Alternative Funds 2025 Comparisons

In Singapore, funds, the management, offering and distribution of funds and related issues are regulated and primarily governed by the Securities and Futures Act 2001 (SFA) and its subsidiary legislations. The regulatory authority in Singapore that has supervisory responsibility for administering the SFA and its subsidiary legislations is the Monetary Authority of Singapore (MAS).

The funds market can be broadly divided into retail and non-retail. Any investor that does not qualify as an accredited investor (AI) or institutional investor (II), as defined in the SFA, will be considered a retail investor. Any funds that are not offered exclusively to AIs and/or IIs are considered retail funds. Non-retail investor funds are considered alternative funds.

A manager of any fund (retail or alternative) must be licensed in Singapore unless a statutory exemption is available.

Alternative funds generally do not have investment restrictions or limitations. See 2.2 Regulatory Regime for Funds.

Fund managers can be of any nationality and domicile but a local presence and licence are required to launch and manage a Variable Capital Company (VCC) fund or if the alternative fund is applying for fund tax incentive. See 2.8 Local/Presence Requirements for Funds.

Investors of alternative funds can be of any nationality and domicile provided they are not on the list of sanctions and are AIs or IIs.

Alternative funds were active throughout 2024 and 2025, especially due to the increasing acceptance and popularity of VCC funds, more family offices setting up alternative funds, and preference to use fund managers and funds based in Singapore instead of offshore centres. Geo-political tensions and uncertainties also contributed to more alternative funds and fund managers setting up in Singapore. Private equity (PE) and venture capital (VC) funds remain active and there is increased interest in private credit funds.

Types of Funds

The most common types of alternative funds are hedge, fund of funds, PE, VC, and real estate (RE). There are also some private credit, distressed and special situation funds.

Fund Structures

Alternative funds may take any of four legal structures, namely:

• unit trust;
• limited partnership (LP);
• company; and
• VCC.

The most common structures were the LP, Cayman LP and Cayman Segregated Portfolio Company funds prior to the launch of the VCC framework on 15 January 2020. Since then, a significant shift towards VCCs has been seen.

Unit Trust Fund

The unit trust fund is not a separate legal entity. The unit trust fund is organised as a trust pursuant to a trust deed where the legal ownership of the unit trust fund’s assets is vested in a trustee that holds such assets on trust for the benefit of the investors. The trust does not need to be registered with the Accounting and Corporate Regulatory Authority (ACRA) and there is no public register for private trusts. The trustee must hold a trust business licence pursuant to the Trust Companies Act 2005 (TCA).

Investors are known as unitholders and own units. There are no management units or general partnership units. There is no board of directors as in a normal company. As such, the day-to-day control, management and decision-making powers of the unit trust fund vest with the trustee but are delegated to the fund manager. The investment mandate and terms of such delegation are normally found in the trust deed.

Unit trust funds are more commonly used for open-end funds, hedge funds and private property income funds.

A unit trust fund can be organised as an umbrella fund with sub-funds created under the umbrella structure. The umbrella structure itself is not a fund that investors may invest into but is merely an overarching structure to house the sub-funds. Investors select and invest into the sub-funds and the investment assets are held by the sub-funds. The sub-funds are not separate legal entities. Although the performances, assets and liabilities of each sub-fund may be contractually segregated from those of other sub-funds, there is no statutory or legal segregation.

LP Fund

The LP fund is not a separate legal entity. The LP fund is organised as a limited partnership pursuant to the Limited Partnerships Act 2008 and pursuant to an LP agreement where the legal ownership of the LP fund’s assets is vested in the general partner (GP), who holds such assets on behalf of the LP fund. The LP fund must be registered with the ACRA.

Investors are known as LPs and own LP units. GP units are usually owned by the fund manager or a GP entity. There is no board of directors as in a normal company. As such, the day-to-day control, management and decision-making powers of the LP fund vest with the GP but are often delegated to the fund manager. The investment mandate and terms of such delegation are normally found in the investment management agreement (IMA).

LP funds are more commonly used for closed-end PE, VC, RE and other exotic assets funds.

Company Fund

The company fund is a separate legal entity. The company fund is organised as a private limited company pursuant to the Companies Act 1967 (CA) and pursuant to its constitution, where the legal ownership of the company fund’s assets is vested in the company. The company fund must be registered with the ACRA.

Investors are known as shareholders, who typically own preference shares or redeemable preference shares. The ordinary shares are usually owned by the fund manager or a GP entity. There is a board of directors. As such, the day-to-day control, management and decision-making powers of the company fund vest with the board of directors but are often delegated to the fund manager. The investment mandate and terms of such delegation are normally found in the IMA.

Company funds are seldom used and have certain disclosure and reporting requirements under the CA. Company funds are also subject to capital maintenance requirements.

VCC Fund

The VCC framework was introduced in Singapore on 15 January 2020 pursuant to the Variable Capital Companies Act 2018 (the “VCC Act”). The VCC Act stipulates that the VCC can only be used as a fund (ie, collective investment scheme) and must appoint a fund manager that holds a Capital Markets Services (CMS) licence for fund management (or a financial institution which is licensed in Singapore that can manage VCC).

The VCC fund is a separate legal entity and is organised as a VCC pursuant to the VCC Act and pursuant to the constitution where the legal ownership of the VCC’s assets is vested in the VCC. The VCC fund must be registered with the ACRA.

