The S-VACC will complement existing collective investment schemes (CIS) available in the country.
Industry experts are buzzing over the proposed Singapore Variable Capital Company (S-VACC) legislation that was proposed by the Monetary Authority of Singapore (MAS) early last year and opened for public consultation in March this year. But is it really the game changer that would propel Singapore to become the leading hub for investment funds and asset management?
S-VACC, in a nutshell, is a new type of legal entity to structure investment funds in Singapore that will complement existing collective investment schemes (CIS) available in the country, including trusts, companies incorporated under the Companies Act, and limited partnerships under the Limited Partnerships Act.
Who benefits from the new legislation?
According to MAS’ consultation paper, the new framework proposed will help provide investment managers greater operational flexibility, and allow CIS to consolidate the fund domicile with the respective fund management activities. The structure will also act as a platform for fund managers to anchor their substantive operations in Singapore, where control and management will be executed from the Southeast Asian nation.
In other words: S-VACC will provide greater flexibility for the return of capital to shareholders in order to facilitate redemption rights of investors as well as cater to the creation of sub-funds with segregated assets and liabilities within a single S-VACC.
The proposed legislation, and subsequent public consultation, marks the first time that Singapore has made available a flexible corporate vehicle designed with investment funds in mind — something that puts further shine to the already attractive and lucrative investment funds and asset management industry in Singapore.
“The S-VACC has been designed to further develop Singapore as a centre for both fund management activities and investment fund domiciliation, providing CIS with an additional option to the unit trust structure,” according to Nicola Yeomans, partner at Herbert Smith Freehills. “The MAS also intends to allow the segregation of assets and liabilities of sub-funds established under a single legal entity.”
Amy Ang partner at EY noted that the S-VACC has the potential to be an exciting addition to Singapore’s fund ecosystem, as long as the tax treatment, internationally and in Singapore, supports the MAS’S intentions for introducing the vehicle. Continuing from the key features is the possible effect to stakeholders, particularly funds.
Dentons Rodyk Senior Partner I-an Lim listed down some of the advantages that they’re seeing from MAS’ latest investment fund innovation. For instance, S-VACCS can enjoy increased privacy and anonymity as they will not be required to disclose their register of shareholders and financial statement to the public (unless required by supervisory and/or law enforcement agencies). They are also not obligated to hold annual general meetings, lowering operating costs.
How will it affect stakeholders?
With the legislation, foreign investment funds may also be re-domiciled in Singapore, creating more business for service providers, on top of opportunities presented by the ASEAN CIS (targeting retail investors in Malaysia and Thailand) and the tax-treaties Singapore is party to.
Fund directors will not be required to make solvency statements prior to the repayment of capital, whilst investors will be allowed to subscribe and redeem shares or units at will due to S-VACC’S variable capital structure.
Despite the positives, Lim shared that the exclusivity in terms of who can manage S-VACCS, apart from larger investor protection and political issues, may prove to be a significant hurdle along the way.
“In order for S-VACC to be the vehicle of choice for global fund managers and to truly increase the competitiveness of Singapore as a fund management hub, we believe that the … legislation must be expanded to allow for fund managers who are not based in Singapore to take advantage of the S-VACC structure,” Lim said.
The assessment further noted that although the proposed framework offers increased opportunities for cross-border collaboration, growth for stakeholders in the fund industry, competitiveness and ease of doing business for Singapore, as well as a wider investor base for fund managers to tap on, it also reveals the potential pitfalls for inexperienced investors.
“S-VACCS can enjoy increased privacy and anonymity as they will not be required to disclose their register of shareholders and financial statement to the public.”
S-VACC has the potential to be an exciting addition to Singapore’s fund ecosystem.