Starting a Hedge Fund in Singapore

As the economy of Singapore grows dynamically, investors are attracted to explore the opportunities and invest their money here. As a result, we can expect the hedge fund industry to perform well in the country.

Singapore is competing alongside with Hong Kong, to become the top location that connects fund managers with asset owners who are looking for companies to assist with portfolio management. Various factors such as transparency, ease of doing business, availability of talents can help Singapore to leapfrog Hong Kong as the most competitive financial hub.

The main intention behind setting up a hedge fund is its concept of ‘absolute return’. Hence, strong wealth growth, a large pool of high net worth individuals and well-functioning infrastructure can create a perfect environment to grow Singapore’s hedge fund industry.

A hedge fund is set up with the purpose of getting good returns despite fluctuation of capital markets. The Monetary Authority of Singapore (MAS) describes various investing and funding steps of Singapore along with Collective Investment Schemes. MAS has set out two main criteria in defining a Hedge Fund:

1. Adoption of arbitrage, leverage, derivatives, and short selling strategies.
2. Investment that involves non-mainstream assets such as cash, bonds, equity, etc.

There are two types of Hedge Funds:

• Onshore Funds: Regulated under the jurisdiction of the Singapore licensing and regulatory regime.
• Offshore Funds: Regulated under the jurisdiction of offshore legislation on account of their constitution outside the country.

Starting a hedge fund requires streamlined licensing and subjects to tax regulatory measures. To start an onshore hedge fund, a fund manager needs to fulfill the following requirements:

• Licensing

The license requirements for hedge funds vary according to the numbers of investors. Small funds with less than 30 investors can operate without a license. Larger size funds with more than 30 investors need to hold one licence. It can be a Capital Market Services Licence under the Securities and Futures Act (SFA) or Financial Advisers Licence under the Financial Advisors Act (FAA), depending on the nature of business.

• Tax Operations

There are certain exemptions credited to both types of hedge funds. Offshore funds are exempted from paying any Singaporean tax on their ‘specified income’ if the fund falls under the category of ‘qualifying fund’. Similarly, the onshore funds that fulfill the conditions set up by MAS can enjoy the tax exemption benefits through the Singaporean Resident Fund Scheme.

Enhanced Tier Fund Management Scheme has been introduced to lift the restriction on investors’ residency. In addition, when a fund manager markets the onshore or offshore funds to an accredited investor or an institutional investor, they do not need to submit prospectus or any other supporting document to the MAS.

Starting a hedge fund in Singapore can be an easy process. Let our experts help you to do it right the first time.