds.
The minimum upfront investment amount is usually lower, for instance US$5,000, compared with the millions required by closed-ended funds – the other dominant structure in private markets.
Currently, private markets in Singapore are largely accessible only to accredited investors – individuals with net personal assets of more than S$2 million, or an annual income of S$300,000.
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The central bank proposed that other retail investors can access private markets through authorised long-term investment funds (LIFs). These could be direct funds and fund-of-funds, which may be listed or unlisted.
The listed ones could be closed-ended funds, similar to real estate investment trusts, while the unlisted versions should provide redemption opportunities for investors, within gating limits. These limits are the caps on the amount of capital that investors can redeem during a specific period.
MAS added that “investors of an unlisted LIF should be prepared to hold on to the unlisted LIF for a long time given the illiquid nature of the underlying private-market investments and limited windows for redemption of their investment”.
Rising global popularity
MAS’ announcement comes as semi-liquid funds ride on a global wave of popularity, particularly among individual investors.
The number of such funds nearly doubled to 520 as at end-2023 from five years prior, said private markets data provider Preqin, noting that it hit a record US$350 billion at the end of 2023.
PGIM Investments, which has US$195 billion in assets under management (AUM), forecasts that rising investor interest will continue to fuel growth in semi-liquid funds.
“There is an intense focus among private banks, retail banks, family offices and other platforms to add more exposure and options in the semi-liquid space,” Dominick Carlino, global head of alternative investments at PGIM Investments, told The Business Times.
He added that for many of its clients, between 60 and 80 per cent of their fund flows are channelled to semi-liquid funds, compared with the closed-end draw-down structures.
Its Singapore clients also want to add options in the semi-liquid space, as the provision of some liquidity, accessibility and ease of use have been making that the dominant structure.
Still, there are risks
As with all investments, semi-liquid funds are not risk-free. In times of market stress, investors are not able to withdraw their entire capital at one shot.
“When investors hear semi-liquid funds, they hear ‘liquid’ but not ‘semi’,” Kerrine Koh, head of South-east Asia at US private markets investment firm Hamilton Lane with US$956 billion in AUM told BT.
She pointed out that while such funds allow periodic redemptions, investors cannot withdraw 100 per cent of their capital at once, adding that “the underlying assets are less liquid private-market assets”.
That was the bitter experience of those who invested in Blackstone Real Estate Income Trust (Breit) – an unlisted semi-liquid fund underpinned by rental housing, industrial and data centres in the US. It allows redemptions of up to 5 per cent of net asset value every quarter.
After the sector took a downturn following aggressive interest rate hikes in 2022, redemption requests from Breit clients spiked. Asian clients, hit by margin calls on other assets, also wanted their money back. To prevent forced selling, the trust had to temporarily restrict redemptions from December 2022 – a move that lasted 15 months.
Managing risks
In its letter to shareholders published in February, Breit said that even though values in its key sectors were “bottoming” in early 2024, high interest rates still dented performance.
The fund achieved a 1.95 per cent return that year. While this was an improvement from the 0.5 per cent loss in 2023, individuals could have done better if they had invested in public assets. These include the S&P 500, which jumped 23 per cent in 2024, after soaring 24 per cent in 2023.
One way to ameliorate risk would be to put money in the top-performing funds, as “investing in just one semi-liquid fund, or closed-end private equity fund, may be risky from a portfolio construction perspective”, said Adam Banks, head of Asia-Pacific at private-market-focused platform Moonfare.
Experts also noted that retail investors need to evaluate their liquidity needs and risk profile. If regular cashflow and the flexibility to withdraw their entire capital as needed are priorities, private assets are not for them. For those willing to take the plunge into private semi-liquid funds, they need to assess the track record of the fund managers, or general partners.
Where traditional closed-end funds typically require general partners to be good deal-makers to assess when they need to invest and exit, running semi-liquid funds demand other skills such as cash and portfolio management.
“So when new investors look at evergreen funds, what they should question is, not just whether this is a good name, good for deal-making, but (also)… does this general partner have good skills in managing portfolios? Because that actually is pretty critical,” said Koh from Hamilton Lane.
Part of MAS’ proposal to allow retail investors to access private markets relates to general partners’ abilities, such as certain track records and experience in managing relevant private-markets investments.
“Key to success will be investor confidence and that means robust frameworks for managers offering such products will be vital,” said Jason Valoti, partner in the financial markets group at Simmons & Simmons.
