SINGAPORE Law and Practice Contributed by: David He, Benjamin Teo, Kinnari Sahita and Binh Vong, Gunderson Dettmer Singapore LLP
• carried interest – typically 20% of fund profits, though this may scale up to 25% or 30% after the overall return to investors has achieved certain milestones (for example, 25% after a 2x return and 30% after a 3x return); and • management fees – typically 2% to 2.5% of the total capital commitment during the investment period, and thereafter a step down to 1.5% to 2% of the undisposed investments. Key Terms Relating to Fund Economics Distribution model Fund managers with strong bargaining power may negotiate for a deal-by-deal distribution model, where carried interest is calculated with respect to an investment at the time liquidity is realised. This allows fund managers to realise returns earlier. An alternative approach is the return-of-capital model, where carried interest is only calculated after all investments in the portfolio have been liquidated, deferring distri - butions until the overall fund performance can
to form any other investment fund with similar objectives and operations until a certain propor - tion of their fund’s capital commitments have been deployed, or for a fixed period after the closing date of their fund. Advisory committee Singapore-based VC funds typically have an investors’ advisory committee, comprised of three to five members representing the largest investors. Matters involving conflicts of inter - est are typically subject to advisory committee approval. 2.3 Fund Regulation Regulations With Respect to Formation of VC Funds A VC fund formed in the Cayman Islands is gen - erally required to register as “private fund” . The Cayman fund may be managed by a fund man - ager registered in the Cayman Islands or another jurisdiction recognised in the Cayman Islands (Singapore fund managers are recognised). The formation of a VC fund vehicle in Singapore is generally not a regulated activity in Singapore. Singapore Fund Manager Regulations Singapore fund management companies with more than SGD250 million of assets under man - agement are required to obtain a licence from the Monetary Authority of Singapore (MAS). Most Singapore-based VC fund managers obtain a venture capital fund manager (VCFM) licence from the MAS, which takes less time to obtain than a full licensed fund management company (LFMC) licence. A fund managed by a VCFM must invest at least 80% of committed capital in securities that are directly issued by an unlisted business venture which has been incorporated for no more than ten years at the time of the initial investment. In
be ascertained. Transfer rights
To obtain early liquidity, limited partners (LPs) may negotiate for the right to transfer their part - nership interests to third parties prior to the con -
clusion of the fund cycle. Investment restrictions
Because of the risks involved in start-up invest - ments, investors may negotiate guardrails around the maximum total fund commitments allocated into a single portfolio company. This is true especially for early-stage-focused funds. Formation of new funds To align interests between GPs and LPs, LPs may implement restrictions on the GPs’ ability
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