This article is written by John Sullivan, Suzanne Gibson and Jacqueline Field.
In Singapore’s latest move to position itself as a regional funds hub, the Monetary Authority of Singapore (MAS) is seeking public consultation on a proposed new investment funds vehicle – the Singapore Variable Capital Company (S-VACC). The S-VACC is intended to offer asset managers in Singapore greater flexibility and lower costs.
The S-VACC will provide a new structuring option for investment funds in Singapore, complementing the existing Singaporean structures commonly used for funds, being business trusts and limited partnerships. Restrictions on the return of capital to shareholders have meant that companies incorporated under the Companies Act have been underutilised as collective investment schemes in Singapore.
The S-VACC is an important innovation for Singapore, particularly in light of increasing interest in open-ended structures in the market. Variable capital structures are already used in many key funds jurisdictions such as the Cayman Islands, British Virgin Islands, Bermuda, Luxembourg, the Republic of Ireland and the UK. In addition, nearby players are also making moves: Hong Kong introduced an open-ended fund company regime in June 2016 and Australia is currently considering the introduction of a corporate collective investment vehicle framework (as well as a limited partnership structure).
Key benefits of the S-VACC structure:
- Flexibility to reduce and redeem capital.The S-VACC will allow for reduction of capital and redemption of shares when investors exercise redemption rights.
- Umbrella structures with multiple sub-funds. An S-VACC may be established as an umbrella fund structure, with segregated sub-funds holding separate assets and liabilities. This facilitates the consolidation of administrative functions, providing a more efficient structure for fund managers.
- Use for all types of investment strategies. S-VACCs will be capable of being used for all types of investment funds in Singapore (including mutual funds, hedge funds, private equity, infrastructure and real estate funds), but will be required to have a registered fund manager which is regulated by MAS.
- Allowance for both open-ended and closed-ended investment funds. An S-VACC will allow entry into and exit from the fund at net asset value.
- Relocation of existing funds. Potential for existing foreign corporate fund structures to be re-domiciled to Singapore as S-VACCs to take advantage of the other opportunities available in Singapore.
- No requirement to disclose shareholder register. However, S-VACCs will need to make the registers available to supervisory and law enforcement agencies where necessary.
MAS has also called for feedback on the S-VACC tax regime. Recognising that tax treatment is one of the considerations for deciding on the domicile and management of funds, MAS is currently considering extending current fund vehicle tax schemes to S-VACCs. Attractive tax treatment of the new structure has the potential to make the S-VACC a competitive option for fund managers, particularly given Singapore’s participation in more than 90 bilateral tax treaties.
The public consultation on S-VACC will end on 24 April 2017. The MAS consultation paper is available here.
KWM insights on the proposed Australian corporate collective investment vehicle including commentary on comparative international structures can be accessed here.