Since its launch, Singapore’s new Variable Capital Company (VCC) corporate structure has been hugely successful despite Covid-19 challenges. Has Singapore found the key to becoming a global financial jurisdiction of choice?
The future looks bright for Singapore as it continues to grow its reputation as a global hub for international asset managers. Over the past year and a half since its game-changing Variable Capital Company (VCC) framework was introduced, the domicile’s popularity amongst funds has gone from strength to strength.
On 15 January 2020, the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) launched the VCC framework to help position Singapore as a full-service fund management and domiciliation hub.
The corporate entity structure provides funds with an alternative to existing fund structures available in Singapore, such as limited partnerships and unit trusts, and fills some of the perceived gaps and limitations of existing options.
It also offers flexibility of compartmentalisation via umbrella structure, just like a Protected Cell Company or a Segregated Portfolio Company. Umbrella funds can house different strategies/investors in different compartments called sub-funds, with each of the underlying sub-funds ring-fenced from one another, providing legal segregation of assets and liabilities.
Like most progressive structures in other jurisdictions, such as the UK, Guernsey, and Cayman Islands, the Singapore VCC can be used across both open-ended and closed-ended funds and offers the flexibility of incorporating directly or via re-domiciliation. Re-domiciliation is when a foreign corporate entity transfers its registration from its original offshore jurisdiction to a new one, such as Singapore, while retaining its characteristics and preserving its track record.
The singapore vcc structure’s popularity was clear in the first four months following launch, when 50 structures were created. This increased to more than 300 by June 2021. These encouraging initial take-up rates are comparable to those of similar structures in other key jurisdictions, and it is particularly impressive given the challenges presented by the Covid-19 pandemic.
The framework’s uptake is supported by a financial incentive provided by MAS’s VCC Grant Scheme (VCCGS), which covers up to 70% of eligible expenses capped at S$150,000 (US$111,000) per VCC. This applies to qualifying expenses for work completed in Singapore in relation to incorporating the VCC and includes legal, tax, set up, and some regulatory and consulting fees.
Large global players eye up Singapore
Our Asia-based fund administration team has helped a number of fund manager clients to launch VCCs in Singapore and there are many more international names in the pipeline preparing for launch. For Singapore-based managers, the VCC provides them with an additional option for structuring their funds. In the past, managers here have mainly used offshore structures, and now they have a flexible and versatile framework in the same jurisdiction. Primarily, the VCC benefits those fund managers with a broad Asian investor base or invest in Asia, as they can take advantage of access to Singapore’s 90+ tax treaties.
Many of the first adopters were smaller wealth managers, investment groups, and debut funds. In part, this is due to the generous financial incentive from the VCCGS which plays a powerful role in the decision-making process for these players, but also in part down to the speed and simplicity of incorporation through the VCC. It takes 14 days (for the most straightforward structure) to 60 days to get approval with the ACRA. The process is accelerated, because, unlike Hong Kong, there is no pre-approval process for alternative funds by the regulator.
However, more recently, we have seen VCC adoption extend to mid and larger asset managers and global players. We are seeing growing interest in the VCC framework from international cross-border asset managers, as they look to set up new funds and re-domicile existing strategies. The structure offers significant flexibility for these groups as it can be used to incorporate new funds or re-domicile existing and compatible investment funds.
Building on early success
To build on the initial success of the VCC in the years ahead, the market and regulator will continue their focus and collaboration. This goal is at the heart of the newly formed Singapore Funds Industry Group (SFIG), a partnership between MAS and the funds industry set up in April this year to identify emerging industry trends and formulate strategies to develop the domicile’s asset management ecosystem.
The SFIG is also looking at potential enhancements for the VCC, with version 2.0 in the works and expected in the near future. The regulator is expected to introduce provisions to make the VCC easier to use and further broaden its scope. It is reviewing industry feedback on the possibility of broadening the types of fund that use the structure, converting existing Singapore fund options such as unit trusts into VCCs, and extension of VCC’s utility from family offices to real estate funds, accommodating more complex investment strategies, and introducing investor pooling concepts. Such enhancements will further improve the attractiveness of the structure for asset managers, particularly marquee global players.
Singapore has always been an attractive financial hub, with a stable political climate and a proactive regulator that encourages innovation, sustainability and growth. As global investors become more familiar with the VCC framework and re-domiciliation becomes more popular, there is no doubt Singapore will attract increased capital flows, accelerating its prominence as a global financial jurisdiction.
By Ashmita Chhabra, Managing Director, Business Development, Asia Pacific at Apex Group, Chairman, Singapore Fund Administrators Association, and Executive Committee member of Singapore Funds Industry Group
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