Investors are known as shareholders who own participating shares. The management shares are usually owned by the fund manager or a GP entity. There is a board of directors. As such, the day-to-day control, management and decision-making powers of the VCC fund vest with the board of directors but are often delegated to the fund manager. The investment mandate and terms of such delegation are normally found in the IMA.

VCC funds have certain disclosure and reporting requirements under the VCC Act, but capital maintenance requirements are not applicable and the register of shareholders is not available to the public. The VCC must also comply with the requirements for prevention of money laundering and countering the financing of terrorism prescribed by the VCC Act.

VCC funds can be used for open-end and closed-end funds. VCC funds can be used for hedge, PE, VC, RE and exotic assets funds. The VCC fund is the most flexible among the Singapore fund structures.

A VCC fund can be organised as an umbrella VCC fund with sub-funds created under the umbrella VCC. The umbrella structure itself is not a fund that investors can invest into but is merely an overarching structure to house the sub-funds. Investors select and invest into the sub-funds and the investment assets are held by the sub-funds. The sub-funds are not separate legal entities but have their own unique sub-fund registration number issued by the ACRA.

The performance, assets and liabilities of each sub-fund must be segregated from those of other sub-funds as required by the VCC Act. Hence, there is statutory and legal segregation, unlike in the case of sub-funds of an umbrella unit trust. In fact, the VCC Act stipulates that sub-funds must be segregated from each other and that the directors of the VCC must ensure that sub-funds are segregated from each other.

Overview of Regulatory Regime

Alternative funds are not regulated in Singapore and are not subject to licensing nor approval, except for the notification that must be lodged with the MAS before the alternative funds can be offered to AIs and certain other persons pursuant to Section 305 of the SFA. Funds offered to retail investors must be authorised (for Singapore domiciled funds) or recognised (for non-Singapore domiciled funds). In addition, a prospectus compliant with the SFA and Code on Collective Investment Scheme must be registered with the MAS before any units in the retail funds can be offered.

The management of funds and the distribution of funds are regulated under the SFA and require a CMS licence. See 3.3 Regulatory Regime for Managers and 4.4 Rules Concerning Marketing of Alternative Funds.

Alternative funds have no investment restrictions or limitations and can adopt any investment strategy, thesis or approach, and can invest in any asset class or jurisdiction, so long as it is not against public policy nor investing in any asset class that is prohibited. They can raise any amount of capital and invest any amount of committed capital for any length of investment period. However, these are subject to legal limitations, sanctions and any other specific legal or regulatory restrictions. Moreover, if the alternative fund is applying for fund tax incentives, certain asset classes will not qualify. See 2.4 Tax Regime for Funds.

Alternative funds can also invest directly or indirectly in the investment portfolio through special purpose vehicles. The critical requirement is that the investment terms and conditions, and risks, are adequately disclosed in the fund private placement memorandum (PPM).

Unit Trust Fund

The unit trust fund is constituted when the trust deed is executed by the trustee and the fund manager, and no registration is required. The constitutive document for a unit trust fund is the trust deed, and the main contracts are the trust deed and subscription agreement. There is usually a PPM. The time taken to set up a unit trust fund can range from a few days to a few weeks, and this is largely dependent on the negotiation of the terms of the trust deed between the parties. There is no registration fee and the professional fees for setting up are considered reasonable.

LP Fund, Company Fund and VCC Fund

The LP fund, company fund and VCC fund are constituted when they are registered or incorporated by the ACRA. Prior to establishment or incorporation, reservation of names is required, and the registration or incorporation forms must be lodged with the ACRA, together with relevant supporting documents.

The constitutive document for the LP fund is the LP agreement, and the main contracts are the LP agreement, investment management agreement and subscription agreement. The constitutive document for the company fund and VCC fund is the constitution, and the main contracts are the constitution, investment management agreement and subscription agreement. There is a PPM for LP funds, company funds and VCC funds.

The time taken to set up an LP fund, company fund or VCC fund can range from a few days to a few weeks, and this is largely dependent on the negotiation of the terms of the LP agreement, investment agreement and subscription agreement (as may be applicable) between the parties. The incorporation/registration fee for a VCC is SGD8,000. The professional fees for setting up LP funds, company funds and VCC funds are considered reasonable.

Pre-Marketing

For the statutory exemptions for small offers, private placements and offers to AIs and certain other persons (see 4.6 Private Placements), none of the offers may be accompanied by an advertisement making an offer or calling attention to the offer or intended offer, and there must be no selling or promotional expenses paid or incurred in connection with each offer other than those incurred for administrative or professional services, or by way of commission or fee for services rendered by certain prescribed persons. Apart from this, there are no express legal requirements or prohibitions against pre-marketing of alternative funds in Singapore. Any offer of units in alternative funds must be made pursuant to the statutory exemptions under the SFA and comply with the conditions applicable to the exempt offering.

In the absence of any other formal offering documents, a presentation, flipbook or teaser document (in print or other form) containing the key terms of an investment in the alternative fund such that it practically forms the basis of the offer might be considered a form of offering document. Much depends on the actual facts, and the details and substance found in such documents.

Distribution or Placement of Funds

See 4.4 Rules Concerning Marketing of Alternative Funds and 4.6 Private Placements.

Post-Marketing Ongoing Requirements

There are no specific ongoing legal requirements applicable to firms that have marketed alternative funds in Singapore, except for ongoing prevention of money laundering and countering the financing of terrorism (AML/CFT) and suspicious transaction monitoring requirements that are generally applicable to the holder of a CMS licence for fund management (Licensed FM). See 3.3 Regulatory Regime for Managers.

