Singapore’s MAS preparing VCC 2.0 in bid to lure more managers

SINGAPORE, 28 May 2021 -The Monetary Authority of Singapore is revising its Variable Capital Company fund structure to expand the pool of fund managers that can use the scheme, and make fund conversions and multiple offshore fund redomiciliation easier.

Following the launch of the new corporate fund structure in the city-state at the start of last year, nearly 280 VCCs have already been set up by fund managers based in Singapore.

But the MAS is keen to expand the reach of the scheme further to attract more asset managers to launch new funds using the new vehicle, and established the Singapore Funds Industry Group last month to begin working on enhancing and developing the framework.

The SFIG is aiming to submit its VCC 2.0 report to the MAS by the end of June, and the intention is for the MAS to try to issue a consultation paper by the end of the year. A consultation and public feedback will be required before it is put into law.

“Usually these things take at least one to two years, but I know MAS is trying to work on an accelerated timeline,” says Amy Ang, Singapore-based Asia-Pacific financial services tax leader at EY and a member of the SFIG’s executive committee.

Fund conversion, redomiciliation to VCC

Members from the Investment Management Association of Singapore also recently held two roundtable consultations with the MAS to address challenges that remain for fund companies in using the current VCC structure and proposals for VCC 2.0.

One of the main topics of discussion was how to facilitate the conversion of existing fund structures into VCCs with greater ease, according to Carmen Wee, CEO of IMAS.

Prior to the VCC, fund managers who wanted to set up a private fund in Singapore typically used limited partnerships, unit trusts, or private limited companies structures.

Fund managers are now asking if they can convert their current Singapore private limited company fund into VCC, says EY’s Ang.

At the moment, the only solution is to set up a new VCC and go through the “tedious” process of transferring assets from one fund to the other. This is probably the next highest priority after the expansion of permissible managers, Ang says.

In addition to fund conversion, the MAS is also looking into allowing the redomiciliation of multiple offshore funds into a single VCC.

Currently, managers are only allowed to redomicile one offshore fund into one Singapore VCC, which is something that does come up in discussions with clients that are considering redomiciling their funds into Singapore, she says.

Single-family offices, investors unfamiliar

The MAS is also keen to expand the use of VCC to include more types of investors.

Allowing for a wider pool of fund managers, such as single-family offices and real estate funds, is probably the “strongest ask” at this point, according to EY’s Ang.

Currently, the pool of permissible fund managers who can use the VCC is largely limited to those who hold capital markets services licences for fund management, which potentially excludes single-family offices and real estate fund managers who are exempt from licensing under Singapore’s Securities and Futures Act.

The application of the VCC structure for single-family offices and real estate funds currently being managed by non-regulated fund managers is “at the top” of the industry’s wish list, agrees Armin Choksey, Singapore-based partner at PwC, and head of its investment fund and market research centre.

The list of VCCs as of last December was roughly divided into wealth management vehicles, private equity or venture capital funds, and open-ended funds, with the wealth management funds having estimated average assets under management of between US$20 million and US$25 million, according to Choksey.

One Singapore funds lawyer who declined to be quoted by name says the Singapore regulator may also have some concerns that too many VCCs are being used for private wealth vehicles rather than other types of investment vehicles that are gaining popularity in other jurisdictions.

Hong Kong introduced its limited partnership fund structure last year as a vehicle for private equity, venture capital, real estate and other private funds, the lawyer notes, and the MAS is keen to emphasise the VCC’s merits for private fund managers, as well as Singapore’s status as a funds hub, in light of the increased regional competition.

There is now more focus on encouraging more traditional asset classes like private equity, real estate and infrastructure to look at the Singapore VCC as a potential vehicle, says the lawyer.

Even with proposed enhancements, it seems that Singapore’s authorities and fund companies still have more work to do in developing the VCC into a globally recognised investment vehicle that can compete with the likes of Cayman Islands’ fund structures.

EY’s Ang says there are still fund companies that are hesitant to take up the VCC because they say they need more time to study the structure and educate their investors.

Investment companies are in the business of raising and deploying capital, they are not in the business of educating their investors, she says.

“Some fund managers say, if I need to have too much conversation with my investor on the new platform, I’ll go back to my tried and tested one,” Ang adds.

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