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Potentially "game-changing" Bill for the fund industry passed into law

FUNDS will be able to set up in Singapore using a customised legal vehicle, following the passing of the Variable Capital Companies (VCC) Bill on Monday. Regarded to be a potential “game changer for Singapore” by observers, the new legislation could enhance Singapore’s position as a full-service international fund management centre, and potentially generate over 1,000 new jobs.

The VCC Bill, with its flexibility and usability in having funds both incorporated and operate in Singapore as well as generating potential spillover benefits for service providers, has set Singapore fund industry abuzz with excitement.

Second Minister for Finance Indranee Rajah said in Parliament on Monday: “The introduction of this corporate structure, known as the variable capital company or VCC, will be a game-changer for Singapore’s fund management industry as it will allow us to capture value from the full fund management value chain.”

Ms Indranee pointed out that Singapore is already recognised as a leading Asian fund management hub. Assets under management (AUM) have grown by an average of 15 per cent per annum over the past five years, reaching S$3.3 trillion at the end of 2017. 

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Almost seven in every 10 Sing dollars under management are invested into the Asia-Pacific region, reflecting Singapore’s role as a key node for global fund managers and investors to invest in the region’s growth opportunities.

In addition, the fund management industry is an important component of Singapore’s financial sector, contributing 12.4 per cent of the overall financial sector’s nominal value-add last year.

However, a substantial proportion of investment funds that are managed by fund managers in Singapore are domiciled elsewhere, owing to the flexible corporate structures that are available there. As a result, most of the economic benefits generated by service providers to these investment funds accrue outside Singapore.

With the VCC, there is potential for Singapore to capture a greater share of the full value chain of fund management, particularly in the fund servicing space.

“Beyond fund managers, the VCC framework will create new business opportunities for lawyers, accountants, tax advisers, fund administrators and custodians in Singapore,” Ms Indranee said.

VCCs will operate from an office in Singapore and employ Singapore-based corporate secretaries, engage Singapore-based lawyers and fund administrators to facilitate their operations. 

The Monetary Authority of Singapore has estimated that the VCC framework could create over 1,000 new jobs for service providers in the first two years of its introduction, Ms Indranee added. 

VCCs are flexible structures, in that they may be constituted as open-ended or closed-end funds, providing a suitable corporate structure for both traditional and alternative strategies.

Ms Indranee said: “Given the growth in the alternative space, it is also important that the VCC structure can be used by alternative managers. Alternative AUM in Singapore grew by 20 per cent per annum over the past five years, led by the venture capital and private equity sectors; in comparison, traditional AUM grew by 13 per cent per annum over the same period.”

To facilitate fund domiciliation in Singapore, the Bill will provide a re-domiciliation mechanism for existing overseas investment funds constituted as corporate structures similar to VCCs. 

Existing funds domiciled in Singapore as companies, limited partnerships or unit trusts can also restructure to take advantage of the VCC structure.

“The introduction of the VCC framework will enhance our fund ecosystem and the value proposition Singapore offers to fund managers. The benefits of the VCC are not solely confined to fund managers, but will also extend to local service providers.

“It will benefit the Singapore economy, strengthen Singapore’s position as a full-service international fund management centre and create good jobs for Singaporeans.”

Before this Bill was passed, funds can only be registered under the structure of a company, limited partnership or unit trust, but these structures with restrictions are less than ideal for funds.

Hence, it is common to see funds operating in Singapore but domiciled offshore - the favourite jurisdictions being Cayman Islands, Dublin and Luxembourg.

The VCC, however, would provide for both incorporation and operation of the funds could be consolidated in Singapore.