Much-lauded Variable Capital Companies framework and grant scheme launched

Singapore

A BATCH of 20 investment funds from a mix of new incorporations and re-domiciliations have adopted the new Variable Capital Companies (VCC) structure, as Singapore upped its fund management game and launched the VCC framework.

The VCC - hailed as a game changer for Singapore's fund management industry - is a flexible corporate entity targeted at a wide range of investment funds.

A VCC can be open-ended or closed-end, and used by both traditional and alternative fund managers for various strategies such as private equity. It can also use accounting standards different from Singapore's in financial statement preparation.

The VCC puts Singapore on the global domiciliary map as the city-state is fired up to be a one-stop shop for both domiciliation and operation of funds.

The Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (Acra) jointly unveiled the VCC framework on Wednesday - to much anticipation of the fund management industry. The VCC Bill was passed in Parliament in October 2018.

The framework is expected to create new business opportunities for lawyers, accountants, tax advisers, fund administrators and custodians in Singapore as well as over 1,000 new jobs for these service providers.

Singapore's fund management industry has been growing an average 14 per cent per annum over the past five years, with assets under management (AUM) reaching S$3.4 trillion at the end of 2018.

Industry players lauded the launch of the VCC framework for deepening the ecosystem and enhancing the city-state's role as Asia's gateway for fund managers and investors.

Lee Kher Sheng, co-head of APAC and deputy global head of government affairs of the Alternative Investment Management Association (AIMA), said: "Our members are excited about the many incredible opportunities ahead that can be unleashed via the VCC, particularly in attracting fund assets onshore and stimulating demand for businesses that offer services to fund managers and the wider ecosystem."

Ram Marimuther, Assetfort Capital's head of corporate and institutional clients, sees "very exciting times ahead" for both the managers and the investor base.

Service providers also said they are seeing a strong pipeline after the pilot take-up, and expect the VCC framework to leverage Singapore's position as a financial hub.

Tony Lewis, head of HSBC Securities Services, HSBC Singapore, said: "As South Asia continues to garner interest from the world's investors and asset managers, the VCC is expected to further attract interest in the Republic as a global gateway to the region."

Morgan Lewis Stamford director, Joel Seow, said many in the industry hope that future updates to the VCC framework will include expanding the legislation such that the VCC can be managed by the full range of exempt managers. "Currently, the VCC framework can only be adopted by funds managed by a licensed or registered fund manager or an exempt fund manager that is otherwise regulated as a financial institution."

Mr Seow expects private fund managers to drive the uptake of the VCC structure initially, but retail fund managers are "likely" to follow once the VCC structure is more widespread and established.

A group of 18 fund managers who participated in a pilot programme last quarter incorporated or re-domiciled a total of 20 investment funds as VCCs through the initiative. These investment funds comprise venture capital, private equity, hedge fund and environmental, social and governance (ESG) strategies.

Chartered Asset Management (CAM) is in the process of re-domiciling all its three funds with a total AUM of US$210 million from Mauritius to Singapore as three VCCs through the pilot programme.

Colin Lee, managing director of CAM, told The Business Times that prior to 2010, funds managed by boutique fund managers would have been subject to Singapore corporate tax had they been incorporated in Singapore. Two of CAM's funds were incorporated in 1997 and the third in 2007.

Double Taxation Agreements between Singapore and Mauritius enable Mauritian-domiciled funds to enjoy preferential tax rates offered to offshore funds. Changes in the Singapore tax regime for fund managers in 2010 removed that tax disparity, said CAM's Mr Lee, but it was not possible then for CAM to re-domicile its existing funds to Singapore.

"Prior to VCC, we would have to establish new entities in Singapore, liquidate the existing investments in each of the Mauritian funds, and inject the cash into the new entities, erasing the funds' track record. The VCC programme allows us to re-domicile our funds with existing assets and track record intact."

A fund manager that incorporated a VCC is CSOP Asset Management. CSOP had chosen Hong Kong as its first stop when the mutual fund house from China went offshore in 2008. When asked by BT if Hong Kong's ongoing civil unrest was a factor in choosing Singapore to incorporate its new fund, CSOP's head of sales and product strategy, Melody He, said that it has been preparing "for quite a period of time" to expand its business in Singapore as part of a long-term plan to increase its client base and diversify its business. CSOP set up an office and extended its family office business to Singapore last year.

Together with the VCC framework launch, MAS on Wednesday also rolled out a grant scheme valid for three years to help defray up to 70 per cent of the costs of incorporating or registering a VCC. However, the financial support is capped at S$150,000 for each application, with a maximum of three VCCs per fund manager.