Fund managers are required to provide adequate disclosures to investors and prospective investors in the alternative funds. Disclosures are usually made in the PPM and should cover all material and up-to-date information that will assist investors and prospective investors to make informed decisions about investing in the funds. The information should include (on a non-exhaustive basis):

• names of the funds and sub-funds;
• a description of the funds and sub-funds;
• names and details of the fund managers, and other professionals and main service providers;
• legal structures and regulatory statuses of the funds;
• investment strategies, theses, approaches, restrictions and limitations of the funds;
• risks associated with the funds;
• fees and charges applicable to the funds;
• conflicts of interests;
• how the funds are to be offered in Singapore and which statutory exemptions are invoked for the offers;
• subscriptions, transfers, redemptions, exits, suspensions, valuations, terms and conditions;
• gatings and lock-ups;
• restrictions on transfers and redemptions;
• distributions, if any;
• leverage, if any;
• the charter life of the funds;
• side letter policies and arrangements;
• details on where the past performance and accounts of the funds may be obtained; and
• termination.

If there are material changes to the terms and conditions of the alternative funds, or to any sections of the PPM, it is likely that an amendment or supplement to the PPM will need to be issued with a notice to the investors who have invested with the funds.

Where the alternative funds are offered to non-retail investors, there are statutory exemptions from the requirements of authorisation for the alternative funds and registering a compliant prospectus, provided certain conditions are met (see 4.6 Private Placements). When an offer is made invoking such exemptions, there is no requirement to file the PPMs of the alternative funds with the MAS, and thus the PPMs are not available to the public. If an offer is made invoking the exemption pursuant to Section 305 of the SFA, a copy of the PPM must be lodged with the MAS together with a prescribed notification form. Again, such PPMs are not available to the public.

Taxes in General

In Singapore, income tax is imposed on any income that is accrued in or derived from Singapore and on any foreign-sourced income received or deemed to have been received in Singapore, unless otherwise statutorily exempted. The current corporate income tax rate is 17%.

At present, the Singapore government does not impose tax on capital gains unless the investment gains of any entity are considered to be income in nature. This depends on a number of factors and is scrutinised by the Inland Revenue Authority of Singapore (IRAS).

For the purposes of alternative funds, the investment decisions and control and management are typically delegated to the fund manager. If the fund manager is incorporated in Singapore, or has its control and management in Singapore, it is highly likely that the alternative fund will be considered to have tax residence in Singapore and be subject to Singapore income tax.

Section 10L of the Income Tax Act 1947 (ITA) is deemed operative from 1 January 2024 and applies to gains from a sale or disposal of a foreign asset that occurs on/after 1 January 2024. Pursuant to Section 10L of the ITA, any gains received or deemed to have been received in Singapore by the alternative fund from the sale or disposal of any foreign investment assets (movable or immovable property situated outside Singapore) will be treated as income chargeable to Singapore income tax, unless certain exclusions apply. One applicable exclusion is where the alternative fund has sufficient economic substance in Singapore in the year in which the sale or disposal of the foreign investment asset occurs.

Unit Trust

The unit trust fund is not a separate legal entity. However, the unit trust fund requires a trustee to hold a licence pursuant to the TCA. Such trustee must be a company incorporated under Singapore law. Thus, the unit trust fund is subject to 17% corporate income tax by virtue of the trustee being a Singapore tax resident.

LP Fund

The LP fund is not a separate legal entity and will not be subject to corporate income tax. Instead, the limited partners will be subject to tax on the income derived from the LP fund in accordance with their own tax incidence and liability.

Company Fund

The company fund is a separate legal entity and is subject to 17% corporate income tax.

VCC Fund

The VCC is a separate legal entity and is subject to 17% corporate income tax.

Sections 13O and 13U Tax Incentives

There are certain tax incentives available to alternative funds and fund managers, provided certain conditions are fulfilled. An alternative fund managed by a Licensed FM can apply to the MAS for tax incentives pursuant to Section 13O or 13U of the ITA, allowing the fund to be taxed at a lower rate. If the relevant incentive conditions are met, the MAS will grant the incentive in writing to the alternative fund. These tax incentives (subject to renewal every five years) come under certain sections of the ITA and were extended by Parliament of Singapore on 15 October 2024 till 31 December 2029. The Section 13O and 13U tax incentive conditions have also been revised with effect from 1 January 2025, although there is a grace period extended to existing tax incentive awardees to fulfil the new conditions from the financial year ending in 2027 (year of assessment 2028).

The key conditions for the incentives are as follows:

• the fund must be managed by a Licensed FM;
• for Section 13O, the fund must be a Singapore company or VCC – the fund must have at the time of application and at the end of every financial year minimum assets under management (AUM) of SGD5 million;
• for Section 13U, the fund must have at the end of every financial year minimum AUM of SGD50 million;
• the Licensed FM must have at least two (for Section 13O) or three (for Section 13U) full-time investment professionals with minimum salary qualifications;
• the fund must be administered in Singapore;
• the fund must have a minimum annual local expenditure that corresponds to its AUM (SGD200,000 for AUM less than SGD250 million, SGD300,000 for AUM equal to or more than SGD250 million but less than SGD2 billion, and SGD500,000 for AUM equal to or more than SGD2 billion);
• the fund must not alter its investment strategy or objective after the tax incentives are approved unless it obtains the prior approval of the MAS; and
• there are other specific requirements and restrictions for Section 13O.

