The proposed structure, called the Singapore Variable Capital Company (S-VACC), is an attempt to boost Singapore’s standing as a regional fund centre by helping firms raise funds more easily while providing cost efficiencies.
The Monetary Authority of Singapore last week released a consultation paper on the structure for public comments.
Several asset management firms were contacted for a response to the proposal but declined. Some said the proposed structure was not yet fully understood and others said they would not comment on anything MAS does.
It’s all about tax
However, Madeline Ho, head of wholesale distribution for Asia-Pacific atNatixis Global Asset Management and executive MD of the Singapore office, gave a brief response.
“The S-VACC is an alternative to the current unit trust scheme and offers some economic benefits,” she said.
“It will enhance Singapore’s status as a leading regional fund centre by catering to both open and closed ended funds as well as foreign and local asset managers who want to domicile funds in Singapore.”
Singapore-based Claudia Teo, partner at Harry Elias Partnership, a legal firm specialising in structuring business entities, said that the proposal has not clarified tax treatment, which is an issue with asset management firms.
“MAS has expressed in the consultation paper that it is in the process of studying the tax regime for S-VACCs and exploring the feasibility of extending the current fund vehicle tax scheme to S-VACCs,” Teo said. “The outcome of this will impact the response from asset managers.”
It will be interesting to see if MAS extends the preferred tax regime to the S-VACC structure, she added.
Currently, three structures are used to establish investment funds in Singapore — unit trusts, companies formed under the Companies Act and limited partnerships.
The unit trust structure is most commonly used in the city state, except European funds tend not to use this structure.
Singapore is under pressure to improve its environment for the financial industry, particularly in view of the increasing integration of markets in Hong Kong and China.
A benefit of being based in Singapore is geographic location to Southeast Asian markets. However, Singapore has struggled with the ASEAN Collective Investment Scheme, a regional funds passport programme that includes Malaysia and Thailand.
Launched in 2014, it has had a weak response, with few asset managers participating. As of end December, only five approved funds were for cross-border sale under the scheme.
MAS has also been signing a flurry of fintech development agreements with other countries in order to compete with Hong Kong as a “fintech innovation” centre. However, Hong Kong, again due to its connection to China, appears to hold the regional advantage in fintech, FSA reported earlier.
According to a December survey of asset managers, Hong Kong was widely expected to be the leading fund centre in Asia by 2025, FSA reported earlier. Only 18% of respondents believed Singapore would be the region’s fund hub.