Plan to tweak VCC framework to draw more single family offices

Singapore

AN enhancement may be in the works for the variable capital company (VCC) framework, in response to strong interest among single family offices (SFOs).

For SFOs keen to register and manage a VCC, the Monetary Authority of Singapore (MAS) is looking into relaxing the requirement for "permissible fund managers'' subject to certain conditions.

In response to questions, the MAS said it is looking into possibly "widening the scope of permissible fund managers to allow SFOs to manage VCCs''.

"This proposal, including conditions and safeguards to be imposed if it goes through, is still under deliberation,'' it said.

This enhancement - if approved - may well attract yet more SFOs to set up a presence in Singapore. Recently it was reported that billionaire Ray Dalio, founder of Bridgewater Associates, would open a family office in Singapore to run his investment and philanthropy activities in the region.

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Others who have established family offices here include James Dyson who founded the Dyson vacuum cleaning giant; and Shu Ping, who co-founded Hong Kong-listed Haidilao.

The VCC framework would give SFOs a number of benefits, including tax benefits and access to Singapore's double-tax treaty network.

MAS said the number of SFOs here has grown five times between 2017 and 2019.

Recently in response to a question in Parliament, Tharman Shanmugaratnam, Senior Minister and Minister in Charge of MAS, said there are about 200 SFOs.

Total assets under management by SFOs here could be around US$20 billion, if each office manages around US$100 million. But there is no hard data as SFOs are not registered or licensed by the MAS.

The VCC framework, launched in January, is an initiative by the MAS and the Accounting and Corporate Regulatory Authority (ACRA). It has to date been warmly received. There are currently over 160 VCCs incorporated in Singapore, said the MAS.

A permissible fund manager for a VCC is defined as a firm with a capital markets services licence for fund management, or an exempt financial institution or a registered fund management company.

The Business Times understands that even if a SFO is eventually exempt from the permissible fund manager requirement, it is still likely to be restricted to managing family monies. That is, the SFO is unlikely to be allowed to offer investment or portfolio management services for third party monies.

This suggests that SFOs which seek to become a multi-family office must still obtain a fund management licence. Multi-family offices advise and manage funds on behalf of other wealthy families.

The requirement for permissible fund managers is meant to ensure regulatory and anti-money laundering safeguards.

Still, a VCC structure offers SFOs a number of benefits, said MAS. These include the ability to structure the VCC as an umbrella fund which allows for legal segregation of assets and liabilities for each sub-fund.

This safeguards against co-mingling risks while enabling family branches to invest together. It also offers cost efficiencies through the use of a single board of directors and common service providers across multiple subfunds.

An SFO with a VCC structure would also be able to demonstrate increased substance through the co-location of fund management and domiciliation activities.

"Allowing SFOs to manage VCCs would expand the range of structures available to SFOs and support their varied needs when establishing Singapore-domiciled structures.

"This would in turn generate greater demand for the funds ecosystem, including for service providers such as lawyers, accountants, fund administrators, custodians and directors,'' said MAS.

Lee Woon Shiu, DBS Private Bank regional head of wealth planning, family office and insurance solutions, expects the number of VCCs to rise if the current rules are enhanced.

"Singapore SFOs who value the flexibility of the VCC regime and wish to fine tune the ability to segregate funds of different branches of the families into different sub-funds with separate assets and liabilities, or wish to structure a combination of open-ended and close-ended sub-funds within an umbrella VCC, may find that such enhancements would be useful for them.''

He said DBS is working with a handful of high-net-worth families on their VCC structuring and application.

Raffles Family Office managing partner Jaydee Lin said that a number of SFOs have expressed interest in the VCC structure, including families based in Hong Kong, Taipei and Shanghai. "The VCC structure would allow SFOs to consolidate assets and have greater flexibility in terms of fund composition.''

He said extending the VCC structure to SFOs is a welcome move. "But there have to be adequate safeguards to ensure SFOs can adequately manage and operate the structure.

"These can include limits that restrict the fund to family members or preclude external subscriptions, for example.''