There are also specific requirements and restrictions regarding the investment assets and investment income of the fund.

Where the fund is managed by a single-family office (SFO) that is exempt from a CMS licence for fund management under the SFA, additional requirements are applicable for the purposes of the Section 13O and 13U tax incentives with effect from 5 July 2023. The key changes in conditions from the previous conditions issued by the MAS on 18 April 2022 are that:

• there is no longer a grace period for applicants to meet the minimum conditions of the Section 13O and 13U tax incentive schemes, which must now be met at the point of application and maintained through the incentive period (including minimum assets under management, minimum number of investment professionals, and minimum number of investment professionals who are not family members of the beneficial owners);
• the fund must have a minimum annual local expenditure of SGD200,000, subject to the tiered spending requirement framework;
• eligible donations to Singapore charities as well as grants to qualifying blended finance structures may now be recognised under the minimum business spending requirement, provided the minimum local expenditure requirement has been met;
• more categories of eligible investments have been added under the capital deployment requirement (CDR); and
• the amount invested in certain eligible investment categories will be scaled by a multiplier of 1.5 (or 2 for CDR computation).

Philanthropy Tax Incentive Scheme for SFOs (PTIS)

A qualifying donor approved under the PTIS scheme will be able to claim a 100% tax deduction for their overseas donations made through qualifying local intermediaries for a period of five years starting from an approved incentive commencement of 1 January 2024. The tax deduction is capped at 40% of the approved qualifying donor’s statutory income. The unutilised deductions cannot be carried forward to be offset against income from any subsequent year of assessment. The deduction also cannot be transferred to another company of the same group under group relief arrangements. To qualify, donors must have an incentivised fund under the Section 13O or 13U schemes and meet the eligibility conditions.

Alternative funds can originate loans (ie, extend loans to a borrower). There are no limitations nor special rules applicable to alternative funds that originate loans, provided such alternative funds operate within a statutory exemption under the Moneylenders Act 2008 (MLA). The exemption from having to hold a moneylender’s licence pursuant to the MLA applies to any person who lends money solely to (i) an accredited investor or (ii) corporations, limited liability partnerships, trustees or trustee-managers (as the case may be) of business trusts for the purposes of the business trusts, or trustees of real estate investment trusts (REITs) for the purposes of the REITs.

Alternative funds can adopt any investment strategy and theme and invest in any asset class so long as it is not against public policy or investing in any asset class that is prohibited. However, if the fund is applying for fund tax incentives, certain asset classes will not qualify for the tax incentives. These include digital assets, physical assets, immovable property situated in Singapore, exotic assets (eg, wine, art, cars, yachts, planes, and precious metals). See 2.4 Tax Regime for Funds.

Cannabis is illegal in Singapore. Possession, consumption, trafficking, import, and export of cannabis are offences and carry severe penalties under local laws. Even though there is no express guidance on funds investing in cannabis, it would be against public policy.

Litigation funding is legal in Singapore but there are restrictions and limited applications. Litigation funding is permissible for arbitrations, proceedings in the Singapore International Commercial Court, certain types of mediations, and insolvency matters. The current framework imposes certain conditions that funds having litigation funding strategies must comply with.

Alternative funds can invest directly into the asset classes or indirectly through special purpose vehicles (SPVs), including using a private corporation, a trust or a limited partnership. SPVs are commonly used if the alternative fund wishes to segregate investment strategies, performance, risks and rewards, and/or groups of investors. SPVs are also used when there may be regulatory or commercial restrictions, or where the use of SPVs provides greater tax efficiency. Special purpose corporations may also be used to enjoy tax saving benefits under double tax agreements.

Fund managers can be of any nationality and domicile but a local presence and licence are required to launch and manage a VCC fund or if the alternative fund is applying for a tax incentive that reduces the local corporate income tax rate applicable to the alternative fund.

Typically, alternative fund managers in Singapore will render fund management services (as defined in the SFA) to the funds that they manage. In the ordinary course of business, the alternative fund managers will also provide financial advisory services (as defined in the Financial Advisers Act 2001 (FAA)) to such funds. In such cases, there is no need for a separate investment manager. However, it is possible for funds to appoint investment advisers, sub-advisers and/or sub-managers as the investment strategy or fund structure requires. For such structures, there is no local requirement for the investment adviser, sub-adviser and/or sub-manager to have a local presence provided the investment adviser, sub-adviser and/or sub-manager (as the case may be) (i) has the requisite licence or exemption in the jurisdiction in which they operate and (ii) does not conduct any activity in Singapore that requires a licence under the SFA and/or the FAA.

For non-local managers that manage alternative Singapore funds but do not otherwise carry out business activities or have a physical presence in Singapore, the licensing requirements would depend on whether the relevant activities are deemed to be conducted in Singapore pursuant to the SFA , which has certain extraterritorial provisions (namely Section 339). Where such relevant activities are deemed to be conducted in Singapore, the non-local managers must apply to the MAS to be a Licensed FM, unless other statutory exemptions are available.

See 3.3 Regulatory Regime for Mangers.

