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Growth and strong prospects in a tough environment


By A Paris – This year will be forever remembered as the one which saw a global pandemic taking over the world, widespread travel restrictions and significant market volatility. But in Singapore, 2020 can be considered in a more favourable light. Despite the less than auspicious environment, the jurisdiction reaped success in launching a new fund structure, generating manager interest in an otherwise turbulent period.

By A Paris – This year will be forever remembered as the one which saw a global pandemic taking over the world, widespread travel restrictions and significant market volatility. But in Singapore, 2020 can be considered in a more favourable light. Despite the less than auspicious environment, the jurisdiction reaped success in launching a new fund structure, generating manager interest in an otherwise turbulent period.

The latest regulatory change which saw the launch of a new, flexible fund structure in Singapore is one component of the broader strategy to further develop the jurisdiction as a fund distribution and domiciliation hub in Asia, acting as a gateway to the rest of the region.

Launched in January 2020 by the Monetary Authority of Singapore (MAS), the Variable Capital Company (VCC) is a new corporate structure for investment funds. The objective of this structure is to strengthen Singapore’s status as a regional fund distribution hub. 

Gillian Tan, the recently appointed Assistant Managing Director (Development & International) at the MAS says: “Singapore serves as a Global-Asia gateway for asset managers and investors to tap the region’s growth opportunities. Of the SGD4.0 trillion (or USD2.9 trillion) assets under management (AuM) in Singapore as at end-2019, 76% are sourced from outside of Singapore and close to 70% of the AuM is then reinvested into the APAC and emerging ASEAN regions.”

Hazem Ben-Gacem, Co-CEO at Investcorp outlines: “Notwithstanding the recent pressures caused by the Covid-19 pandemic, Singapore has differentiated itself as an attractive market for investment given its dynamic and thriving economy, talented labour pool and highly efficient government and infrastructure. Singapore’s growth and prosperity have exceeded expectations over the last several years, which was recognised last year when the World Economic Forum ranked Singapore as the world’s most competitive economy.”

Tan at the MAS notes: “In the next phase of growth, we seek to strengthen Singapore’s role as a full-service Asian hub for fund management and domiciliation under the Industry Transformation Map (ITM) for Financial Services.  This will allow Singapore to capture a greater share of the fund management and fund domiciliation value chain and will provide new business collaboration and job opportunities within the funds ecosystem.”

The VCC is a key part of this strategy. The new structure, which allows umbrella and sub-funds as well the option to be open-ended and closed-ended, has been received with enthusiasm by the industry. To date, there are more than 120 registered VCCs in Singapore and industry commentators attest to a full pipeline of applications waiting to be processed.

This is significant considering 2020 has not been a year conducive to business growth in general.

Potential for passporting

The outlook and development of a fund passport across the region is one of the opportunities Singapore is also taking into account in its strategy going forward.

The MAS is currently a member of the ASEAN Collective Investment Scheme (CIS) Framework, together with the Securities Commission of Malaysia and the Securities and Exchange Commission of Thailand. 

This initiative allows fund managers operating in one jurisdiction to offer funds, constituted and approved in that jurisdiction, to retail investors in the other member jurisdictions under a streamlined authorisation process. The framework will promote cross-border fund offerings and allow fund managers to offer a broader range of fund products to investors in the region. 

In another effort to explore the possibility of fund passporting across Asia, the MAS is an observer at the Asia Region Funds Passport (ARFP). The ARFP is a multilateral framework that seeks to support the development of Asia region funds management industry through improved market access and regulatory harmonisation. The ARFP currently has five member countries – Australia, Japan, New Zealand, South Korea and Thailand.

Singapore hosted the 7th ARFP Joint Committee Meeting and Industry Day in October 2019, with over 350 stakeholders from Singapore and around the region in attendance. “This marked the first time that an observer country hosted this event and demonstrates Singapore’s commitment to the success of the Asia Region Funds Passport Framework. We will continue to widen distribution markets for Singapore-domiciled funds via cross-border passporting and mutual fund recognition frameworks,” Tan remarks. 

In addition, the Singapore tax authorities are having unilateral discussions with the tax authorities in various Asian countries to consider the potential of agreements in this sphere as well.

Kher Sheng Lee, Co-Head APAC at AIMA notes the possibility of fund passporting has not been at the forefront of the organisation’s members’ consciousness. However, he says: “If such a scheme were to take off and open up pathways for alternative managers, it potentially could be a massive game changer and we can start cross selling hedge and private funds across Asia. A properly packaged private fund that can be sold to a bigger market of investors would be very much welcome.”

The VCC could be an excellent tool for fund passporting. A MAS spokesperson comments that the VCC framework incorporates the best-in-class features that are on par with other similar corporate structures in other international fund jurisdictions, to better serve the needs of global and local managers based in Singapore. 

