Restricted Funds

A NEW ASSET CLASS AVAILABLE OFFLINE FOR ACCREDITED AND INSTITUTIONAL INVESTORS IN SINGAPORE

Restricted Funds are investment funds notified in Singapore under the restricted foreign scheme with the Monetary Authority of Singapore (MAS), which are not available to the retail public and are only available to accredited investors, institutional investors and other relevant persons. Potential investors will have to make a declaration by signing and returning this form (which also includes the definitions of accredited and institutional investors) with supporting documents.

Saxo Capital Markets is pleased to offer a select number of restricted funds such as hedge funds and absolute return funds managed by established boutique fund managers under the Saxo Bank Group. These funds offer access to markets which are not readily available to individual retail investors. Saxo Capital Markets only acts as a distributor of the restricted funds and markets these restricted funds strictly on a non-advisory, execution only basis.

It is important to note that investments into restricted funds are made directly with the fund and are totally separate from the Saxo account and Saxo platforms.

THE BENEFITS OF FUNDS

Funds allow you to buy into pools of money aggregated, invested and managed by a professional fund manager. Because they incorporate a range of underlying securities such as shares or bonds, funds provide an easy way to diversify by exposing you to a spectrum of regions, investment styles and sectors.

REASONS TO INVEST IN FUNDS

There are a number of reasons why investors choose to make funds a part of their investment portfolio. Some of the main benefits of funds investing are outlined here.

The quest for diversification
Diversification refers to the importance of spreading your investments across a wide variety of assets, sectors and regions. This helps you to take advantage of a variety of market movements. Funds offer diversification because most invest in a range of underlying securities, such as shares, gilts or bonds. So, even if the amount you invest is relatively small, you can still achieve diversification through the fund’s investment strategy.

Redeem on demand
Since funds have an open-ended structure, the price you receive when redeeming your investment will not be dependent on whether a buyer is available; it will be a direct reflection of the underlying assets. Of course, the liquidity of any given fund is determined by the securities in which it invests. Funds are ideally designed for longer term investment opportunities, however there is always a risk that you may not get back what you invested.

Investing in hard-to-reach markets
Funds give you access to a wider range of markets than might otherwise be available to you. You can purchase funds investing in emerging or foreign markets, which would give you a more diversified portfolio and could provide more opportunities than the traditional markets.

Have a professional working for you
Funds are managed by a professional fund manager, who will implement the fund’s investment strategy and will work towards achieving the optimal performance.

WHAT IS A FUND?

A fund is a type of collective investment scheme where money from individual investors is pooled together into a "fund" which is then managed and invested by a professional fund manager. The manager takes the collected monies and invests into different asset types, such as equities, bonds, cash, etc. depending on the fund’s investment objective and sector designation. Since funds will hold a group of underlying securities, the true value of your investment lies in the way the individual securities perform over time. If the underlying securities perform well, the value of your investment will increase. If they perform poorly, this will have an adverse effect on your investment.

One of the terms you will hear quite often in relation to funds is their inherent diversification. Regardless of the fund’s overall sector designation which broadly defines where the fund must invest, the underlying investments will generally be spread across a wide range of securities. This enables you as an individual investor to gain access to traditionally hard-to-reach securities and sectors, such as emerging markets and equities from small, closed markets.

Each restricted fund offered by Saxo Capital Markets issues an investment memorandum, which are available from us. This document provides relevant information regarding the nature of the fund and its underlying securities. Since funds may offer several classes of shares or units, each with a different charging structure which can affect the return, the investment memorandum provides essential information regarding the actual composition and set-up of the fund in question. As you know, the key to any wise investment is to do your research – so you should at the very least view the fund’s investment memorandum as required reading.

WHAT ARE THE GENERAL RISKS?

As with any investment, there is always a risk that you may not get back what you initially invested. Investments increase and decrease in value, and you should be prepared for fluctuations in the value of your investment during the time that you invest in any given fund. You should always refer to the fund’s investment memorandum for more information on the risks pertaining to the fund.

Composition-related risks
With funds, the nature of the risk involved is closely related to the fund’s composition, meaning that the fund will move in accordance with the underlying securities in which the fund invests. For example, if you purchase units or shares in a fund that is heavily invested in emerging market bonds, then the value of the fund will resemble the developments in emerging markets, which tend to fluctuate more significantly than, say the developed markets.

Funds investing in a mixture of equities and bonds may carry a higher risk than funds that are purely focused on bonds. A general rule of thumb is that the higher the concentration of equities, the higher the risk involved. The flip side of this is that funds with this type of composition typically yield higher returns than funds based solely on bonds. So as with any investment, you will need to weigh the potential gains against the potential risks and determine how much risk you are willing to accept.