Alternative funds established as a Singapore private limited company or a VCC must have at least one Singapore resident director, a Singapore registered office, a Singapore company secretary and Singapore auditor. In addition, the VCC must appoint a Licensed FM (or a financial institution which is licensed in Singapore that can manage the VCC), and have at least one director who is a director or qualified representative of the fund manager. The VCC is subject to AML/CFT requirements and must appoint a money laundering reporting officer.

For a Singapore LP fund, a foreign general partner is permissible but the LP fund may be required to appoint a local manager for the purposes of discharging the relevant obligations attaching to the LP.

Funds, being the investment vehicle and not an operating entity, generally do not have their own employees nor business premises. The fund manager, which is appointed by the fund to make investment decisions on behalf of the fund, would and should have employees and business premises.

Where the alternative funds are applying for local tax incentives, there will be other local requirements as part of the incentive conditions. See 2.4 Tax Regime for Funds.

Alternative funds can appoint service providers from any jurisdiction. However, to qualify for tax incentives, the fund must appoint a local fund manager and local fund administrator.

Generally, local service providers that do not conduct any regulated activities in Singapore are not subject to Singapore licensing legislations or registration requirements. Currently, fund administrators and compliance officers are not regulated and do not require a licence. Custodians that provide custodial services for specified products (as defined in the SFA) require a CMS licence for providing custodial services pursuant to the SFA. Alternative funds structured as a trust must appoint a trustee. Such trustee must have a trust licence pursuant to the TCA.

See 4.4 Rules Concerning Marketing of Alternative Funds and 4.6 Private Placements.

For non-local service providers that carry out business activities in Singapore that are regulated under the SFA (eg, sub-management, sub-advisory or custody), licensing and registration requirements would depend on whether the relevant activities are deemed to be conducted in Singapore pursuant to the SFA, which has certain extraterritorial provisions (namely Section 339). Where such relevant activities are deemed to be conducted in Singapore, the parties must apply to the MAS for the requisite CMS licence, unless otherwise statutorily exempted.

Local Regulatory Requirements for Non-Local Managers

Non-local managers may launch and manage alternative Singapore funds, except VCCs. Alternative Singapore funds that are managed by non-local managers will not enjoy the tax incentives available to alternative funds (eg, under Sections 13O and 13U of the ITA). See 2.4 Tax Regime for Funds.

The MAS is proposing to amend certain notices and guidelines in relation to AML/CFT requirements for financial institutions and VCCs to clarify and strengthen the regulations.

The MAS is also considering providing retail access to private market investment funds, to allow retail investors to have access to this asset class.

In respect of new tax incentives for alternative funds/fund managers, the following tax incentives will be introduced.

• An enhanced concessionary tax rate of 5% under the Financial Sector Incentive – Fund Management Award (FSI-FM) (see 3.4 Tax Regime for Managers) on qualifying income of fund managers who achieve (or their holding company achieves) a primary listing on a Singapore exchange and it remains listed for five years, provided other eligibility conditions are met.
• A corporate tax exemption on a fund manager’s qualifying income arising from funds that invest substantially in Singapore-listed equities, provided other eligibility conditions are met. New funds must maintain at least 30% of their AUM in Singapore-listed equities while existing funds must also meet the additional requirement of having their annual net inflows be equivalent to at least 5% of their AUM in the preceding year.

In the last few years, it has been observed that promoters and sponsors of alternative funds usually come from Singapore, South-East Asia and North Asia, with growing traction in South Asia and Europe.

Where the alternative fund managers are based in Singapore, they will take the form of a local private limited company. These are typically newly incorporated companies and wholly owned or majority-owned by the founders, sponsors or parent entity.

Employees of the local alternative fund managers are paid monthly salaries, performance bonuses and incentive payouts, which may be correlated to the performance of the funds they manage (including some form of carry, long-term incentives, employee stock options or employee share plans). These may be structured using offshore vehicles like corporations or limited partnerships. As Singapore remains a competitive market for fund managers and talent, individual personnel compensation and incentive arrangements play a significant part in attracting, retaining and incentivising talent.

CMS Licence for Fund Management

Any entity that manages funds in Singapore must hold one of the three licences as set out below, unless otherwise statutorily exempted:

• a CMS licence for fund management for retail investors (Retail LFMC);       
• a CMS licence for fund management for AIs and IIs only (AIFMC); or
• a CMS licence for VC fund management for AIs and IIs only (VCFMC).

Requirements for the Licensed FM

The fund manager must be a Singapore incorporated company and have a permanent physical office in Singapore. The office must be dedicated, secure and accessible only to the fund manager’s directors and personnel.

Retail LFMCs can carry on business in fund management with all types of investors. AIFMCs and VCFMCs can only carry on business in fund management with AIs and IIs. In addition, VCFMCs can only carry on business in fund management in respect of VC funds that satisfy various VC criteria as prescribed by the MAS.

To qualify for licensing, the fund manager must conduct substantive fund management activity in Singapore such as portfolio management, investment research or trade execution.

The fund manager should satisfy the MAS that it, its shareholders, directors, representatives and employees are fit and proper, in accordance with the Guidelines on Fit and Proper Criteria issued by MAS (FSG-G01). The fund manager must perform adequate due diligence checks and refresh such checks regularly.

The CEO, directors and relevant professionals of the fund manager must have adequate relevant experience (ie, their experience should be relevant to the fund management activities of the fund manager). The CEO and directors must collectively have experience in both portfolio management and support functions such as risk management, operations and compliance. The CEO, senior management and directors are responsible for the oversight of the fund manager’s investment activities and must be able to effectively manage the risks associated with the asset classes, markets and strategies.

