The Monetary Authority of Singapore’s (MAS) Asset Management Survey 2021 shows that, as of Oct 14, more than 660 VCCs (variable capital companies) have been incorporated or re-domiciled in Singapore for various use cases and fund strategies. These umbrella or standalone VCCs, representing over 1,300 sub-funds, are managed by 420 regulated fund management companies. Singapore’s fund ecosystem is now supported or advised by more than 220 fund service providers, such as lawyers, tax advisors, corporate secretaries and fund administrators.
The MAS Asset Management Survey also shows that 15 VCCs were re-domiciled in Singapore as of Oct 14 this year. The re-domiciliation of foreign corporate funds to Singapore as a VCC is one of the features of a VCC.
“We want to strengthen Singapore’s position as a fund domicile through our VCC framework,” says the deputy managing director at MAS, Leong Sing Chiong, in a recent interview with The Edge Singapore.
In addition, VCCs create an ecosystem with supporting functions such as service providers, including legal and tax advisers, fund administrators, and corporate secretaries.
VCC is an alternative collective investment corporate structure established under the Variable Capital Companies Act 2018.
“Since its inception in early 2020, the Singapore VCC has been a top choice for re-domiciliation and amalgamation exercises for existing foreign umbrella and stand-alone mutual funds,” says Matthew Fletcher, managing director of MSC Group, an Australian fund management company that provides trustee services, fund administration and financial management and services.
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VCC versus CCIV
In June, Australia passed the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022, adding a new chapter to the Corporations Act 2001. The CCIV is a direct competitor to the VCC. MSC recently obtained a CCIV (Corporate Collective Investment Vehicles) Australian license. This is the Australian equivalent of the VCC. MSC is also licensed in Singapore for a VCC.
“This enables the fund manager choices of cross-border domiciliation within a specialised funds management highway between Singapore and Australia. MSC Trustee’s CCIV license authorisation in Australia is allowed to operate both retail and wholesale Investment vehicles,” says Fletcher.
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The CCIV is a company limited by shares, and its constitution has particular requirements, similar to a VCC. The subscribers to the constitutions of both CCIVs and VCCs are considered members of the CCIV or VCC. Both CCIVs and VCCs have sub-funds which must be registered with Australian Securities and Investment Commission or ASIC (CCIV) or ACRA (VCC), and the assets and liabilities of each sub-fund are segregated from those of other sub-funds. Both CCIVs and VCCs can issue shares or debentures to members.
“The Australian equivalent of the Authorised VCC in Singapore is a Retail CCIV which can be promoted to retail clients in Australia. There are similar requirements in both countries for financial reporting, audit and custody for Retail CCIVs and Authorised VCCs,” Fletcher adds.
A board governs the VCC with at least one executive director, one qualified representative of the fund manager and one independent director. The VCC should also have a fund manager that holds a Capital Markets Services (CMS) Licence issued by the MAS. In contrast, the CCIV is governed by a single corporate director that must be a public company with a majority of independent directors and must hold an Australian financial services licence that authorises it to operate a CCIV.
VCC and CCIV structures can move from Australia to Singapore through a specialised funds management highway. Fletcher cites MSC Group’s advantage in cross-domiciliation. Its unit, MSC Capital Partners in Singapore, holds a CMS markets service licence for fund management. Hence it can facilitate Australian CCIVs effectively redomiciling to Singapore by applying to ACRA for registration as a VCC.
“This will involve appointing a Singapore-based secretary, auditor and administrator and deregistering the CCIV in Australia upon its registration as a VCC in Singapore,” he indicates. Australia does not have similar provisions for the re-domiciliation of Singapore VCCs but has implemented the Asian Region Funds Passport scheme to allow foreign collective investments from the Asian region, including New Zealand, Japan, Korea and Thailand, to be promoted to Australian investors. If Singapore were to join the ARFP regime, large VCCs domiciled in Singapore could be promoted to Australian investors without redomiciling.
Movement of capital
“There is an additional benefit of this funds management highway in terms of Singapore presenting as the new hub for funds management structures and principal benefactor of capital raising across the region, then acting as feeder funds accessing asset rich jurisdictions like Australia,” Fletcher says.
