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Singapore to introduce new corporate structure into fund ecosystem

Chris Hamblin, Editor, London, 24 September 2018

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The Monetary Authority of Singapore has finalised the features of a new corporate structure that will cater to the needs of investment funds, the Variable Capital Company or VCC, having consulted interested parties about the initiative in March 2017.

The idea of the VCC structure is to help Singapore become a vital fund domiciliation hub and to provide it with yet another offering. The MAS is looking forward to the consolidation of fund domiciliation and fund management activities locally and to creating a full-service fund ecosystem in Singapore. The growth of fund domiciliation activities, it hopes, will create work for lawyers, accountants, fund administrators, and fund custodians.

Assuming that the new VCC law, which is before Parliament now, will pass unchanged, it will do the following.

  • Make fund business more flexible. A VCC will be usable by both open-ended and closed-end investment funds and for both traditional and alternative strategies. The variable capital structure of a VCC will allow it to issue and redeem shares without having to seek shareholders’ approval, enabling investors to pick up and disgorge their investments in an investment fund whenever they wish. It will also be allowed to pay dividends using its capital.
  • Save costs. A fund firm will be allowed to establish a VCC as a standalone structure, or as an umbrella structure with multiple sub-funds with different investment objectives and investors as well as different assets and liabilities. The umbrella structure will, it is hoped, create economies of scale as sub-funds will be allowed to share the same board of directors and service providers and consolidate some administrative functions.
  • Cater to the needs of global investment funds. A VCC will be permitted to use Singapore and international accounting standards (such as the International Financial Reporting Standards and US Generally Accepted Accounting Principles) when preparing financial statements so that it can serve the needs of globally active HNW investors. Fund managers with foreign-domiciled investment funds may take advantage of the statutory regime for inward re-domiciliation under the VCC rules to transfer the domiciles of their foreign investment funds to Singapore.
  • Step up safeguards. The VCC regime is designed to provide safeguards against the commingling of assets and liabilities between sub-funds, by requiring the assets and liabilities of each sub-fund to be segregated. As such, the assets of one sub-fund may not be used to discharge the liabilities of another sub-fund, or of the umbrella fund, even the event of insolvency. To prevent any VCC from being abused for unlawful purposes, all will be subject to anti-money laundering and terrorist financing rules all will also be required to appoint a fund manager that is regulated by the MAS.

The VCC will add to the existing suite of structures available to fund managers in Singapore. Internationally, the most commonly used investment fund structures are unit trusts (constituted by way of trust deeds) and investment companies. In Singapore, investment funds constituted as investment companies are uncommon because of the restrictions under the Companies Act (Cap 50), which impede the normal operations of investment funds such as their freedom to pay dividends, to redeem shares and to consolidate certain administrative functions. To deal with these problems, most internationally important fund jurisdictions have established specialised corporate structures for investment funds.

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