There must be at least two directors, with at least one executive director residing in Singapore. There must be at least two full-time professionals (at least three for Retail LFMCs) residing in Singapore, each of whom has at least five years of relevant experience. The CEO must have at least five years of relevant experience (at least ten years for Retail LFMCs).

The fund manager must at all times meet the base capital thresholds (eg, SGD250,000 for AIFMCs) and risk-based capital thresholds prescribed by the MAS. The fund manager is expected to maintain an additional capital buffer, over and above the minimum requirement.

The fund manager must have in place compliance arrangements that are commensurate with the nature, scale and complexity of its fund management business. It must put in place a risk management framework to identify, address and monitor the risks associated with customer assets that it manages. It must be subject to external audit and internal audit. Professional Indemnity Insurance is required and a Letter of Responsibility could be required by the MAS from the fund manager’s parent company or related company.

The fund manager is required to comply, on an ongoing basis, with all the business conduct requirements prescribed in the SFA and the relevant subsidiary legislation. These include:

• custody;
• valuation;
• reporting;
• mitigation of conflicts of interest;
• disclosure;
• termination of fund;
• cessation of business;
• complaints handling;
• oversight of personnel;
• AML/CFT;
• misconduct reporting;
• use of service provider;
• notifications and approvals; and
• periodic returns.

No Fiduciary Duty

Typically, alternative fund managers are appointed by the alternative fund pursuant to the IMA. Typically, the IMA will expressly provide that the relationship is purely contractual and the alternative fund manager has no fiduciary duty towards the fund nor the investors. It is pertinent to ensure that the alternative fund manager act in a manner that is consistent with terms and conditions of the IMA and does not knowingly or unknowingly cross the line to act in a manner that is consistent with being a fiduciary to the fund or the investors.

Conflicts of Interest

Potential conflicts of interest involving the alternative fund managers must be expressly disclosed to their customers in the fund offering documents or IMA. Basic information about the alternative fund managers, their licence status and permissible regulated activities are set out in the Financial Institutions Directory found on the MAS website.

Licensed FMs are subject to 17% corporate income tax. The income of the Licensed FM typically includes management or base fees, performance fees and carried interest, including any other income derived from the alternative fund.

A Licensed FM can apply to the MAS for incentives under the Financial Sector Incentive – Fund Management Award. This incentive allows the Licensed FM to be taxed at a lower rate of 10% on income derived from managing or providing investment advisory services to qualifying funds (eg, funds approved under Sections 13O and 13U of the ITA). The key conditions are:

• the fund manager must be a Licensed FM;
• the Licensed FM must have at least three full-time investment professionals with minimum salary qualifications; and
• the Licensed FM must have minimum assets under management of SGD250 million.

The question of whether a foreign alternative fund with a local fund manager creates a permanent establishment or other taxable presence in Singapore is a question of mixed fact and law. There are no exemptions or other rules on this. However, there is a tax incentive pursuant to Section 13D of the Income Tax (Exemption of Income of Prescribed Persons Arising from Funds Managed by Fund Manager in Singapore) Regulations 2010, which applies to prescribed persons (that are non-resident individuals, companies or trust entities – ie, offshore fund vehicles) managed by a Singapore fund manager. The incentive comes with prescribed conditions.

Carried interest is not expressly dealt with by local tax legislation. The taxability of carried interest will depend on its legal nature, and this will in turn depend on the legal documentation, classification and how in fact and in substance it is structured and dealt with. If it is income in nature in the hands of the fund manager, it will be subject to Singapore corporate income tax. If it is structured in the form of gains from actual capital investment into the alternative fund, it is possible that it would not be subject to local income tax.

Fund managers can outsource non-fund management functions to service providers or third parties. Fund managers can also outsource a portion of their fund management functions to third parties, provided that the relevant third parties have the requisite licence or exemption in the jurisdiction in which they operate and the fund manager retains a substantial role and conducts substantial fund management activity in general and with respect to the alternative fund that requires partial outsourcing.

Any outsourcing by the fund manager must comply with the Guidelines on Outsourcing (Financial Institutions other than Banks) issued by the MAS.

See 3.3 Regulatory Regime for Managers.

An entity (whether resident in Singapore or outside Singapore) must not obtain effective control of the Licensed FM unless it has obtained the prior approval of the MAS pursuant to Section 97A of the SFA. The application for approval must be made in writing, and the MAS may approve if it is satisfied that:

• the applicant is a fit and proper person to have effective control of the Licensed FM;
• having regard to the applicant’s likely influence, the Licensed FM is likely to continue to conduct its business prudently and comply with the provisions of the SFA and directions made thereunder; and
• the applicant satisfies such other criteria as may be prescribed.

In addition, the Licensed FM must make a similar application for approval to the MAS. Specifically, the Licensed FM’s CMS licence typically contains conditions that require it to obtain the prior written approval of the MAS for any change of its members or shareholdings of its members which will result in any entity, alone or acting together with any connected party, being in a position to control equal to or more than 20% of the voting power in the Licensed FM or hold interest equal to or more than 20% of its issued shares.

The CMS licence may also contain conditions that require the Licensed FM to obtain the prior written approval of the MAS to acquire or hold, whether directly or indirectly, an interest of 20% or more of the share capital of any corporation, or establish any branch (whether in Singapore or elsewhere) or to give at least seven days’ written notice to the MAS for the purchase, sale, merger or any other business combination of all or any part of the business in a regulated activity under the SFA for which its CMS licence is granted.

