In January 2020, Singapore introduced a new corporate structure specifically designed for investment funds, the Variable Capital Company (VCC), raising their profile with the fund management industry. Should fund managers now consider Singapore as their key fund domiciliation hub?
Along with other hubs, such as Hong Kong and Luxembourg, can the introduction of the new VCC corporate structure in Singapore tempt fund managers away from the Cayman Islands? To discuss the possibilities, Apex Group invited an expert panel to join a recent webinar, as part of the Asian Leaders Virtual Summit 2020.
Watch the on-demand webinar now
Fund domiciliation is moving away from Cayman
While the Cayman Islands currently has a majority share of offshore funds, the popularity of the jurisdiction is starting to diminish. According to our poll, 71% of fund managers believe that Cayman will be a less popular choice for fund domiciliation over the next five years.
Of course, less popular may still mean hugely popular. ‘70% of offshore money is structured through Cayman,’ points out Martin O’Regan, expert panellist and Managing Director of Solus Fiduciary Services, so ‘Cayman’s not going to go any time soon.’
But, since the introduction of economic substance legislation in January 2019, there has been a noticeable shift away from this jurisdiction. Craig Lindsay, Chief Operating Officer of Apeiron Capital Limited, explained why his business decided to relocate. ‘We moved away from Cayman,’ he said, ‘because, with the economic substance requirements, it does add to the cost and to the reporting requirements. From our standpoint, it was just easier to move the management company back here to Hong Kong.’
Ashmita Chhabra, Managing Director of Business Development for Asia Pacific at Apex Group, added that the economic substances legislation ‘pushes up the requirements of running a Cayman fund, the costs of running a Cayman fund, vis à vis looking at an onshore option.’
‘To me it seems that the golden age of the Caymans is over,’ said Tim Marrable, Chief Operating Office of Arcus Investment Asia.
Fund managers are seeking alternative jurisdictions
If the Cayman Islands are no longer the obvious choice, fund managers have a range of other options to consider.
Marrable shared that the three features his organisation looks for in any jurisdiction are ‘cost, flexibility and political stability.’ Singapore, which was already competitive in all of these aspects, has grown increasingly so with the introduction of the VCC.
Chhabra offered another consideration. ‘One of the discussions, when looking at fund structuring, is “where is the investor based for these clients?” That is very critical in terms of pickup of the VCC, or Cayman, or Luxembourg.’
Singapore is in a strong position to fill domiciliation demand
Chhabra described the VCC as a key component of the effort to ‘position Singapore as a full-service fund management and fund domiciliation hub.’
‘Singapore is always viewed very highly globally, and as investors get more familiar with VCC, and looking at structures around the region, it’s definitely a very strongcontender,’ she added.
The VCC offers a range of benefits for fund managers
Primarily, the VCC benefits those fund managers with a business interest in the Asia Pacific region. Chhabra explains, ‘For clients which have a broad Asian investor base or invest in Asia and can take advantage of the double tax treaties that Singapore allows access to, it’s a very, very lucrative option.’
‘For Singapore-based managers, with the VCC they have more options. In the past, managers here have mainly used offshore structures, and now they have a versatile option in the same jurisdiction,’ she added.
The speed and simplicity of incorporation is another benefit. ‘It takes 14 days (for a vanilla structure) to 60 days to get approval,’ said O’Regan. The process is accelerated, he explained, because, ‘unlike Hong Kong, there’s no pre-approval process by the regulator,’ something he describes as ‘a positive, and slightly unusual compared to some other jurisdictions.’
There is also a significant financial incentive, as Chhabra mentioned. ‘As part of the launch of the VCC, the MAS (Monetary Authority of Singapore) introduced a grant scheme to encourage adoption and conversions to VCC.’
This grant covers 70% of eligible expenses (capped at $150,000 per VCC, and up to three VCCs per fund manager) paid to Singapore-based service providers for work done in Singapore in relation to the incorporation and registration of VCCs and their sub-funds. This includes legal fees, tax advisor fees, fund administration fees towards set up, and regulatory compliance consulting fees. Chhabra points out that ‘the support from the government is up to close to half a million in terms of incorporation costs.’
Flexibility of the VCC could be key to its growth
The launch of the VCC was met with immediate popularity. ‘The VCC went live on 15 January 2020 and 20 VCCs were launched on the same day,’ explained Chhabra. A total of over 50 VCCs were incorporated in the only first four months after launch.
One reason for this is the structure’s versatility. ‘We’ve seen traditional funds, private equity, venture capital, as well as ESG strategies be part of the pilot programme,’ Chhabra revealed.
The structure can be used to incorporate new funds or redomicile existing overseas investment funds. It can also be used for both open-ended and closed funds, unlike structures offered in other jurisdictions. ‘In Hong Kong you have the IFC for open-ended and the LP for private. The VCC can be both, it can be open-ended and closed,’ Lindsay explained. ‘I think the flexibility of the VCC will probably stand it in good stead, whereas other jurisdictions have individual products for individual offerings.’
Apex Group is well positioned to support VCC incorporation
If the Variable Capital Company structure is of interest to your organisation, we can help. As a leading financial services provider with 45 offices around the world, we can discuss the merits of this structure in comparison with others offered globally. We have a Singapore-based team of around 100 professionals with a keen understanding of this market and relevant regulation, who can support your VCC incorporation and offer full fund administration.
To learn more about our services, contact us today.
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