The upcoming introduction of the Singapore Variable Capital Company (S-VACC or VCC) is a significant event in Singapore’s asset management landscape. After a consultation process run by the Monetary Authority of Singapore (MAS), the VCC Bill was passed in Parliament on 1 October 2018. It is expected to come into effect in 2019 following the legislative process.
The S-VACC is expected to cater to the unique features of asset management and to further enhance Singapore’s position as a global asset management center. This is being done by introducing a suitable corporate structure for investment funds.
The S-VACC will offer a flexible legal structure more suited for investment funds than the currently available unit trusts, limited partnerships and companies. These entities do not allow for reduction of capital without extensive procedures associated with it. Consequently, such structures do not cater for nimble investor subscriptions and redemptions typical of investment funds.
Both open and closed-ended funds can avail of the new S-VACC structure, from both traditional and alternative strategies.
The S-VACC is expected to bring the Singapore asset management offering at par with similar structures available in other global investment hubs e.g. the UK open-ended investment company, Irish collective asset management vehicle and Luxembourg variable capital company. Interestingly, this effort at innovation is being matched in the Asia Pacific as Hong Kong and Australia are also introducing the Open-Ended Fund Company and Corporate Collective Investment Vehicle, respectively.
The S-VACC’s key features will be:
• Establishment as a stand-alone entity or an umbrella entity housing sub-funds potentially leading to economies of scale stemming from sharing of a board of directors and service providers;
• Sub-fund assets and liabilities will need to be segregated to prevent contagion risk; sub-funds will need to be identified although the contracting party will be the VCC;
• VCC shares will be issuable and redeemable without shareholder approvals allowing for flexibility in investor subscriptions and redemptions;
• VCC shares will be issuable and redeemable at net asset value to protect creditor interests;
• Dividends will be payable out of capital and not profits allowing dividend payments to match payment schedules agreed with investors;
• Required to be managed by a Singapore-based fund manager that is licensed or registered with the MAS or exempt by virtue of holding another relevant license (e.g. banks, merchant banks and finance companies regulated by the MAS);
• Requirement for at least one Singapore resident director for non-authorised schemes (generally, private funds) and three for authorised schemes (generally, retail funds); at least one director of VCC must be a director of the fund manager;
• Subject to anti-money laundering regulations administered by the MAS;
• The Accounting and Corporate Regulatory Authority (ACRA) will administer the S-VACC regime and act as registrar;
• Subject to audit; financial statements must be in accordance with Singapore FRS, IFRS or US GAAP allowing a choice of accounting standards suited to investors or location of fund assets;
• Re-domiciliation of similar foreign funds to VCC structures will be permitted subject to inward re-domiciliation conditions;
• For tax treatment, VCCs will be treated as a single entity company;
• The Enhanced Tier Fund Scheme (13X of the Singapore Income Tax Act (SITA)) and Singapore Resident Fund Scheme (Section 13R of the SITA) will be made available to VCCs, subject to certain conditions;
• Financial Sector Incentive-Fund Management tax concession is to be extended to fund managers managing VCCs.
Further details on taxation of VCCs are expected from the Inland Revenue Authority of Singapore.
The asset management industry has seen growth in Singapore. According to the MAS’ 2017 Singapore Asset Management Survey, AUM in Singapore’s asset management space grew by 19% to S$3.3 trillion in 2017 attributable to increasing inflows of capital to Asia. Within that, AUM in the traditional asset management space grew by 20% and AUM in the alternative space grew by 17%.
Where did most of this AUM originate from? 78% of AUM came from outside Singapore in 2017, of which 67% was deployed in the Asia Pacific. That evidences Singapore’s role as a gateway for global investors investing into Asia including ASEAN, India and China. Long-term potential in Asia such as a growing middle class, demographic advantages etc. bode well for continuing investment interest requiring an investment center like Singapore to access the region and provide much-needed capital for its growth.
Whilst the potential for continued growth in the asset management space looks positive, there is no place for complacency in view of competition from other asset management hubs. In structuring their investments, investors look for a location that can offer structures that allow for inflow and outflow of capital, a balanced regulatory and tax regime, in addition to stability and infrastructure.
Singapore is already a premier choice for fund management activities for the above reasons. With the advent of the S-VACC which is expected to lead to co-location of both investment funds and fund managers in Singapore, there are more efficiencies to come. This is also expected to render Singapore a full spectrum international asset management center.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Damayanti is the Founder and Managing Director of Principium Consulting, a regulatory compliance consulting firm. Principium provides compliance solutions to the financial services industry including asset management, corporate finance, broker dealers, Fintech, among others. Previously, she was a member of the core team that helped set up the Singapore compliance practice of a global consulting firm.
Before moving into compliance consulting, Damayanti practised law for several years at blue-chip international law firms in Singapore and New York. Damayanti began her legal career in the late 1990s in Mumbai. Her clients have included Fortune 500 companies, global and regional banks, private equity funds etc. She has advised clients on some ‘firsts’ in the capital markets transaction space, including relating to NYSE and SGX listings. She has also worked at the US SEC in the Division of Corporation Finance in Washington DC.
Damayanti is called to the bar in New York, England & Wales and India. She has a Masters in Law (Securities & Financial Regulation) on the Deans’ List and with Distinction, from Georgetown University. She obtained her B.A.LL.B.(Hons) qualification from India’s premier law school, the National Law School.