When one hears of A.I., the first words that come to mind are “Artificial Intelligence”. Yet, in the investment world, “AI” refers to a different term¸ that is – Accredited Investor. AI is a type of classification for investors that was introduced post-global financial crisis in 2008 to distinguish the savvier investors from the average investor. An AI is also a high-net-worth individual and is expected to be more well-verse in investing as compared to a regular retail investor. What, exactly, does it take to be an AI in Singapore?
According to the Monetary Authority of Singapore (MAS), to be an accredited investor, one must be:
- an individual with a personal net asset in excess of $2 million;
- an individual with an income of not less than $300,000 in the past 12 months; or
- a corporation with net assets exceeding $10 million in value, in their most recent balance sheet.
The primary residence of the individual can only contribute up to $1 million of the required $2 million in personal net assets; and more importantly, it is based on an opt-in scheme for one to be considered as an Accredited Investor.
Why, then, should an individual opt-in as an AI and what advantages are there?
- Access to more deals and unique opportunities
One of the biggest advantages of being an AI is the ability to access a wider range of investment opportunities and private deals such as real estate private equity funds, hedge funds, venture capital, etc. One can only invest when they have the access, and many of such private deals are exclusive to AIs only. Hence being an AI is like getting the special access to a private club. Some of these investment opportunities can be found online, while others are shared amongst other AIs at investors luncheon, galas or private events where retail investors will not be aware of due to the regulations set out by MAS.
A basic rule of investing is the diversification of portfolio. Diversification allows one to maximise returns through investing in different areas that would each react differently to the same market event. As the stock market is relatively volatile, an accredited investor, being exposed to different investment products, will be able to diversify by investing in private assets that are less correlated and cushion the market swings. Industrial and commercial real estate are examples of asset types that are less correlated to the stock market.
- Higher returns
As mentioned above, an AI will have access to investment opportunities including private deals. While not all of these opportunities will guarantee higher gains, but due to the higher risks involved, returns are generally higher. An example would be a private equity real estate project that can give you an IRR of more than 15%. (Kindly seek your own legal and tax advice before any investment).
- Higher yields
Investors often seek high yielding investment products, and as an accredited Investor, with the wider range of products offered, they would have the option to invest in private deals that offer higher yields and not be limited to simply dividend paying stocks, REITs and bonds.
While the advantages are present for an accredited investor, one should consider the following before deciding to pursue the above-mentioned investment opportunities:
- Minimum investment amount
- Risk and returns
- Committed Term and liquidity
- Performance and management fees
One thing remains clear for a savvy investor, accredited or not, and that is to practice due diligence when it comes to investing and the importance of knowledge on the product. A sophisticated AI, who practices due diligence, will not be limited by the options available, and hence, be able to make the ideal investment choice.
Established in 2005, ZACD Group Limited is an integrated asset manager listed in Hong Kong (HKEX: 8313) and headquartered in Singapore, offering integrated solutions across the real estate value chain in the Asia Pacific region. ZACD’s investment management arm specializes in real estate private equity funds for accredited investors only. Find out more about ZACD’s latest projects here.