Singapore's new VCC Act the main event drawing funds here

Singapore

DEMAND for Singapore office space will remain slack for a while as companies continue to shed workers to deal with the Covid-19 pandemic, but fund managers and family offices which have been increasing their presence here could mitigate some of the spare capacity.

Fund or asset management companies are flocking here, with many said to be from Hong Kong due to concerns over a new security law, but it is Singapore's new Variable Capital Companies (VCC) regime that is the main appeal, a game changer for the fund management industry.

There are now 109 VCC funds, according to Accounting and Corporate Regulatory Authority filings.

The VCC Act which took effect on Jan 14, 2020 was created to encourage investment funds to domicile in Singapore, said Tay Hong Beng, KPMG Singapore's head of real estate.

"It is considered a game changer for Singapore's fund management industry as it will allow us to capture value from the full fund management value chain, including product development, fund management, administration and distribution," said Mr Tay.

The success of the VCC Act has taken even the Monetary Authority of Singapore (MAS) by surprise, a report in The Straits Times in July said. In the first six months since it went into effect, 78 VCC funds were set up.

Armin Choksey, Asian investment fund and market research centre leader at PwC Singapore, had estimated 100 to 150 in the first year. "But 78 in the first six months - and that too during the Covid period - has given us confidence to double that anticipated number," he said.

According to the MAS, assets under management (AUM) in Singapore stood at S$3.4 trillion in 2018, a big jump from 2008 when the figure was S$864 billion. But that's small compared to the global pie.

Global AUM is about US$88.7 trillion (S$123 trillion), according to Boston Consulting Group. About US$42 trillion is under management in North America, US$22.8 trillion in Europe and US$17.8 trillion in Asia including Australia.

Paul Pak, PwC Singapore asset & wealth management leader, said he is seeing more asset managers and family offices coming to Singapore.

"Much of the interest is from mainland China and to a lesser extent Hong Kong, but we are also seeing interest from clients headquartered in North America, the UK and Europe as well, driven mainly by an expansionary agenda," said Mr Pak.

Singapore is attractive for asset managers and family offices given the general ease of doing business, transparent regulatory framework, robust investor protection regime and access to large private banking asset pools, he said.

Funds and family offices have long found it attractive to be in Singapore and the new VCC regime just made it even better, said Jennifer Chia, a TSMP Law Corp partner.

"Most of the larger funds and home offices started moving about two years ago when China started exerting more pressure on the legal framework of Hong Kong. Hence, so much has been moved (or have been set in motion already). If anything, nothing new but an acceleration of plans to move now to places like Singapore," said Ms Chia.

Singapore's attractiveness, other than its tax and government incentives, would be its cosmopolitan character, a population which has multi-language skills in English and Mandarin, stable government, clear rule of law and safe living environment to build families, she said.

"These have always been attractive to families from China."

"That said, Hong Kong would still remain the base for China investments and projects, but with the current economic crisis, ultra high net worth families have been looking to diversifying their risks by spreading their eggs into other baskets, such as Singapore, which is a viable alternative for investments outside North Asia, especially for Asean and Australasia," she said.

Other businesses are also raising their presence here, said Ting Lim, JLL Singapore's head of capital markets.

With an expected recovery over the next 6-12 months, many investors in a recent global survey have identified Singapore as one of the markets where an increase in transactional activity between now and 2021 is most likely, she said.

"We have seen an increase in technology, banking/finance/insurance and professional services companies setting up office or growing in Singapore over the past years, expanding from Europe, US or North Asia," she said.

To be clear, these firms are small and unlikely to move the needle much in terms of overall office demand.

One of the VCC criteria is that the Singapore office must have at least two licensed professionals.

"At present, these firms are not having a major impact on net take-up as they tend to be relatively small on average when they enter Singapore but some are now starting to grow and we expect to see more demand in the near future," said Ms Lim.

The net absorption of office space in Singapore shrank by a record 55,000 square metres of net lettable area in the second quarter of 2020.

Meanwhile, the island-wide office vacancy rate climbed to 12.1 per cent from 11 per cent at the end of the first quarter of 2020, according to latest data from the Urban Redevelopment Authority.

Chiman Kwan, founder and CEO of Raffles Family Office set up shop here in 2018, and was among the first to benefit from the VCC fund structure.

"Our office is currently 5,000 square feet in size. And while we are currently comfortable with the capacity utilisation rate at our Singapore office, we will certainly look to expand as we continue to build out the business," he said.

"Like many companies, we have had to be more flexible as a result of the pandemic. But this hasn't changed the fact that we continue to benefit from the Variable Capital Company fund structure that the Monetary Authority of Singapore set up earlier this year," said Mr Kwan.

"We were one of the first of our industry to participate in the scheme, which gave us a first-mover advantage that has allowed us to continue capturing business opportunities despite the economic slowdown," he said.

Would the increasing anti-foreigner protectionistic sentiments scupper the decision to move here?

One consultant said his sense is that it won't put off funds moving here - because they are moving for many reasons such as better access to South-east Asia, and that it's not Hong Kong. But it will be a consideration because one of the areas the local fund management industry needs to work on is the availability of talent, he said.

"There are a couple of roles which are in high demand and short supply and these are anything around risk, compliance, cyber and data protection," he said.

Also specialist roles such as ESG (environmental, social and governance) investment professionals are just not found here, he said.

That is because Singapore and Asia are very young in ESG adoption; the most developed and longest looking at ESG investment is in Europe, he said.

Investors are increasingly allocating higher amounts to ESG theme funds particularly since March with the onset of the pandemic as a way of doing good, and greater awareness of the impact of climate change, he said.

KPMG's Mr Tay said Singapore has been a preferred location for regional headquarters of multinational corporations because of its world class connectivity and infrastructure. It is unlikely that the recent calibration of minimum qualifying salary requirements for foreign professionals will diminish this appeal, he said.

Due to the unfortunate impact of the ongoing pandemic, Singapore has a surplus of talent in the salary range below the new cut-offs that needs to be re-employed.

"The new cut-offs may lead to employers investing in retraining and upskilling existing employees if they no longer have the option to hire foreigners at these salaries. It may also increase diversity in the workforce, as potential employers will be open to looking at part timers and older candidates who would have been otherwise disadvantaged," said Mr Tay.

Mr Kwan added: "Singapore offers access to a rich talent pool comprising some of the best financial planners and relationship managers in the region. Their support will be critical as we continue to realise our aim of becoming Asia's leading multi-family office."