Retail investors likely to face higher fees and less transparency in private market funds

[SINGAPORE] Retail investors looking to diversify their portfolios from the traditional stocks and bonds may soon have another option: the fast-growing private markets.

However, they need to be aware that apart from less transparency, less liquidity and longer lock-up periods, retail investors may have to cough up higher fees for private market funds, compared with mutual funds managing stocks and bonds, or multi-assets.

Last week, the Monetary Authority of Singapore (MAS) launched a consultation on whether private market funds should be opened to retail investors, who are showing growing interest in private assets. Private assets can offer higher returns than listed ones, over the long term.

In its proposal, it is considering two potential fund structures – a direct investment fund and a long-term investment fund-of-funds structure that holds a variety of private market funds.

The proposal “aligns with trends in the US and Australia, where the expansion of retail private debt assets under management has been accelerating,” said Sally Yim, managing director at Moody’s Ratings. She added that as private market investment funds involve private assets requiring a long-term investment horizon, they may be different from traditional ones investing in public markets.