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“But the real advantage is the movement of capital,” he continues, adding that the true advantage of cross-domiciliation is that CCIV and VCC structures can be used as capital-raising vehicles in each respective jurisdiction for everyday mandate purposes.
“Sub-funds can be established in specific currencies and for local or international investment purposes. This is particularly easy because of the similar nature of these corporate structures and umbrella sub-fund options — including other similar structures in jurisdictions worldwide. For example, the UCITS (Undertakings for the Collective Investment in Transferable Securities) structure in Europe is a regulatory framework of the European Commission that creates a harmonised regime throughout Europe for the management and sale of mutual funds.”
For the Singapore and Australia funds management highway, the movement of capital is still subject to the compliance regulations of both countries. This is where MSC hopes to provide a bridging platform. Registration of a VCC feeder or fund of funds for Singapore is still required as it would be considered still, as a new establishment, while the distinction of adopting the different Australian and Singapore’s specific and local regulatory regimes must still be respected.
Tax differences
According to the Australian Taxation Office, the objective of the CCIV tax framework is that the general tax treatment of CCIVs aligns with the existing tax treatment of attribution-managed investment trusts (AMITs).
Investors in CCIVs will generally be taxed as if they had invested directly in the underlying assets. Unitholders in AMITs can, in certain circumstances, make both upward and downward adjustments to the cost base of their unit holdings to eliminate double taxation that may otherwise arise.
VCCs incorporated under the VCC Act are treated as companies incorporated under the Companies Act for income tax purposes. Further, regardless of whether a VCC is a non-umbrella VCC or an umbrella VCC comprising (or that will comprise) two or more sub-funds, it will be recognised as a single entity for income tax purposes. One of the differences is the double taxation agreements (DTA) or tax treaties each jurisdiction has. Singapore has DTAs from 98 different countries versus Australia’s 40 or so DTAs.
The raison d’être of VCCs
“The VCC framework strengthens Singapore’s overall value proposition as an asset management hub. Singapore is not just a good location to carry out investment activities, but also provides a well-established VCC framework conducive to setting up fund structures,” Leong says. As more funds are domiciled in Singapore, more fund managers will likely have offices here, including what Leong describes as asset owners.
“We aim to enhance the VCC regime further to cater to a broader base of users, both licensed fund managers as well as asset owners like single-family offices,” Leong says.
Asset owners are pension funds, sovereign wealth funds and central banks setting up offices in Singapore to take advantage of its wealth and asset management hub status, its double taxation agreements, supporting infrastructure for funds management, and increasingly, global and regional financial institutions and multi-nationals making Singapore their regional headquarters. “They are large and run globally diversified investment portfolios. And they have set up significant investment operations in Singapore, looking at Asian public and private market opportunities,” Leong says.
Single-family offices have ballooned from 200 in 2019 to 700 at the end of 2021. Asset owners such as the Alberta Investment Management Corporation (AIMCo) announced plans to open an office in Singapore. In 2020, the Banque de France opened its Asia-Pacific representative office in Singapore. Other SWFs and pension funds with offices in Singapore are South Korea’s most significant government funds, the Korea Investment Corporation (KIC) and the National Pension Service (NPS); Norway’s Norge Bank Investment Management and Canada’s Caisse de dépôt et placement du Québec (CDPQ); Ontario Teachers’ Pension Plan (OTPP); Ontario Municipal Employees Retirement System (OMERS).
In the private wealth industry, the Singapore wealth management eco-system has seen increased demand by international ultra-high net worth individuals to include the VCC as part of its wealth enhancement and succession structure solution. No surprise then that there is interest from Australia, which boasts significant superannuation funds.
“There has been strong interest from new and existing MSC clients in establishing VCC structures for some time now, and we are establishing multiple VCC funds. These funds are being established in conjunction with and on behalf of Australian and international fund managers seeking to access the growing Asian wealth pool via Singapore. There has been considerable interest from multi-national fund managers from Europe and North America, who appreciate and understand the nature of the VCC structure, so the considerable effort and incentives offered by the Singapore government, MAS and IRAS are starting to pay dividends for the local economy,” Fletcher says
