Being an accredited investor Singapore comes with its share of perks. You gain access to exclusive investment opportunities, increased diversification, and chances for high returns.
But along with that, you also face certain risks. Indeed, you might say this is the point of being an accredited investor.
In Singapore, you have to meet strict financial thresholds to be one, such as having an annual income over S$300,000 or net assets over S$2M. The idea is that investors of such net worth can weather risks better than others.
Read on as we can take you through some of the key investment risks even accredited investors have to manage.
Risk 1: Illiquidity in Private Markets
Take a look at the investment opportunities available exclusively to accredited investors. You’ll notice that a good number of them are specifically private equity, hedge funds, or venture capital with long lock-in periods.
By long, we mean ones of five to ten years. While such lock-in periods may be manageable in strong markets, they can restrict your access to funds during downturns.
Risk 2: Complex Structures
Complex structures for leverage, derivatives, or credit structures can be tricky. They have the potential to amplify gains, but they can do the same to losses. And when the market’s volatile, they tend to be particularly wobbly.
Unfortunately, a fair number of alternative investments for accredited investors employ such arrangements that may blindside you with losses if they get complicated enough to make monitoring difficult.
Risk 3: Lower Transparency
As an accredited investor, a good number of the opportunities you’ll look at are unregistered securities. The problem is that unregistered securities are typically ones with low transparency as well.
These often do not meet the disclosure standards required of MAS-regulated products, so you’ll need to conduct extra due diligence. As a result, you’ll have to do a lot of due diligence to avoid unwanted surprises. Expect to read a lot of issuer-provided documents!
Risk 4: Risk of Faulty Valuation
One of the quirks of the alternative asset market is that assets tend to be valued using internal models more than market prices. An unfortunate result is that this can lead to them being overvalued – or in some cases, prone to delays in value correction.
This can make reliance on reported valuations very risky. They often fail to reflect true market conditions in such situations.
Risk 5: Conflicts of Interest
This is a fairly predictable risk: private market managers can sometimes get performance-linked fees or similar incentives. That can lead to their interest being more about increasing their wealth, even when it may translate to higher risks for yours.
This is why it’s advised to thoroughly investigate if a manager’s interests align with yours. Seek transparency to avoid unnecessarily high costs regardless of performance.
Is it possible to minimise the risks?
Despite all of these risks, there are steps you can take as an accredited investor to try and protect your investments. Vigilance is the key here, especially paired with awareness.
Practise due diligence in your choices in order to manage risks more effectively. Review information before committing to anything, ideally alongside a qualified adviser.
You can also choose to invest via investment platforms with offerings curated by reputable experts. For instance, platforms such as RealVantage in Singapore offer professionally vetted real-estate investments with clear structuring, reporting, and information.
With the right precautions, you can protect yourself while still making the most of the opportunities that come with accredited investor status.
Comments
0 comment