Variable Capital Companies (VCCs) in Singapore increase by 65%

Investment management firms are drawn by the Cayman-like structure with the added benefit of Singapore's governance and reputation.
Variable Capital Companies (VCCs) in Singapore increase by 65%

The number of Variable Capital Companies (VCCs) in Singapore rose to 660 as of October 14, up from 400 last year, and adoption will continue to pick up pace among local and global investment firms.

The 660 VCCs represented over 1,300 sub-funds and are managed by 420 regulated fund management companies, according to the Monetary Authority of Singapore’s asset management survey 2021, released last week. This compared with the 300 asset managers that had incorporated or re-domiciled 400 VCCs by October 2021.

Similar to last year, a third of the VCCs (33%) were private equity or venture capital firms, 28% were external asset managers or multi-family offices, 20% hedge funds, 14% traditional funds, and the remaining 5% were categorised under “others”.

Source: MAS

The growth of VCCs would come as no surprise to those in Singapore involved in the space. Ong Yen Leng, the head of Southeast Asia at Northern Trust told AsianInvestor that she has observed rising uptake and demand for VCCs since the scheme launched in 2020.

Ong Yen Leng,
Northern Trust

“A lot of investment managers have compared VCCs against Cayman. As Northern Trust provides Singapore VCC fund administration, which is part of the Northern Trust Global Fund Services suite of product services across the world, we have observed that those who have Cayman funds [now] set up VCCs in Singapore instead,” she said.

The Monetary Authority of Singapore launched the VCC structure in January 2020, which allowed regulated fund managers to set up funds in Singapore with relative ease.

Local and international asset managers have used VCC structures in a variety of ways, from wealth management strategies on behalf of family offices to more traditional funds. For instance, CSOP Asset Management listed the ICBC CSOP FTSE Chinese Government Bond Index ETF in 2020, making it the first exchange-traded fund (ETF) to utilise the VCC framework, the MAS said in its 2020 asset management survey.

“The VCC structure is becoming very, very popular,” Michael Marquardt, regional chief executive officer for Asia at investor services firm IQ-EQ. “In the past it was the Singapore managers [that were interested], then it was regional, and now the global managers.”

Michael Marquardt, IQ-EQ

The firm has done work with consulting investment managers, from insurers to global asset managers and family offices, on VCCs and Marquardt believes that the scheme is at an inflexion point and will only grow in popularity.

“The VCC is very flexible around asset classes around whether it's a closed-end fund or a daily fund. The MAS has done a very good job in setting it up initially. Sure, there's always improvements; there's always changes to regulation, because that's just normal learning. But I think all credit to the MAS. They took their time to set it up. But they've done a pretty good job; I don't hear many people complaining about the VCC,” he said, adding that the topic of VCCs crops up in a good 90% of conversations with clients.

From Northern Trust’s perspective, Ong said that most of the fund managers she has worked with were often looking to do closed-ended rather than open-ended funds, “although we do have clients looking to do open-ended funds. Those that are large enough set up VCCs as a feeder fund to their master fund.”

“They use it for alternative assets, private, unlisted asset investments. This is quite palatable to some extent because in the private equity and alternatives world, they are usually quite definitive. They often also set up in Cayman-like structures,” she added.

Alternatives investments have been rising in Singapore; the MAS reported that the asset management industry grew 16% year-on-year in 2021, led by a 30% growth in alternatives. Private equity and venture capital saw the biggest increase, but private credit is expected to soon catch up as the central bank has committed $1 billion to the asset class.

Investment managers are also attracted to VCCs because of the Singapore brand, and the incentives provided, Ong said.

“Singapore has matured over time,” she said. “The Singapore brand, with reliability, with strong governance, and with a forward-looking regulator, has attracted investors - not just the investment managers, but the investors as well because investors need to have confidence about where the fund resides and is domiciled.” 

“The VCC structure provides a certain form of incentive for the fund manager to launch the fund here,” she added. “They get certain forms of incentives, for example, the tax rebate or incentive rebate.”

Marquardt agreed that the Singapore brand has been a pull for investors. “In North America, you have Delaware and you have Cayman. There’s also BVI (British Virgin Islands). In Europe, you have Dublin and Luxembourg. In Asia, you have Singapore. Singapore has the VCC structure. Singapore has a stable government, rule of law, a growing and deepening talent group. Singapore has done a great job of getting the ingredients together to create a great asset management environment in Singapore.”

Hong Kong has a comparable Limited Partnership Funds (LPF) regime, but the city is still struggling to reverse a brain drain amid Covid restrictions which have only started to ease in recent weeks.

He added that the recent influx of talent to Singapore has helped. “People do talk about how many people have moved to Singapore during Covid, and I think that's the piece that's making the VCC even more popular, because all of a sudden, you have a lot of portfolio managers, a lot of senior folks who now know a lot more because of the VCC. Because they're in Singapore.”

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