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Following the Swiber debacle, many wealthy (sorry, formerly wealthy) Singaporeans are regretting their decision to become accredited investors. From all appearances, it seems accredited investors are just people that banks (or private funds) can push into buying high-risk products. So what is the accredited investor status, and should you use it just because you can have it?
An accredited investor is someone with at least $2 million in net worth (including property assets, which can account for a total of up to $1 million in determining net worth), or an income of at least $300,000 in the last 12 months. This is, broadly speaking, also the definition of a high net worth individual (HNWI) in the local context.
Accredited investors are assumed to be better able to handle investment risks and are thus exempt from certain protections. When it comes to retail investors (i.e. the average Singaporean), the Monetary Authority of Singapore (MAS) restricts the kind of financial products that can be sold to us. For example, retail investors can only buy vanilla bonds when considering corporate bonds. There are also regulatory requirements such as having a prospectus for any investment product.
Accredited investors bypass these requirements and can be sold more exotic products. Examples include unrated and high-yield bonds or early stage venture capital funds.
Most of the time, these financial products will be sold to them via private bankers or independent asset managers. However, funds can also approach them with none of the usual MAS restrictions.
As of 2015, the Singapore government has moved to introduce an opt-in scheme which requires you to consent to be an accredited investor before you’re treated as one.
The Swiber debacle was what triggered tighter regulation for accredited investors. Swiber was an oil and gas related company and their corporate bonds were sold mainly via private banks. (In fact, in 2014, MAS determined that 43.5% of Singapore dollar bonds were sold via private banks).
Retail investors, by the way, don’t generally get sold products from private banks (or are even invited to bank with them). So we can safely assume it was accredited investors who were pushed into products like Swiber bonds — which also had minimum investment sums of $250,000. A prospectus was not even required.
When Swiber defaulted, a large number of accredited investors were burned. Even worse, they didn’t quite have the capacity to understand or absorb the risk, as was assumed. At the time, property assets could account for the bulk of their net worth (not just up to $1 million). Many were older Singaporeans who were not especially skilled in financial management but had simply managed to buy properties that appreciated significantly in the run-up to 2013.
It was apparent that many had liquidity issues and did not comprehend the risks any better than the average retail investor. This was compounded by the fact that an opt-in was not necessary at the time; banks could just treat anyone who qualified as an accredited investor, whether they chose to be or not.
With the new measures in place, you’re no longer going to stumble into this by accident. But now it’s worth asking if you should be an accredited investor if you can.
You should consider accredited investor status if:
You should avoid being an accredited investor if:
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