Singapore has boosted its credentials as an international fund management hub with the introduction of a new corporate structure – the Singapore Variable Capital Company (VCC). The intention is to expand Singapore’s suite of domestic vehicles available for use by hedge fund, private equity and real estate fund managers, bringing it into closer alignment with its competitors.
Currently, the most widely used structures for investment funds internationally are unit trusts or investment companies. However, the Singapore Companies Act does not cater for a number of the key operational requirements of investment funds, particularly, the flexibility to pay dividends and redeem shares, as well as the ability to consolidate certain administrative functions. As a result, while Singapore has evolved as a prominent global hub for the asset management industry, with assets under management (AUM) reaching S$3.3 trillion at the end of 2017, most funds managed by Singapore-based managers are either pooled or domiciled outside Singapore.
The Variable Capital Companies Act was passed and enacted on 1 October 2018 to address these issues. A VCC is a Singapore-domiciled investment company that can operate as an open-ended or closed-ended fund entity, with the option to be set up as a stand-alone fund or an umbrella fund with separate sub-funds.
A VCC will be permitted to issue and redeem shares at net asset value without undergoing any lengthy administrative procedures. The umbrella structure will also create economies of scale because sub-funds can share a board of directors and have common service providers, such as the same fund manager, custodian, auditor and administrative agent.
The VCC Act also allows for a wider scope of accounting standards to be used in preparing financial statements. In addition to Singapore accounting standards and principles, it will also allow the use of the International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles. This will give investment funds flexibility to serve the needs of global investors.
To facilitate fund domiciliation in Singapore, the Act provides 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 be restructured to take advantage of the VCC structure.
The VCC will complement the existing suite of structures available to fund managers in Singapore and is intended to encourage Singapore fund managers to establish the domicile of their investment funds in Singapore. This will strengthen Singapore’s position as a full-service international fund management centre. The Monetary Authority of Singapore (MAS) is currently consulting on the proposed regulations to allow for the VCC regime to be implemented later this year.