Singapore wants some of the world’s biggest money managers to call its tropical shores home.
In January, the city-state rolled out a new corporate structure designed to make it more attractive for international firms to domicile funds in the nation. The law, known as the Variable Capital Companies Act, makes it easier for overseas and domestic entities to register funds in Singapore if they have a locally based fund manager.
One of Asia’s major financial centers, Singapore expanded its assets under management by 5.4% to S$3.4 trillion ($2.5 trillion) in 2018, the latest central bank data show. But much of that is held in vehicles registered abroad — think Luxembourg, the Cayman Islands and Bermuda.
By having more funds domiciled in Singapore, the government hopes to not only attract more cash, but also jobs in the legal and accounting sectors. It could also reduce the economy’s reliance on more volatile sectors such as trade. Globally, there were some $74 trillion of assets under management in 2018, according to Boston Consulting Group Inc.
The new VCC structure strengthens Singapore’s competitiveness in the “arms race in fund structures,” said Mathew Kathayanat, head of product and strategy for Asia Pacific at Bank of New York Mellon Corp.’s asset-servicing arm. Interest has come from firms in China and India to Switzerland and the U.S., he said.
Reminiscent of structures that already exist in Luxembourg and the Cayman Islands, Singapore’s new rules allow asset managers to use a single locally incorporated structure to hold a pool of assets and multiple sub-funds.
This umbrella structure can house both traditional and alternative strategies and means a single set of service providers, financial statements and board of directors are required for multiple sub-funds, reducing costs.
Firms will be allowed to use both Singapore and international accounting standards and be eligible to access the nation’s network of more than 70 double-tax agreements. It’s a step up from the previous system, where investment managers typically needed to incorporate special purpose vehicles for each fund.
The city-state’s tax incentives and rule of law could one day help the nation’s funds market grow into a global powerhouse. VCC is “potentially a game changer in Singapore,” Tony Lewis, head of HSBC Securities Services, said.
Mindful Wealth Pte, a $600 million asset manager, is one convert, electing to re-domicile one of its funds from the Bahamas to Singapore. Chief Executive Officer Marco Frangi said that as Asia’s increasingly wealthy citizens look to invest globally, few jurisdictions will be able to match the size, proximity and reputation of the new Singapore system.
“Fund hubs in Asia aren’t as well known and used by financial investors” compared with other jurisdictions, Frangi said. “We believe in the medium term, this vehicle will be more popular.”
Other financial institutions have adopted a wait-and-see approach.
The VCC’s launch followed a test pilot that involved 18 fund houses and multifamily offices. Noticeably absent were giants like Morgan Stanley and Fidelity Investments.
While the structure is the “final missing piece of the investment funds puzzle” in Singapore, it will take longer for global asset managers to look beyond their own shores, said Tan Woon Hum, a partner at Singapore law firm Shook Lin & Bok.
Relocating an existing fund in the Cayman Islands or Luxembourg to Singapore would also be quite difficult, said Bharat Joshi, an investment director at PT Aberdeen Standard Investments Indonesia.
“To introduce a whole new structure will take a lot of education” for clients, he said.
Luxembourg, with around $4.7 trillion of assets under management, has long been a destination of choice for funds of BlackRock Inc., JPMorgan Chase & Co. and Amundi SA. The country has a global market share of around 62% of cross-border investment funds, according to estimates from Luxembourg for Finance, a government-backed agency tasked with developing the financial center.
“Everybody is trying to up their game. As long as it’s a fair competition, we’re very happy to be taken on,” Luxembourg for Finance CEO Nicolas Mackel said. While the onshoring of investment structures has been a trend over the past two years, “there are only a few credible solutions — Luxembourg, Ireland and then Singapore,” he said.