Located in the heart of fast-growing Asia, Singapore has positioned itself as a developed pan-Asian asset management centre, with a conducive environment for asset managers and asset owners to locate and hub their investment activities. Singapore has a strong pool of regional and global players offering and managing traditional and alternative investment strategies, using Singapore as a gateway to source and access regional investment opportunities. The Lion City is also an attractive location for global public investors and asset owners such as sovereign wealth and pension funds, to access public and private market opportunities across Asia and ASEAN. In addition to positioning Singapore as a leading fund domiciliation hub, the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) launched, early in 2020, the new Variable Capital Companies (VCC) framework, to provide a new corporate structure for investment funds seeking location of substantive fund management and domiciliation in Singapore.
According to the MAS, assets under management (AUM) in Singapore stood at S$3.4 trillion in 2018, a massive increase from 2008, when the AUM was S$864 billion. Global AUM in Singapore, according to the Boston Consulting Group, is approximately US$88.7 trillion, of which it is estimated that US42 trillion is under management in North America, US$22.8 trillion in Europe, and US$17.8 trillion in Asia, including Australia.
Key Features of a VCC
- A VCC has a variable capital structure that provides flexibility in the issuance and redemption of its shares. It can also pay dividends out of capital, which gives fund managers flexibility in meeting dividend payment obligations.
- A VCC can be set up as a single standalone fund or as an umbrella fund with two or more sub-funds, each holding a portfolio of segregated assets and having separate liabilities. For fund managers who structure their funds as umbrella VCCs, there may be cost efficiencies from using common service providers across the umbrella and its sub-funds.
- A VCC can be used for both open-ended and closed – end fund strategies.Fund managers may incorporate new VCCs or re-domicile their existing overseas investment funds with comparable structures by transferring their registration to Singapore as VCCs.
- VCCs must maintain a register of shareholders, which need not be made public. However, this register must be disclosed to public authorities upon request for regulatory, supervisory and law enforcement purposes.
Generally, a VCC will have to be managed by a fund manager which is a licensed fund management company (i.e., a holder of a Capital Markets Services License for fund management, a registered fund management company (i.e., a corporation exempted from holding a CMSL), or a person exempted under Securities & Futures Act.
Further, an open-ended fund allows investors to redeem their investments at their discretion, while a closed-ended fund does not permit investors to do so. Closed-ended funds also have a fixed number of shares and do not allow new subscriptions after the offering period is over, while open-ended funds are open to new subscriptions by new investors at any time.
VCC Grant Scheme
In April of 2020, the MAS launched a scheme under the Financial Sector Development Fund (FSDF) to co-fund qualifying expenses paid to Singapore-based service providers for work done in Singapore, in relation to the incorporation of a VCC. The scheme is valid till 15 January 2023 and is open to Qualifying Fund Managers that have incorporated VCCs or redomiciled a foreign corporate entity to Singapore as a VCC. The following conditions apply:
- The setup of the VCC cannot be simultaneously funded by other government grants/incentives with respect to the same set of qualifying costs and commitments.
- Each applicant may only apply for the VCCGS for work done in relation to a maximum of three (3) VCCs that have been successfully incorporated or redomiciled.
- Qualifying expenses must be paid to Singapore-based service providers for work done in Singapore in relation to the incorporation and registration of VCCs and their sub funds.
- 70% co-funding of qualifying expenses (legal services, tax services, administration or regulatory compliance services), is capped at S$150,000 per VCC.
Progress to date
Initially a group of 18 fund managers participated in a VCC Pilot Programme, which subsequently incorporated or domiciled a total of 20 investment funds as VCCs. These investment funds comprised venture capital, private equity, hedge funds and Environmental, Social and Governance (ESG) strategies, demonstrating the viability of the VCC framework across use cases. The 890-plus registered and licensed fund managers in Singapore will be able to extract cost savings from centralising their fund management and domiciliation activities in Singapore and structuring their funds more efficiently. This new VCC framework also creates new opportunities for Singapore-based fund service providers such as legal and tax advisors, accountants, fund administrators and fund custodians.
According to ACRA, there are now 109 VCC funds operating in Singapore, with many new entrants from Hong Kong due to the concerns over the new HK security law. This result to date, particularly during the Covid-19 pandemic, suggests that the VCC product has been exceptionally welcomed by industry players, including family offices, by funds originating from China seeking to diversify from Hong Kong and attracted by Singapore’s stability, rule of law, deep talent pool and International Financial Centre status.