Singapore legalized a new structure for investment funds, in a move to capture a bigger share of the fund management value chain.
Singapore passed into law a new type of entity - the Variable Capital Company (VCC) on Monday, which will take the country's fund management industry to the next level. It adds to the existing suite of fund structures - the company, limited partnership and unit trust structures available.
«The VCC framework will encourage fund managers to domicile their funds in Singapore, adding domiciliation activities to the fund management activities. This in turn will establish a full-service fund ecosystem in Singapore,» said Second Minister for Finance Indranee Rajah, who spoke in Parliament.
Capturing More of the Value Chain
Currently, a substantial proportion of investment funds that are managed by fund managers in Singapore are domiciled elsewhere owing to the flexible corporate structures available there. Popular jurisdictions include Luxembourg and the Cayman Islands, noted Rajah.
As a result, most of the economic benefits generated by service providers to these investment funds accrue outside of Singapore.
Cost Savings
Funds domiciled overseas but sold in Singapore typically incur additional costs from having to use multiple service providers across different countries. With the VCC structure in place, funds domiciled in Singapore can now enjoy significant cost savings with fewer cross-border administrative and compliance hurdles.
«VCCs would also be able to avail themselves of Singapore’s competitive tax regime,» said Rajah.
Fund Management Significant
The fund management industry contributed 12.4 percent of the overall financial sector’s nominal value-add last year, said Rajah. Besides the direct contribution, it has significant spillovers to other financial sector activities, such as the trading of foreign exchange, as well as to other service providers such as lawyers and accountants.
Singapore's Assets under management, or AUM, have grown by an average of 15% per annum over the past five years, reaching S$3.3 trillion at the end of 2017. Almost 7 in every 10 dollars under management are invested into the Asia-Pacific region.
Job Adds
MAS also estimated that the VCC framework could create over 1,000 new jobs for service providers in the first two years of its introduction. Beyond fund managers, VCCs that operate from an office in Singapore are likely to employ Singapore-based corporate secretaries, engage Singapore-based lawyers, fund administrators and so on to facilitate their operations.
«Given the growth in the alternative space, it is also important that the VCC structure can be used by alternative managers,» said Rajah.
Alternative assets under management in Singapore grew by 20 percent per annum over the past five years, while traditional assets under management grew by 13 percent per annum over the same period.
