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Singapore’s local fund structure aims to win over Caribbean domiciles

The biggest benefit of Mindful Wealth’s re-domiciling of its CLO fund to Singapore could be the new structure’s endorsement by MAS.

The firm, which conducts wealth management services and fund management activities with licenses in Singapore and Dubai, said last week it has re-domiciled its Avenida CLO Equity Fund from the Bahamas to Singapore, adopting the locally-domiciled fund structure known as the VCC (variable capital companies).

The fund invests in collateralized loan obligations (CLOs), structured products that invest in senior secured loans.

“It is a niche specialised fund,” CEO Marco Frangi told FSA. “There aren’t hundreds of funds like this in the world,” he said, adding that he expects the alts product inside a local fund structure to support distribution in the region.

Federico Cristina, senior financial adviser at the firm, said that costs for re-domiciling to Singapore were reasonable. They include third-party costs, such as those for administration, tax advisory and custody. He said the government fee is around S$10,000 ($7200) “with no yearly recurring fee as in other jurisdictions”.

By comparison, the Bahamas structure carried higher costs for offshore director and agents, an offshore registered office and a “shell fund manager and hefty CIMA registration fees and annual fees”, Cristina said.

The Monetary Authority of Singapore (MAS) is promoting tax advantages for the VCC as well. But the main attraction of the VCC is probably that exotic strategies are inside a local structure developed and endorsed by MAS.

Investor acceptance of CLOs in Asia is low and the firm believes the MAS-approved structure, which acts as a sort of de facto branding, will attract more Asia investors than a Bahamas-domiciled fund.

Far-flung domiciles may be at a disadvantage among certain investors in Asia. For example, private equity fund domiciles are often done in the Cayman Islands, which is popular for secrecy reasons that are now under scrutiny.

“It’s probably the jurisdiction that matters, not the structure itself”, Cristina said.

Attracting foreign managers

The regulator introduced the new VCC framework through a pilot programme in September last year with the aim of growing the fund industry in Singapore – a key requirement to be eligible for the VCC was having the fund manager licensed in Singapore, said Cristina.

Eighteen fund managers participated in the programme, mainly home grown alternatives firms running private equity, venture capital and hedge funds. According to MAS, they have since incorporated or re-domiciled a total of 20 investment funds as VCCs.

The regulator hopes the structure will become a “Singapore Ucits”, which would ideally allow it to be recognised for sale in multiple jurisdictions.

In 2018, Hong Kong launched a similar initiative via its open-ended fund company (OFC) structure. Mirae Asset Global Investors has since debuted three ETFs under the OFC, while private fund manager Pacific Hawk Global became the first to adopt the structure.

Part of the Mark Allen Group.