Singapore’s big ambitions for new fund structure

The city's newly proposed investment vehicle aims to go beyond what many had expected, says a senior lawyer, and the industry is cautiously optimistic.
Singapore’s big ambitions for new fund structure

The Monetary Authority of Singapore launched the consultation on its long-awaited new fund structure last week – and the planned scope of the Singapore Variable Capital Company (S-VACC) has outdone expectations.

“Singapore has big ambitions for this new statutory creature – bigger than I had initially anticipated,” said Long Jek-Aun, partner at law firm Simmons & Simmons JWS.

“The most significant statement of intent from the MAS is that that they want this vehicle to be useful for private and retail funds, whether closed- or open-ended,” noted Singapore-based Long.

When the government announced its intentions to put in place such a regime in early 2016, he added, many thought it would be particularly useful for domiciling hedge funds in Singapore.

Wide scope

But assuming it receives the appropriate tax and regulatory backing, he said, the S-VACC structure may potentially be used for hedge, private equity and real estate funds, and even real estate investment trusts (Reits) and exchange-traded funds (ETFs). The latter two instruments currently use the Singapore unit trust structure.

Many managers of Singapore-authorised unit trust funds might choose to use this vehicle too, he added, as it's a viable alternative even for retail mutual fund managers.

S-VACC is designed specifically for investment funds and aims to compliment the three existing structures: unit trusts, companies formed under the Companies Act and limited partnerships.

The proposed S-VACC framework is intended to cater to both open-ended and closed-end investment funds, and allow for segregation of assets and liabilities of sub-funds within an umbrella structure. This will allow asset managers to achieve cost efficiencies by consolidating administrative functions at the umbrella fund level, said the MAS in a statement.

Acceptance challenges

Another motivation behind S-VACC is that the regulator wants to enhance Singapore's status as a funds domicile.

Long said the structure should hopefully allow Singapore to make better use of the new Asean passport regime. For instance, investors in certain markets, such as Indonesia and Thailand, are seen as less familiar with unit trust vehicles, so might prefer the S-VACC framework.

“[The Asean Collective Investment Scheme] is relatively new, and obviously there is room for it to be better utilised and improved on,” noted Long.

There's also the question of market acceptance; investors must become comfortable with the new vehicle. Long said it would need to be heavily marketed and promoted if it is to be used widely.

What's more, S-VACC faces the far more well established European Ucits regime, which is widely accepted in Asia.

So although there is quite a lot of excitement in Singapore over the proposed introduction of the S-VACC, said Long, the industry is realistic and cautiously optimistic.

Early interest

Still, there is certainly interest, he noted: Simmons & Simmons JWS has already, in the past week, had enquiries to discuss what the new structure would mean for asset managers.

“There's a lot of interest in having a better understanding of what impact the proposals will have on existing business,” said Long.

Enquiries have come from an even mix of foreign managers with a local presence as well as local managers, he added. Most of the initial interest is coming from the bigger players that have retail fund offerings and more regularly launch new products.

The deadline for submission of written comments on the proposals is April 24.

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