MAS Issues Guidance on FMC Risk Management & Valuation Practices (Key Highlights)
On 29 May 2026, MAS published two information papers setting out supervisory expectations for fund management companies (FMC) on risk management and valuation practices. FMCs should review existing frameworks and promptly address gaps.
Part 1: Risk Management
1. Governance
Board & Senior Management must establish governance structures covering new fund launches, investment due diligence, and ongoing monitoring, overseen by experienced cross-functional senior management.
Common key deficiencies: Incomplete risk monitoring (liquidity risks overlooked); private credit funds lacked proper frameworks; inadequate COI management; committees lacked independent members.
2. Policies and Procedures (P&P)
Comprehensive P&Ps covering all activities with clear roles, escalation procedures,and regular (at least annual) and ad-hoc reviews.
Common shortcomings: P&Ps established after fund launch (up to one year); not updated to reflect practices; no fixed review frequency or ad-hoc triggers; non-compliance without documentation.
3. New Fund Launches and Fund Changes
Assess investment strategy, risk-return profile, redemption terms, liquidity tools, and service provider capabilities pre-launch. Accurate documentation.
Material deficiencies: Investment merits not assessed; borrower creditworthiness not re-evaluated when repayment source changed; Portfolio Managers having less than 2 years’ experience; service provider expertise (e.g., digital assets) not assessed; marketing materials inaccurate; absent proper approval process.
4. Investment Due Diligence
Conduct sufficient due diligence on every investment—authenticity, suitability,and reasonableness of risk-return profile. Private markets require extra diligence.
Common lapses: Trade receivables not verified; guarantor credit quality not assessed; fund-of-funds did not review third-party managers' governance; Joint Venture partner staff backgrounds unchecked; limited documentation of quantitative/qualitative analysis.
5. Ongoing Monitoring
Establish frameworks to monitor market, credit, liquidity risks and service provider performance with risk metrics and limits.
Critical gaps: No independent monitoring (Portfolio Managers self-checked compliance); weekly-dealing fund monitored only monthly; collateral sold off without FMC's knowledge; credit rolled over for nearly 2 years without review; inaccurate disclosures (overdue loans reported as performing).
Part 2: Valuation Practices
1. Governance
Valuation oversight by senior management/committee independent of portfolio management. Formal Terms of Reference required.
Key deficiencies: Smaller FMCs had Portfolio Manager-involved executives overseeing valuation (conflicts of interests); incomplete or absent Terms of Reference.
2. Policies and Procedures
Valuation P&Ps must cover all asset classes with clear roles, methodologies,frequency, escalation, and record-keeping. Regular and ad-hoc reviews required.
Common shortcomings: Dated P&Ps or lacked guidance (e.g., fair value triggers); fair value decisions made without committee approval and deviation not documented; no annual/ad-hoc reviews; no review frequency or triggers specified.
3. Price Validation Checks
Independent checks (price variance, source-to-source, stale price, NAV variance) with defined tolerances and escalation.
Common lapses: Daily/weekly funds received stale price reports (monthly sources); stale securities took >1month to escalate; source-to-source used same source; uniform 5% tolerance across all asset types; same bond priced differently across funds undetected.
4. Valuation Methodologies and Fair Value Assessment
Valuation by competent parties independent of Portfolio Manager. Three-level fair value hierarchy applies: Level 1 (quoted prices), Level 2 (observable inputs),Level 3 (unobservable inputs).
Significant shortcomings: Non-Performing-Loansrepeatedly restructured without repayments—no impairment adjustments, leading to overstated NAV and overpaid fees; fair values not adjusted despite material events; digital asset fund lacked valuation P&Ps, leading to NAV delays and fund closure; insufficient due diligence on third-party valuers; fair value decisions not timely communicated to administrators; key assumptions (recoverability timing litigation success probability) lacked supporting documentation.
7 Key Takeaways
Independence : Valuation and risk monitoring must be independent of PM. Smaller FMCs unable to segregate should engage external service providers and disclose COI.
P&Ps First : Complete P&Ps must be in place before fund launches, with annual and ad-hoc reviews.
Special Assets : Private credit and digital assets require tailored risk and valuation frameworks.
Documentation : All decisions—investment, valuation, due diligence, monitoring—must be fully documented for traceability.
Disclosure : Fund documents and marketing materials must accurately reflect product features, risks, and valuation methods.
Monitoring Frequency : Must match fund dealing cycles; exceptions and breaches escalated promptly.
Third-Party Oversight : Conduct due diligence before engaging service providers and review periodically after.
DHWM views these key principles as imperative and paramount to investment longevity. We adhere strictly to MAS guidance and continuously enhance our risk management and valuation frameworks to safeguard investor interests.
