It aims to shun inconvenient rules which plague investment funds.
Singapore pioneered a specialised corporate structure to attract more investment funds to set up shop in the city-state. Through the passage of the Variable Capital Companies (VCC) Bill, fund managers will be able to experience greater operational flexibility to solidify Singapore’s position as a full-service international fund management centre.
Analysts are confident that the law will bring tremendous benefits to the local asset management industry.
Singapore Business Review caught up with partners from two law firms to discuss how the bill may change Singapore's fund management industry.
“The VCC Bill is an extremely positive development for the fund management industry in Singapore,” said Amit Dhume, partner from CNP Funds Practice. “This will provide fund managers with greater operational efficiencies and further strengthen Singapore’s position as an attractive wealth management jurisdiction.”
A specialised structure
Investment funds that are incorporated under the Companies Act (Chapter 50) are held back from the normal operations of investment funds such as the flexibility to pay dividends and redeem shares as well as the ability to consolidate certain administrative functions.
“Companies incorporated under the Companies Act work fine for operating business ventures (such as commodity trading, hotel operations, consulting companies etc.), but do not have the requisite features required for operating an investment fund,” Dhume explained.
For instance, routine asset management activities—such as the return of capital to shareholders either by way of capital reduction or redemption of shares—involves various procedures under the Companies Act, including the execution of solvency statements by all directors.
“This may be beneficial from the perspective of a normal operating business, but causes impediments in operating an investment fund. Flexibility to return monies to investors quickly and efficiently is important for investment funds. This is an especially important aspect for open-ended funds (i.e. investment funds that allow investors to frequently subscribe for and redeem shares),” Dhume noted.
Kai-Niklas Schneider, partner at Clifford Chance, explains that the new corporate structure offered by the VCC law is beneficial for investment funds domiciled in and managed by fund managers in Singapore.
“This expands the fund vehicle options available to fund managers in Singapore and addresses the limitations of using a Singapore incorporated company. The VCC will also be able to benefit from Singapore’s extensive network of tax treaties and tax exemption schemes available for onshore funds in Singapore, which is an attractive proposition for investors and managers,” he said.
“A VCC that will be incorporated under the proposed VCC Act will be permitted to issue and redeem shares at net asset value without undergoing any lengthy administrative procedures,” Dhume said.
“This would reduce the need to deal with multiple service providers. We have already started to receive queries from foreign fund managers who are interested in the proposed VCC structure and are contemplating having a presence in Singapore so that they can manage funds that would be VCCs,” he added.
The Accounting and Corporate Regulatory Authority (ACRA) will act as the registrar of VCCs and administer the new Bill, except for the anti-money laundering and counter-financing of terrorism obligations of VCCs which will be overseen by the MAS.
“The VCC will also have the flexibility to incorporate separate “segregated portfolios” or “cells” within a VCC that will be able to house sub-funds. Each sub-fund will be permitted to have different investors and investment strategies,” Dhume explained.
There will be segregation protection available for each sub-fund and the assets and liabilities of each sub-fund will be ring-fenced, such that the creditors of one sub-fund will not have recourse to the assets of another sub-fund,” Dhume added.
“Unlike existing fund vehicle options, the VCC will not require additional structuring in order to access Singapore’s tax treaty network. The VCC also addresses the limitations of the Singapore incorporated company by permitting a flexible capital structure, ensuring confidentiality of shareholders and allowing segregation of portfolios,” noted Schneider.
He added that the VCC is a welcome addition to the structuring options available to Singapore fund managers. “Fund managers considering structuring options for their next investment fund should consult with their legal advisors regarding the VCC as an option,” Schneider says.
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