At the other end of the spectrum are the funds based purely on equities. Due to the nature of the markets in which they invest, equity funds may post sharp gains and losses. They are best suited for investors with a longer term investment horizon, which would be able to bear the brunt of short-term losses, or as part of a diversified portfolio which could offset the risk incurred by relatively more volatile funds.

Exchange rate-related risk
When you invest in funds holding international securities, the fund’s value is determined both by the underlying securities’ development and by the development of the fund’s currency relative to your local currency. So if you invest in a fund valued in euros, the development of the euro against the Singapore dollar will have an impact on the overall value of your investment. Some funds hedge their currency risk, but this is not practised across the board. Most equity funds, for example, don’t hedge their risk, so you will need to be aware of this factor when investing in funds with international exposure.

Start-up related risks
There is also a need for caution when investing in newly-launched funds. If the fund does not achieve the expected level of assets under management, this may increase the proportion of expenses related to investing in the fund, which would have a negative impact on performance.

Tax-related risks
Tax rules are constantly changing, so as an investor, it’s important that you keep apprised of changes to tax legislation.

If you are unsure about any aspects of the features or risks of funds, you should obtain advice from a qualified financial adviser. Saxo Capital Markets markets these Restricted Funds strictly on a non-advisory, execution only basis.

WHAT ARE THE COSTS?

Cost terminology explained
We have highlighted some of the most common fees and cost terms used in the world of funds and given you more information about what they entail and how they overlap with each other. Not all costs are relevant for all funds.

Initial Sales Charge (ISC)
The ISC is a charge that is levied by the fund company at the time an investor purchases a fund. The size of ISC varies, but it can amount to upwards of 5% of the total amount invested. In instances where an ISC is charged, we may receive a percentage of the overall charge.

Total Expense Ratio (TER)
The TER is the total annual cost of running the fund. This includes the annual management charge, Performance Fee if any and all additional expenses associated with managing the fund such as legal fees, audit fees, rent etc.

• Annual Management Charge (AMC)
  To cover fund management and administration costs, the fund company retains a portion of the value of the fund each year, often between 1% and 1.5%. The charge is incorporated into the price of the fund on a daily basis and will not appear on your statement. Saxo Capital Markets may receive a part of the AMC from the fund manager.
• Performance Fee
  Some fund managers impose a performance fee which is in addition to the AMC, but varies according to the fund’s performance and is dependent upon many factors. For these types of funds, the overall cost of the fund is higher when performance is high and lower when performance is poor.
• Other expenses
  Transaction costs, stamp duty, custody, depository, management company, audit and legal fees are other examples of fees and expenses a fund might have to pay. These fees are drawn directly from the fund's capital and can be found in the fund's annual report.

HOW CAN I INVEST?

Investors in Singapore can contact their representative in Saxo Capital Markets or the Asset Management department of Saxo Capital Markets, who will assist in the subscription process. Please email assetmgt@saxomarkets.com.sg or +65 6303 7777 and we will be pleased to provide you with further information.

RISK WARNING

The funds mentioned are restricted foreign schemes notified with the Monetary Authority of Singapore (MAS). Restricted foreign schemes may only be offered or sold to institutional investors (as such term is defined in the Securities and Futures Act (Cap. 289) ("SFA")), relevant persons (as such term is defined in the SFA), or any person pursuant to Section 305 of the SFA.

An offer of shares in the restricted foreign schemes may only be made in or accompanied by an offering document in respect of such scheme. The information and materials set out in this document are not to be taken as a substitute for the offering document of the relevant scheme and you are advised to read the relevant offering document (which are available and may be obtained from the fund or Saxo Capital Markets Pte. Ltd.) before applying for shares in any restricted foreign scheme and before making any investment decisions.

Please note that hedge funds predominantly use alternative investment strategies and the risks inherent in them are not typically encountered in traditional funds. Restricted funds are not allowed to be offered to the retail public and may only be promoted exclusively to persons who are sufficiently experienced and sophisticated to understand the risks involved in investing in such schemes, and who satisfy certain other criteria.

Investors are also advised to consider their own financial circumstances and the suitability of hedge funds as part of their investment portfolio, and consult their own financial adviser and obtain professional advice if in doubt.

The information contained in this document does not constitute an offer to buy or sell any fund or security. All investment involves risk. Past performance is not indicative of future performance and investors may not get back the full or any of the amounts invested. Investments in emerging markets, smaller companies and derivative instruments may also involve a higher degree of risk and are usually more sensitive to price movements. Investors should read carefully the relevant offering documents, including the risk factors set out therein, for details before making any investment decisions.

Investment in restricted funds are intended for sophisticated investors who can accept the risks associated with such an investment including a substantial or complete loss of their investment.