In particular, the flexibility of the VCC structure for use across a wide range of fund strategies, such as long-only, private equity, venture capital, hedge funds, impact investing, among others, appeals to traditional and alternative fund managers who are seeking to set up or re-domicile their investment funds: “The Covid-19 situation has not dampened the strong interest in the VCC framework from industry players, locally and abroad. Within eight months since launch, as at mid-September, more than 120 VCCs have been incorporated with Singapore’s corporate registrar, the Accounting and Corporate Regulatory Authority (ACRA). We expect the VCC to gain further traction as the fund management industry gains familiarity with the fund structure.” 

Under this regime, fund managers can house their investments in a single vehicle, taking advantage of economies of scale and cost efficiency. They will be able to run a number of strategies under the same umbrella, using a single service provider and corporate director.

According to Lee at AIMA, although managers recognise the VCC’s passporting potential it is considered more of a bonus feature, rather than a key selling point. He says: “The VCC is inherently attractive on its own to some. The benefits it offers stand on their own merit, even without the possibility for passporting funds.”

Managers from Asia and beyond

Players in Singapore envisage the fund structure primarily being used by managers in other Asian countries to distribute across the region. One example of this is the Chinese asset manager CSOP Asset Management. The firm is launching the ICBC CSOP FTSE Chinese Government Bond Index ETF fund using Singapore’s VCC structure.

With assets under management of USD6.3 billion as of December 2019, CSOP is the largest Chinese asset manager to use Singapore’s new corporate fund structure. The firm hired BNP Paribas Securities Services to provide custody solutions, fund administration as well as transfer agency services in the jurisdiction.

In the press release announcing the appointment, BNP Paribas says: “The establishment of the VCC represents an important step in CSOP’s continued overseas expansion. CSOP extended its franchise and set up offices in Singapore to develop a family office and external asset management business in Southeast Asia.”

Ding Chen, Chief Executive Officer of CSOP Asset Management hopes to “achieve success in the VCC structure.”

Tan at the MAS notes it will take time to develop industry familiarity with a new structure, notwithstanding the best-in-class features of the VCC framework. “Of the many fund managers who have expressed interest in using the VCC framework, some may require more time and resources to perform the necessary due diligence. A VCC Grant Scheme was therefore introduced to accelerate industry adoption by defraying 70% of eligible costs relating to the set up of the VCC structure. The grant will allow fund managers to set aside the issue of initial switching costs and allow them to focus on the merits of the VCC and to set up some funds and gain experience from using the new structure.”

Changes are also being seen in the way managers consider their fund hubs in Asia. This shift has been hastened by the global Covid-19 pandemic. Lee observes: “Recently, Singapore’s seeing a lot more inbound traffic from managers with offices elsewhere in Asia, from Hong Kong and further afield.”

 “Against the backdrop of a broader regional expansion story, Covid has accelerated the need to diversify. Just like manufacturers need to diversify their supply chain, many managers are starting to recognise the need to move away from the idea of a single fund hub and promote the notion of having multiple hubs. This change makes for a more resilient organisation as it can mitigate negative impacts from issues like local lockdowns or connectivity.”

Remaining open

For the growth in the Singapore funds industry to be sustained, commentators have stressed the importance of the country remaining open. This is in reaction to the recent news which saw the Minister of Manpower, Josephine Teo, announcing changes to the Employment Pass and S Pass requirements, in an effort to support employment opportunities among locals.

Though some may be concerned this could lead to shutting out foreign talent, trade and industry minister Chan Chun Sing assured Singapore will remain open and connected as a financial hub. 

He was quoted saying: “We are making a move toward quality rather than quantity,” he said. “We really want to create more space for people at the very top, but for those jobs that can be done by Singaporeans, it will not require that many foreigners within the country.”

Outlining the implications of these changes, Christopher Tan, partner at law firm K&L Gates writes: “This is against the backdrop of a sluggish job market and increased unemployment in the local workforce, as the effects of the Covid-19 pandemic takes its toll on the economy and with many companies restructuring their workforce to cope with the ensuing economic fallout.

“It is also apparent that the government has taken pains to ensure that these are adjusted incrementally so as to try to balance the aim of having a workforce with a strong Singapore core, while at the same time not stifling a company’s growth opportunities, which could require talent from a diverse pool.”

Ben-Gacem concludes: “As the China and US relationship continues to evolve and decouple, particularly in the field of technology, one can assume each party will strengthen its own set of technology conglomerates and markets. 

“Singapore has to continue maintaining a delicate balance between its alignment with the East and West given its’ neutral positioning has been a key driver of its growth and development. We are bullish on Singapore’s ability to remain an attractive market in which to conduct business, which is why we have steadily increased our headcount in our Singapore office and have raised more than USD3 billion from Asian based investors that are deployed in Investcorp’s global product offering.” n

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