The Boost to Singapore's Fund Management Ecosystem – Variable Capital Companies

SINGAPORE – Since the Variable Capital Company (VCC) Bill was passed on 1 October 2018, the fast-growing fund management industry in Singapore has been expecting a new corporate vehicle designed for collective investment schemes, allowing investment managers to create sub-funds within a single entity while ensuring that the assets and liabilities of each sub-fund remain ring-fenced from the others. Slated to roll out by the end of 2019, the VCC (or S-VACC, as colloquially known) promises to be a useful tool for Singapore investment managers and will play an important role in Singapore in the years to come. DesFran delves into the bill to summarise the implications of VCC to the fund management industry in Singapore.

What is the VCC?

The VCC is a corporate entity incorporated under the VCC Act instead of the Companies Act (CA). It is similar to the Open-ended Fund Company (OFC) in Hong Kong, the Open Ended Investment Company (OEIC) in the UK, and the Corporate Collective Investment Vehicle (CCIV) in Australia. A VCC will have:

  • Shareholders
  • A Board is responsible for its governance. This VCC board is the equivalent of the board of directors in a company incorporated under the CA. The VCC board of directors will likewise owe fiduciary duties to the VCC and must act in its best interests.
  • A Fund Manager, regulated by the Monetary Authority of Singapore (MAS).
  • A Custodian of assets. It is required for funds offered to certain types of investors (e.g. retail investors).

The VCC can be set up as a single standalone fund, or as an umbrella fund with two or more sub-funds, each holding different assets.

Why the VCC?

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Many funds managed out of Singapore are domiciled overseas, causing a disjunct. One reason for this disjunct is that the existing fund structures in Singapore (such as limited companies under the CA, limited partnerships and unit trusts) have limitations when used as vehicles for investment funds despite Singapore having strong fund management capabilities. Consequently, some investors choose to invest via the more flexible fund structures found in other jurisdictions, but have the funds managed out of Singapore, as the substantive fund management expertise is located here. So the VCC:

  • Improves operational and tax efficiency, helping fund managers in Singapore reap economies of scale and achieve cost efficiencies
  • Can be used for a variety of investment strategies
  • Can be used as a pooling and investment vehicle, dispensing multiple tiered fund structures

VCC Will Keep Singapore on top of the Game

The VCC appears to be a game-changer for the Singapore’s fund management industry by allowing prospective investors to capture value from the full fund management value chain, including product development, fund management, administration, and distribution. Daniel Teo, Executive Director at DesFran Investment Consultancy Services Limited said: “The S-VACC allows prospective investors to leverage Singapore’s Double Tax Arrangements with various countries to access relief from double taxation, enhancing Singapore’s attractiveness, and maximising returns for investors”. It is stated that the VCC will help Singapore stay on top of the game, and strengthen its position as an Asian hub for fund management and fund domiciliation.

About the Authors

Daniel Teo is the Executive Director at DesFran Investment Consultancy Services Limited overseeing DesFran’s operations in Hong Kong. He has more than 15 years of experience working in the financial services industry across portfolios involving sales, client management, product development, and strategic planning and execution. Daniel holds a Master’s Degree in International Business from the University of Sydney, and a Bachelor’s Degree in Commerce from the Australian National University.,

Kevin Kok-Yew Tan is Head of Strategic Communications and Research at DesFran Investment Consultancy Services Limited and oversees research and communications across the company’s headquarters in Singapore, and overseas desks in China, Hong Kong and the UK. Kevin holds a Bachelor’s Degree in Business (Information Technology) with Honours and a Master’s Degree in Mass Communication from Nanyang Technological University.

About DesFran – DesFran Investment Consultancy Services Limited is a one-stop offshore service provider with a global network of partners and a diversified portfolio of businesses. The company offers tailored solutions that extend to brokerage offerings, regulatory and licensing, payment solutions, and business management advisory.

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