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.

Currently, retail investors in Singapore have limited access to private market investments. Those seeking more exposure to private markets, such as the buying of shares of unlisted companies, must be accredited investors in Singapore.

“Private companies are not obliged to reveal earnings or financial information, and are not subject to the same reporting requirements as their publicly traded counterparts,” Hugh Chung, the chief investment officer of Endowus, told The Business Times. 

“The lack of transparency, combined with the illiquidity and product complexity, can make it difficult to price alternative assets accurately,” he added.

Private equity

Private equity or PE is one of the key segments in private markets, and usually refers to capital raising by unlisted companies through selling a stake to investors. These investors could be PE investment companies such as KKR or Warburg Pincus, or large institutional investors like Temasek.

They could hold the stake directly or via a fund. Typically, these stakes are held for anything between three and 10 years before exiting, either by selling to other PE firms or institutional investors. They could also cash out if the portfolio company decides to list on a public stock exchange.

Given that the timing of exits depends on factors including the state of buyout markets, appetites for initial public offerings as well as mergers and acquisitions, retail investors need to understand the liquidity trade-offs that come with dabbling in private assets.

“From private equity to private credit, these investments typically come with longer lock-up periods and reduced flexibility,” Amanda Ong, country director of Singapore and head of international at Arta Finance, told BT.

“That’s not a drawback – it’s a design feature, but it requires clarity.” For instance, in private credit, platforms offering such products should provide “a spectrum of liquidity terms and ensure they are clear upfront, giving individuals the confidence to commit with eyes wide open”.

Private credit refers to non-bank creditors lending funds to unlisted companies or for large-scale projects.

Fees

Aside from less transparency, less liquidity and longer lock-up periods, retail investors may be subject to higher fees for private market funds, compared with mutual funds managing stocks and bonds, or multi-assets.

That is because private assets require extra effort from the fund managers in valuations and generating deals. Transactions hinge largely on the ability of fund managers, known as general partners, to source for new deals and exit existing ones. Investors pay more for these skills, instead of the straightforward buying and selling of equities and bonds in typical mutual funds, say market players.

In addition, “oftentimes the managers are involved in the management and at times, restructuring of their portfolio company. Hence, the higher fee compensation is to account for the added value,” said Chung of Endowus.

Blackstone and KKR, the world’s two largest providers of PE funds, charge an annual management fee of 1.25 per cent for the open-ended funds they manage. Operating indefinitely, these funds allow continual capital raising, investment and distribution. Investors can enter and exit at periodic intervals.

As they provide some liquidity, such funds largely cater to retail investors, usually with a minimum investment of US$25,000.

Apart from these, general partners collect performance or incentive fees. Also known as carried interest, investors pay them when the fund yields returns that exceed a certain amount, called the hurdle.

Take for example the KKR Private Markets Equity, an open-ended fund catering to investors outside the US which had US$4.1 billion as at Jan 31, 2025. It charges an incentive fee of 15 per cent when the return hits 5 per cent. Its monthly report indicated a net annualised return of 10.83 per cent since the fund’s inception date in May 2023.

All these fees are usually on top of those levied by the digital platforms which accredited investors use to subscribe to the funds.

Endowus, for instance, charges a platform fee of between 0.4 and 0.6 per cent per annum for alternative investments. The platform fee ranges between 0.5 and 0.9 per cent on Arta Finance depending on the fund.

Another alternative asset investment platform, ADDX, charges a one-time transaction fee ranging from 0.1 to 3 per cent per subscription, depending on the product. (*see amendment note)

These compare with the typical 1 to 2 per cent management fees for actively managed mutual funds open to all retail investors. Some of these funds, however, also charge sales fees ranging from 1 to 5.25 per cent. Passively managed ones such as index funds charge even lower management fees, coming below 1 per cent.

Closed-ended funds, which deploy capital immediately but are illiquid and have a fixed term that is usually at least 10 years, charge an annual management fee of 2 per cent. These cater largely to big institutional investors such as sovereign wealth funds and insurers that have a longer investment horizons. Such funds also charge a performance fee of 20 per cent.

“The existing fee structure of private funds has been calibrated mainly for institutional and accredited investors,” Clifford Lee, global head of investment banking at DBS, told BT. “Fund managers will have to recalibrate their fee structures if they want to attract a wider base of retail investors and stay competitive against other like-minded managers.”

MAS’ proposal recommends that the private market funds provide redemption opportunities for retail investors annually.

Investors will need to be aware that providing periodic redemption opportunities could affect “the structuring and operational costs of managing the fund, which may ultimately impact overall fund returns”, Inmoo Hwang, co-founder and group chief financial officer at ADDX, told BT.

*Amendment note: An earlier version of this story mis-stated the maximum fee on ADDX.