Funds

A Fund is….actually kind of hard to define.

The word ‘fund’ can be seen with surprising frequency. It’s used to describe structures like pension funds, mutual funds, trust funds, sovereign wealth funds, exchange-traded funds, private equity funds and hedge funds. All of these have the word ‘fund’ in common, but differ on many, many other levels.

Most countries have their own definition of a ‘fund’ and might separate that into different types, or even sub-types, of fund. That means there’s no one universal definition of a ‘fund’. However, at the risk of oversimplifying things, definitions of ‘fund’ usually touch on some or all of the following elements:

• Pooling money: A fund collects money (or other assets) from more than one person and combines this into a single ‘pool’ of money. That pool of money is then used to invest.

• Spreading risk: A fund invests in more than one asset. Investing in only one asset is risky. Investing in a diversified portfolio helps to spread and reduce the fund’s overall risk.

• External management: A fund is not managed by its investors, or even by its own management. Instead, a fund (usually) appoints an external third party service provider, e.g. a fund manager. Funds are typically launched by the fund manager that ultimately manages them, meaning the line is often blurred between ‘fund’ and ‘fund manager’. However, these are two different entities with two different purposes. The fund manager employees a team of investment professionals and offers fund management services. The fund is simply a vehicle to pool money from investors and own a portfolio of assets.

See our article on Funds for more information.

Funds are used by all kinds of financial institutions, particularly Fund Managers.

Why? To make money – or at least try to make money – for both the investors and those managing the Fund.

Those managing the Fund, typically a Fund Manager, are investment professionals with the knowledge, experience and skillset to make successful investments. That’s their day job and they get paid a salary to do it. In addition to their salary, they also get a ‘bonus’ if they do their job well, i.e. if their investments achieve a positive return. It’s this ‘bonus’ – also known as carried interest or a performance fee – that can make fund management a very lucrative profession.

The investors in a Fund have the money, but typically lack the time or expertise, to actively invest. By putting their money into a Fund, investors are getting the fund manager to do the heavy lifting for them. They will (indirectly) pay for the fund management services but, if they chose the right fund manager, they’ll share in the upside of investments that they would otherwise not have been able to access or make themselves.

The AuptiFund is a Fund created using Auptimate’s online structuring tool. It is:

• Customisable by the user.

• Unique to a specific user’s needs.

• Cloud-native with all documents automatically generated, signed and stored online.

• Launched online in a matter of minutes.

• Managed via Auptimate’s online platform.

Auptimate handles an AuptiFund’s incorporation, legal documents, investor onboarding, administration, accounting, tax, compliance, investor communications and other back-office functions – all on Auptimate’s online platform. We give Fund Managers the peace of mind to focus on what they do best: invest.

AuptiFunds are typically formed as a variable capital company (or 'VCC') incorporated in Singapore. However, we work with customers who are interested in different types of entity, whether in Singapore or elsewhere in the world (e.g. in the Cayman Islands).

In Singapore, the term 'venture capital fund' is defined in section 14(8) of Securities and Futures (Licensing and Conduct of Business) Regulations. There is no substitute to reading the full definition, but key points are:

1. it is a collective investment scheme managed by a Venture Capital Fund Manager (VCFM);

2. it only accepts accredited investors and/or institutional investors;

3. its shares are only offered during the specified offer period and are not redeemable at the discretion of the investors; and

4. it invests (either directly or via an SPV) solely in unlisted assets and, in particular, it invests at least 80% of its committed capital in 'qualifying investments', i.e. specified products (e.g. shares) that are directly issued by an unlisted business venture that has been incorporated for no more than 10 years at the time of initial investment.

For point 4, a venture capital fund can invest up to 20% of committed capital in 'non-qualifying investments', i.e. where the business venture has been incorporated for more than 10 years and/or the investment is made through acquisitions from other investors in the secondary market. However, a venture capital fund can only invest in unlisted assets. It cannot invest in listed securities or initial public offerings. Helpfully, MAS has clarified that this restriction does not stop a venture capital fund from holding listed securities in portfolio companies, provided that they were acquired prior to the listing.

Notably, allowing 20% of committed capital to be invested in non-qualifying investments is intended to provide VCFMs with flexibility. However, MAS expects VCFMs - and, by extension, the venture capital funds they manage - to focus primarily on venture capital investing, with the bulk of drawn capital being applied toward qualifying investments. This is to ensure the VCFM regime meets its objective, i.e. to facilitate the funding of early stage start-up businesses by increasing their access to equity funding.

More information on venture capital funds can be found in Appendix 7 of the MAS's Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies.