What safeguards must a fund manager have when carrying out fund management activities with their employees?
According to MAS (Guidelines),
last revised on 1 March 2022
2.2.3 Where an A/I LFMC, VCFM or RFMC carries on business with the employees stated in paragraph 2.2.2(ii) who do not meet the accredited investor status, the FMC is required to have the following safeguards in place:
(i) The FMC must maintain records of investment professionals with whom the FMC carries on business in fund management. The FMC should be able to demonstrate to MAS, when called upon, the basis pursuant to which the employee qualifies as an investment professional.
(ii) The investment professionals’ participation in the fund management arrangement must be strictly voluntary. The FMC should be able to demonstrate to MAS, when called upon, that the participation or investments made by the investment professionals have been voluntary.
(iii) The investment professional must be apprised of the risks involved with his investment, and be required to acknowledge in writing that he would not be accorded the regulatory safeguards as a retail investor for his investment into the funds managed by the FMC.
(iv) In the event that the investment professional ceases his employment with the FMC or corporate group, that investment professional must not be allowed to make further investments into the funds managed by the FMC. For funds that require investors to enter into contractual capital commitments upfront (such as private equity or venture capital funds), the employee can continue to fulfil his existing commitment at the point of investment, but should not be allowed to make new commitments to funds managed by the FMC, after the cessation of employment. In this regard, the FMC must have a clear policy regarding the treatment or handling of such investment professionals’ investments in the event of his cessation of employment, including whether the employee will be allowed to remain invested or redeem his existing contributions, be restricted from making further contributions or be required to fulfil his existing commitment, and this policy must be agreed on and acknowledged by the investment professional prior to his investment.3 For the avoidance of doubt, it is not MAS’ intent to mandate that such investment professionals liquidate or dispose of their investments once they cease to be employed by the FMC or the corporate group.
3If the relevant agreements between the FMC and the investment professional so provide, upon the cessation of the investment professional's employment with the FMC, the investment professional may be redeemed or restricted from making further contributions in respect of an existing commitment into the fund managed by the FMC.