By Chew Xiang

'Blind pool' funds - shells with no business but holding cash to be invested according to a stated policy - could soon be listed on the Singapore Exchange, giving retail investors here a chance to put their money into a type of acquisition vehicle previously restricted to private investors.

These vehicles have had a chequered history in overseas markets but may soon be permitted in Singapore with safeguards added to protect investors.

According to proposed changes to the SGX listing rules released yesterday, such funds must place at least 90 per cent of the capital raised with an escrow agent approved by the Monetary Authority of Singapore.

That capital cannot be touched except for investments made according to a publicly stated investment policy that can be changed only with shareholder approval.

Once listed, the 'blind pool' fund should make its acquisitions within two years and any cash left over should be returned to shareholders.

If no investments were made in two years, then the fund should be dissolved.

As well, full management fees can be charged only on the capital deployed in accordance with the published investment policy.

Only half the usual fees can be charged on the funds still in escrow and not yet invested.

And to prevent conflict of interest, the fund must limit its investments to 10 per cent of total assets in companies related to its substantial shareholders, investment managers or management companies.

SGX said that the character and integrity of the directors, management and controlling shareholders of the investment manager will be a relevant factor for consideration in the listing decision, as the appeal of such funds often rides on the presence of a reputable management team.

In the US, former Apple executives Steve Wozniak and Gilbert Amelio have put their names as officers to a similar investment package.

In the 1980s, many 'blind pools' in the US turned out to be scams, some dealing in penny stock fraud or 'pump and dump' schemes.

Many investors did not know what their money was used for and some managers simply absconded with the funds raised.

But such structures have made a comeback in recent years, with big name investment funds such as Blackstone Group and Kohlberg, Kravis & Roberts getting in on the act and signing up top banks as underwriters.

Yet, critics maintain that 10 to 20 per cent of the capital invested is often immediately lost to expenses while hefty management fees take a big cut of any profits made.

»Shape of things to come: Some proposals by SGX

This article was first published in The Business Times on 11 July 2008.