Financial innovation strengthens Singapore’s role as an Asia fund gateway

By Anshuman Asthana

Singapore is set to boost its position as a global centre for wealth management with the launch of the Variable Capital Companies (VCC). The new fund structure will create more opportunities for Singapore’s asset management industry as well as enhance the city’s role as an important Asia gateway for fund managers and investors. 

According to the Monetary Authority of Singapore’s (MAS) 2018 Singapore Asset Management Survey, the nation’s fund industry has gone from strength to strength with close to SGD3.4 trillion of assets held by Singapore-based managers.¹ However, 75% of these funds were sourced from outside Singapore. The VCC structure will change that by attracting more assets to Singapore² — giving global investors increased flexibility and broadening the type of investment strategies that can be managed from the city.  

Under a VCC structure, investors can manage both traditional and alternative assets such as hedge funds or private equity³,  while opting for either an open-ended or closed-ended structure.⁴ Other key benefits include allowing managers to set up multiple funds under one umbrella structure, which will help reduce costs; providing an increased level of investor privacy by not making the register of members, controllers and nominee directors publicly available; and allowing VCCs to use any international accounting standards, which means global investors can use the accounting regime of their home market.⁵

Anything but taxing

Perhaps the biggest advantage is that VCCs will be exempt from double taxation. A VCC will be treated as a Singapore-registered company and a single entity for tax purposes, meaning the fund will only need to file one set of income tax returns. As VCCs are a Singaporean entity, we expect them to receive exemptions from all the markets with which Singapore has a double taxation treaty. Singapore has among the largest number of tax treaties signed with governments including Australia, Canada, India, Thailand, Vietnam and the United Kingdom.⁶

Moreover, by attracting more assets to be domiciled in Singapore, the VCC structure will also create new opportunities for the industries that service Singapore’s asset management business including lawyers, accountants, tax advisers, fund administrators and custodians. 

A VCC in Singapore will also give the region’s start-up ecosystem a boost by providing sources of capital to Fintech companies. Once the new VCC framework is operational, private equity and hedge funds can increasingly base out of Singapore to continue their financing support for Fintech start-ups and help them grow in size. Through this development, the VCC structure will help solidify Singapore’s position as a technology and innovation hub for the region. 

A single market for funds

The benefits of the VCC make this a game changer for Singapore’s efforts to be the Asian gateway for fund manufacturing and domicile. This is important given that 67 per cent of assets under management (AUM) from Singapore-based managers were invested in Asia-Pacific in 2018, of which 38 per cent flowed into ASEAN. Not that Singapore is working alone. Governments in ASEAN⁷ and the wider Asian region recognise the need to create a vibrant and thriving ecosystem for asset management which is why they are working together to create a common market for funds.  

Two of the main initiatives are the ASEAN Collective Investment Scheme (ASEAN CIS) — between Singapore, Malaysia and Thailand⁸  — and the Asia Region Funds Passport (ARFP), comprising Australia, Japan, Korea, New Zealand, Singapore, Thailand and the Philippines.⁹ The schemes will allow asset managers to treat the approved jurisdictions as a single market, making it easier to sell investment products on a cross-border basis. For example, a global investor that sets up a VCC in Singapore will be able to sell that fund into the other markets signed up to the ASEAN CIS and ARFP schemes without the need to separately register the fund in those jurisdictions. 

And we don’t have to look far to see how successful passporting schemes can be. UCITS (Undertakings for the Collective Investment in Transferable Securities), a programme of selling funds across the European Union, has 10.1 trillion euros (SGD15 trillion)¹⁰ of funds under management and has been a key driver of infrastructure development in Emerging Europe. Although the Asian passporting schemes are still in the early stages of development, PwC estimates that AUM for ASEAN CIS and ARFP will grow to almost USD7 billion by 2025.¹¹ Moreover, creating a common Asian fund market that can support infrastructure development and create wealth for investors is a vision we should be aiming for. 

Home to a growing and vibrant fund management industry, signatory to two major pan-Asian fund passporting schemes and a global centre for financial services, Singapore is perfectly positioned to cement its role as the wealth management hub for the region and ensure Asia’s fund industry continues to attract investors and asset managers from across the globe. 

The writer is Regional Head of Product Management, Securities Services, ASEAN and South Asia, Standard Chartered Bank