With the Single Family Office in Play, Singapore's VCC Can Be a World LeaderBy Eric Chin
Singapore’s introduction of the Variable Capital Company (VCC) investment vehicle in early 2020 was lauded by many as a ‘gamechanger’ — and rightly so. The VCC brought Singapore into the same realm as other global investment titans by allowing investors to hold multiple segregated sub-funds under one umbrella fund — that is the ‘Variable Capital’ in ‘Variable Capital Company’.
Much credit must go to the Singapore Government, which has been working tirelessly behind the scenes to ensure that Singapore remains an attractive financial hub for global fund managers to redomicile international funds into Singapore. As a result, more than 200 VCCs have been formed to date, creating an upswing in investment as domestic and foreign fund managers rush to capitalise on the new but justified interest.
There is just one thing missing that could take Singapore to the next level — the inclusion of the Single Family Office (SFO) into the VCC fold.
Despite the turmoil of COVID-19, the high-net-worth (HNW) sector in Asia has quietly grown by 7.9%, with the world’s second-largest group of billionaires now residing in Mainland China. Put simply, Asia is producing more high-net-worth individuals (HNWI) and ultra-high-net-worth individuals (UHNWI) than ever.
HNWI and UHNWI find the SFO structure particularly attractive as it caters for bespoke budgeting, planning, charitable donations, wealth succession, and investment education for future generations. Above all, the Family office provides security with impeccable privacy.
There are around 400 SFOs currently operating in Singapore, 60 percent of which were set up in the last three or four years. Notable examples of Singapore SFOs belong to Google co-founder Sergey Brin and household appliance mogul James Dyson. The global interest for the Singapore VCC is evident.
As it stands, however, an SFO is required to hold a fund management licence (issued by Singapore’s Monetary Authority of Singapore) in order to gain eligibility to set up a VCC. Obtaining and holding a fund licence does not make a lot of sense for an SFO, as they are only managing one family’s wealth, and the licencing process will subject the SFO to be regulated as a normal fund management company.
Thankfully, change looks to be on the horizon.
The Monetary Authority of Singapore (MAS), and the Accounting and Corporate Regulatory Authority (ACRA) are reportedly looking to change the rules to allow SFOs to utilise the VCC structure without licencing. While nothing is officially in motion, signs are encouraging with an official confirming that MAS is investigating the possibility of widening the scope of who can use VCC structures.
While this will be no short process, allowing SFOs to take advantage of the VCC structure will allow HNWI and UHNWI to have the best of both worlds. Firstly, they will have all of the security and privacy of the SFO, and secondly, they’ll also have all of the benefits of a VCC, including tax advantages, financial flexibility, and protection thanks to the sub-funds being isolated from one another.
The VCC is a terrifically simple way to redomicile investments into Singapore, and allowing an SFO to take advantage of the VCC structure is a sure-fire way to encourage even more HNWI and UHNWI to bring their substantial capital to Singapore’s shores.
With Asia’s wealth growing, and the traditional investment centre of Hong Kong becoming less desirable, this may well be the tipping point for Singapore to become the legitimate investment capital of the world.