Singapore has gotten a jump on Hong Kong this year in becoming a domicile of choice for public and private investment funds at a time when tax-haven heavyweights such as the Cayman Islands are facing growing scrutiny.
In the less than six months since Singapore's government launched its variable capital company scheme to facilitate the city-state's emergence as a fund domicile center, official tallies show asset managers have established 63 VCC funds, dwarfing the eight funds set up in Hong Kong using the open-end fund company, or OFC, structure the territory debuted more than a year ago.
The comparison isn't entirely apples to apples, as Singapore's VCC fund structure can be used for everything from publicly traded securities to private markets vehicles, while analysts say Hong Kong's OFC is more geared to retail funds and hedge funds. The territory's government is set to launch an upgraded limited partnership fund structure for private markets managers at the end of August.
Money managers and service providers say a well-thought-out and executed plan to promote Singapore as a domicile center is paying off now for the city-state.
The VCC initiative keeps Singapore "a couple of steps ahead of what regulators and investors are demanding," combining the advantages limited partnerships and investment trusts enjoy in easily injecting or withdrawing money with a private corporate fund structure that can "internally segregate assets and liabilities" among subfunds and access tax treaties, said Daniel Yong, a Singapore-based partner with law firm Withers KhattarWong LLP.
Analysts say Singapore's government — spearheaded by the Monetary Authority of Singapore — has rolled out tax incentives over the years that have made the advantages of domiciling a fund in havens like the Caymans or the British Virgin Islands less compelling.
Meanwhile, a new grant scheme under the VCC program, covering up to 70% of fund managers' eligible expenses for Singapore-based VCC service providers through January 2023, is an added attraction, noted Penelope Shen, a Hong Kong-based partner with law firm Stephenson Harwood LLP.
While local boutique firms have dominated the list of managers setting up VCC funds since January, analysts said the absence of big global players so far shouldn't detract from the program's success in getting off the ground just as a deadly pandemic was roiling economies and capital markets around the world.
A MAS spokesperson said Singapore’s flexible corporate VCC framework offers investment funds features “on par” with what they can find in other international fund jurisdictions, adding "we can also expect the VCC framework to create new business and job opportunities for Singapore-based fund service providers such as legal and tax advisors, accountants, fund administrators and fund custodians.”
The cocktail of incentives and grants the Monetary Authority of Singapore is providing has left a lot of predominantly Singapore-based fund managers "quite interested to try this new structure," said Vyasa Arunachalam, a Singapore-based partner with law firm Dentons Rodyk & Davidson LLP. Global managers could take a bit longer, but MAS continues to elicit feedback on the program and will likely stand ready to amend or tweak the VCC structure as needed, Mr. Arunachalam said.
While Hong Kong's OFC structure is similar to the VCC in many aspects, Hong Kong has been a "step behind Singapore in terms of policy support," Ms. Shen said.
There is a perception that Singapore authorities have been much more forward looking, flexible and adaptable in promoting their new fund structure, agreed Scott D. Peterman, a Hong Kong-based partner with law firm Orrick, Herrington & Sutcliffe LLP.
Money managers say Singapore's better-coordinated rollout has made it easier at this point to set up funds in the city-state.
David Ng, chief operating officer with Hong Kong-based CSOP Asset Management Ltd., a $6.3 billion joint venture between Shenzhen-based China Southern Asset Management Co. Ltd. and Hong Kong-based OP Financial Investments Ltd., said CSOP had been looking to set up both a VCC fund and an OFC fund this year but ultimately was able to move ahead first in Singapore.
In March, CSOP launched "our first VCC," a quantitative index allocation strategy, with $160 million, and "we are on target" to launch a second fund there over the coming three months, Mr. Ng said.
With the city-state's entire financial ecosystem — including accounting firms such as PricewaterhouseCoopers, law firms such as Simmons & Simmons, trustees and custodians — "very engaged" in promoting the initiative, the exercise of setting up a VCC fund proved "efficient" and "painless," he said.
CSOP had been working to launch an OFC fund as well, but ultimately "we couldn't work out the details of the deal" and the launch was aborted, Mr. Ng said. CSOP will continue to work toward setting up an OFC fund, he said.