Private equity may not fit retail, but regulated access beats a ban

CROWDFUNDING has opened the gates of private equity to retail investors, and further innovations such as collateralisation are about to widen the entrance even more.

From a risk perspective, that greater access also opens the doors to potential fraud, abuse and plain poor decision-making because unsophisticated investors are not the best equipped to properly handle the risks attached to investing in early-stage and unlisted businesses. But the greater systemic risk is that of a black market as investors find ways to get the returns that they crave. In this regard, Singapore policymakers have wisely eschewed a total ban on retail participation in private equity in favour of a framework that enables participation within certain rules.

In its latest version of proposed rules on securities crowdfunding, the Monetary Authority of Singapore (MAS) made adjustments to better define the ways in which retail investors can buy shares or lend to early-stage businesses, and closed a loophole that certain platforms had been using to reach such investors without being licensed.