In general, the Licensed FM should consult and inform the MAS of any proposed major corporate action, especially pertaining to a major restructuring, acquisition, divestment, joint venture or partnership.

There is currently no express legislation nor MAS guidance on a fund manager’s use of artificial intelligence, predictive data or big data either for investment purposes or for operational/compliance purposes. The MAS has published several information papers, setting out foundational principles (the FEAT (Fairness, Ethics, Accountability and Transparency) Principles) on the responsible use of artificial intelligence and data analytics (AIDA), to guide financial institutions in assessing and updating existing frameworks or implementing new ones to govern their responsible use of AIDA. The MAS has shared some of its observations and recommendations from its thematic review of selected financial institutions. Fund managers intending to use AIDA should familiarise themselves with the FEAT Principles, establish robust governance structures and be able to demonstrate how their internal controls meet the FEAT Principles. Further MAS guidance is expected in the near future.

See 2.10 Anticipated Changes for Funds.

In recent years, there is more interest in alternative funds from AIs, family offices and external asset managers. As investors become more sophisticated and strategic – looking for more attractive returns and to diversify their portfolios – such investors have ventured into PE, VC, RE and private credit funds.

Side letters are permissible and not regulated. There is no special approval nor disclosure required except that the fund PPM should expressly state that side letters can be issued to cornerstone investors or investors who commit a higher minimum subscription.

Alternative funds are typically non-retail funds. Alternative funds can be offered to anyone in Singapore provided each offeree qualifies as an AI or II.

Any entity, including distributors or placement agents, that distributes or markets the units or shares in any alternative funds in Singapore would likely be conducting the regulated activity of dealing in capital markets products (DCMP) as defined in the SFA and would be required to hold a CMS licence for DCMP, unless otherwise statutorily exempted. Such entity might also be conducting the regulated activity of advising others, either directly or through publications or writings, whether in electronic, print or other form, concerning any investment product. This is a regulated activity that requires a financial adviser’s licence pursuant to the FAA, unless otherwise statutorily exempted.

A Licensed FM can market in Singapore the alternative funds that it manages or sub-manages, as well as the funds that such manager’s related corporations (as defined in the CA) manage without a CMS licence for DCMP.

See 4.6 Private Placements.

Alternative funds are typically non-retail funds. Alternative funds can only be offered to AIs or IIs. Some financial institutions in Singapore offer alternative funds to their customers by acting as a platform or private exchange. These institutions typically hold a CMS licence for DCMP or are approved as a Recognised Market Operator (RMO) pursuant to the SFA. Such RMOs typically offer alternative funds as an investment asset class on their private exchange to provide visibility, liquidity and scalability for alternative funds. The customers of such RMOs are AIs and IIs.

See 4.4 Rules Concerning Marketing of Alternative Funds.

Statutory Exemptions

Where alternative funds are offered to non-retail investors, there are statutory exemptions from the requirements of authorisation for the funds and registering a compliant prospectus, provided certain conditions are met. These statutory exemptions are discussed below.

Small offers

This exemption applies to personal offers of units in the fund where the total amount raised from such offers within any period of 12 months does not exceed SGD5 million.

Private placements

This exemption applies to offers of units in the fund where the offers are made to no more than 50 persons within any period of 12 months.

Offers to institutional investors

This exemption applies to offers of units in the fund where the offers are made solely to IIs.

Offers to AIs and certain other persons

This exemption applies to offers of units in the fund where the offers are made solely to:

• AIs or certain relevant persons, including persons who are related to the offeror; or
• a person who acquires the units as principal if the offer is on terms that the units may only be acquired at a consideration of not less than SGD200,000 for each transaction.

To invoke this exemption, a notification must be lodged with the MAS before the fund can be offered pursuant to Section 305 of the SFA.

For an exempt offering of alternative funds to non-retail investors, the following would generally apply:

• the offer must be accompanied by a PPM;
• the PPM must state the statutory exemption that is invoked for the exempt offer;
• there must be no advertising or promotion of the funds; and
• there must not be a prospectus registered with the MAS.

See 4.4 Rules Concerning Marketing of Alternative Funds and 4.6 Private Placements.

Licensed FMs can market the alternative funds that they manage. They can also appoint placement agents and brokers to distribute the fund and raise capital for the fund. Placement agents may be used to widen the capital pool or help raise capital more successfully or efficiently. Typically, a placement agreement or distribution agreement would be signed to govern the placement and distribution, respectively.

The Licensed FM’s personnel can be compensated for their capital raising effort for the fund that the Licensed FM and the personnel are managing. It is more common for their financial rewards to be in the form of performance bonuses correlated to the successful capital raising.

Singapore adopts a semi-territorial system of taxation. Singapore income tax is imposed on income of any person that is accruing in or derived from Singapore and on foreign-sourced income received or deemed to be received in Singapore, unless an exemption under the ITA is applicable. The current Singapore corporate income tax rate is 17%.

Singapore tax is only imposed on income. Currently, any gain which is capital in nature is not subject to tax. The IRAS can challenge and has challenged that gains derived from alternative funds are income in nature. In such instance, the alternative funds will be subject to the prevailing corporate tax rate of 17%.

Where the alternative fund is regarded as tax resident in Singapore, any dividends distributed by the alternative fund should constitute one-tier tax-exempt dividends. Any gains made by an investor of the alternative fund from the disposal or redemption of their units or shares in that fund will depend upon the particular circumstances and profile of the investor. Gains made by the investor may be subject to Singapore tax to the extent that such gains are regarded as sourced in Singapore and revenue in nature, in the absence of any tax exemption or incentive schemes.

Stamp duty is a tax on executed documents (whether in physical or electronic form) for the sale or transfer of interest in any immovable property in Singapore, and in any stock or shares in a company. This may be applicable to units or shares in an alternative fund. The current applicable stamp duty rate is 0.2% for executed documents relating to stocks or shares, except stocks or shares of certain companies which directly or indirectly hold certain categories of immovable properties. This chargeable rate is 0.2% of the transfer consideration or the value of the shares being transferred, whichever is higher. Where there is no open market value of shares available, the Comptroller of Stamp Duties is willing to accept the net asset value as the value of such shares.

There is no differentiation for alternative funds nor for investors in alternative funds. There are tax incentives applicable to alternative funds. See 2.4 Tax Regime for Funds.

Singapore has entered into more than 90 double tax agreements. Alternative funds that are structured as a company or a VCC established under Singapore law can utilise the relevant double tax agreements and enjoy treaty benefits provided the conditions of the relevant treaties are fulfilled.

Singapore has signed a reciprocal Model 1 Intergovernmental Agreement with the USA on 13 November 2018. This came into force on 1 January 2021 and supersedes the previous Model 1 Intergovernmental Agreement (IGA) signed between Singapore and the USA on 9 December 2014.

In short, effect is given to the automatic tax information exchange requirements of the US Foreign Account Tax Compliance Act (FATCA). The relevant Singapore regulations and framework for dealing with FATCA requirements have been put in place, and there are also local guidelines published by the IRAS. All financial institutions, including Licensed FMs, are required to comply with these regulations.

In addition to the FATCA, the Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI), more commonly known as the Common Reporting Standard (CRS) – a framework and set of regulations developed by the Organisation for Economic Co-operation and Development – are also applicable. The relevant Singapore regulations and framework for dealing with AEOI and CRS requirements have been put in place, and there are also local guidelines published by the IRAS. All financial institutions, including Licensed FMs, are required to comply with these regulations.

It is important to note that the alternative fund and/or Licensed FM may be compelled by law to disclose or hand over certain information or documentation to the IRAS pursuant to the rules and regulations concerning the FATCA, AEOI and/or CRS. The IRAS may under certain conditions be required to automatically exchange information with the relevant foreign tax authorities or agencies in accordance with the relevant FATCA, AEOI and/or CRS regulations.

The AML/CFT and KYC regime for Singapore applicable to Licensed FMs are found in:

• the SFA;
• the Notice SFA 04-N02 to Capital Markets Intermediaries on Prevention of Money Laundering and Countering the Financing of Terrorism; and
• the Guidelines to Notice SFA 04-N02 on Prevention of Money Laundering and Countering the Financing of Terrorism – Capital Markets Intermediaries issued by the MAS.

These legislations, notices and guidelines are instructive and provide the framework for Licensed FMs. The MAS expects a top-down approach where each Licensed FM’s board and senior management are responsible for the oversight of the development and implementation of a sound money laundering and terrorism financing (ML/TF) risk management framework. The board of directors and senior management are expected to ensure that the processes are robust and there are adequate risk-mitigating measures in place.

The Licensed FM is expected to identify and assess ML/TF risk on an enterprise-wide level. This shall include a consolidated assessment of its ML/TF risks that exist across all its business units, product lines and delivery channels. In conducting an enterprise-wide risk assessment, the broad ML/TF risk factors that the Licensed FM should consider include:

• its customers;
• the countries or jurisdictions its customers are from or in, or where the Licensed FM has operations; and
• the products, services, transactions and delivery channels.

The MAS expects that the nature and extent of ML/TF risk management systems and controls implemented by the Licensed FM should be commensurate with the ML/TF risks identified via its enterprise-wide ML/TF risk assessment. The Licensed FM should put in place adequate policies, procedures and controls to mitigate the ML/TF risks. Proper processes, record keeping and documentation must be in place and these are subject to inspection by the MAS on request. The Licensed FM must also review its risk assessment at least once every two years or when material trigger events occur, whichever is earlier.

The Licensed FM must perform KYC, AML/CFT, source of funds and source of wealth checks before onboarding a customer. There are also specific requirements for non-face-to-face business relations. All customers of the Licensed FM must be screened and, where screening results in a positive hit against sanctions lists, the Licensed FM must act accordingly. This may include freezing, without delay and without prior notice, the funds or other assets of the affected persons and entities that it has control over, so as to comply with applicable laws and regulations in Singapore, including any sanctions. The Licensed FM is subject to the regime that requires them to file a suspicious transaction report to the MAS and the Suspicious Transaction Reporting Office (Singapore’s Financial Intelligence Unit, which is part of the Singapore Police Force).

The VCC is subject to a similar AML/CFT and KYC regime but can outsource the function to an eligible financial institution. Typically, this role would be outsourced to the Licensed FM that launched and manages the VCC, as it would have to comply with the AML/CFT and KYC regime in the first place, whether it uses the VCC, another fund structure or a trading account for its customers.

The applicable regime in Singapore is too technical and substantive to cover in this chapter.

There are no forthcoming changes for investors.