Advantage Singapore – Key Regional Fund Centre

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As Singapore continues to position itself as a major funds and wealth management hub, several key developments have sharpened focus on the city state and its prospects as a key destination for Asian capital and an important conduit for cross-border investment across the region.
 
Since re-opening from the pandemic, both business activity and growth in Singapore have been strong, driven in part by an influx of wealth from overseas.  The movement of some large global asset managers to Singapore which begun prior to Covid lockdowns has continued, with Singapore's reputation reinforced in Asia as a key centre for non-China focused funds.  It remains the 'go-to' destination for investment in India due to the tax treaty between the two countries, as well as elsewhere in Southeast Asia, including emerging hot spots such as Vietnam.  Some Hong Kong or China-based asset managers have also established research or satellite offices in Singapore and the market is poised to see whether this trend continues when significant investment activity in China resumes.

Family Office Focus

An influx of wealthy families and assets to Singapore has translated into a large increase in the number of family offices, which is a trend that has been encouraged by regulatory authorities.  In addition to providing an important source of capital for hedge funds and private assets / credit in the region, family offices have created more demand for financial professionals in Singapore, further growing the industry.  Private banks have also enhanced their wealth management operations with services for multi-family offices to leverage on the new Variable Capital Company (VCC) framework.  Launched in 2020, the VCC provides a recognisable corporate structure for the region with greater efficiency than the prior domestic framework, where typically a Singapore private company would be used as a Special-Purpose Vehicle for investment funds under an offshore fund entity.  Crucially, the VCC is also beginning to gain recognition as an investment vehicle for investors located outside of Southeast Asia.

Its also notable that licence application turnaround times for family offices, which are essentially quasi-investment managers, have become extended, which suggests a level of activity is building up in the sector.  Single family offices can't currently manage VCCs but this is anticipated to be addressed with the new updated VCC 2.0 framework expected to become effective in the coming months.  The expectation is that single family offices will be able to use the VCC structure, which has so far been restricted to licensed fund managers or licensed multi-family offices.  With some incentives remaining, and as fees from service providers come down, the new VCC structure could also be attractive to single family offices going forward.

The growing importance of family offices in Singapore's fund industry and its wider financial services sector, is also reflected in plans by the Monetary Authority of Singapore (MAS) to strengthen its framework against money laundering risks, ensuring single family offices are subject to anti-money laundering controls.  The current framework provides certain exemptions for single family offices, which do not manage third party assets.  The proposals aim to harmonise the exemption criteria for all single-family offices operating in Singapore.  The Maples Group provides a range of services to single and multi-family offices, including legal services, fiduciary services and fund administration.

VCCs in Fund Structures

Local Structures
Our conversations on the ground, show that local managers are increasingly incorporating VCCs into existing and new structures.  Based on our recent discussions with Singaporean venture capital fund managers using VCCs, their key priorities are being able to act quickly and keep costs down.  One solution for this is to use a single service provider for as many key services as possible.  The Maples Group in Singapore has therefore developed a range of VCC services with tailored options for local venture capital and start-up managers.  These services include entity formation, registered office, company secretarial services, accounting and fund administration, as well as independent directors and board support.  Using the Maples Group for multiple services allows managers to have fewer points of contact; undertake one coordinated KYC process; and benefit from more attractive pricing.

International StructuresIn Singapore, we have also received an increasing number of enquiries for VCC services for our international clients, including from managers based in London, South Korea and New York who have previously, either not worked with Singapore as a jurisdiction, or only used Singapore private companies.  While these international clients continue to use Cayman Islands and/or Delaware entities, they are also bringing in VCCs, often as master funds or master investment vehicles, into their existing fund structures.  The Singapore Funds Industry Group (SFIG) also continues to be active, taking its VCC presentation to New York in March of this year, with other members of the asset management community, highlighting Singapore's evolving position in the global funds market, in addition to a leading jurisdiction for APAC managers.  

VCC Enhancements – More to Come

Despite launching the initiative during the pandemic, the VCC has been successful in achieving regional recognition, helped by the government incentives included in a VCC grant scheme, now revised and extended until 15 January 2025.  The incentives issued by MAS have been reduced in the second phase, but managers can still obtain co-funding of up to 30% of the domestic service provider expenses involved in setting up their first VCC, for up to S$30,000 per application.

One new condition of the funding is that the VCC must remain operational for at least one year after registration.  With a number of macro events disrupting the investing landscape last year and a fairly cautious outlook across the region delaying the launch of some funds, there are hopes that the local industry will continue to use the VCC and that the formation numbers since the incentives were reduced remain steady.  Further development will also require more institutional players to gravitate towards the structure, during this transitional phase of more limited government support.

VCC Key Regulatory Requirements

Overcoming the challenge of introducing an unfamiliar product to the market and seeing a level of initial expertise build among local service providers, the VCC will continue to evolve, as Singapore looks to achieve its longer-term objectives for increased global recognition of its fund sector.  There is no question that Asian capital is becoming more influential on a global scale and the broader adoption of higher standards of corporate governance in the region has been part of that appeal.

Singapore Formation Activity

The current year has been an interesting one for the Singapore funds industry, where the reopening of China had been expected to propel activity across the region.  Instead, China-focused fund managers have adopted a wait and see approach, with private equity managers holding on to dry powder so they are ready to invest as soon as the China market rebounds.  At this point, growth in China is uncertain, particularly in connection with consumable goods and real estate, although industries such as AI and electric vehicles continue to perform strongly.

While the number of new funds has not returned to previous heights, the Singapore market is still performing well in 2023, with entity formation up to the end of August at a monthly average of 6084.  That exceeds the monthly average of 5350 in 2022 and 5435 in 2021.  These entity formations include local and foreign companies registered with the Accounting and Corporate Regulatory Authority (ACRA), as well as sole proprietorships and partnerships, Limited Liability Partnerships (LLPs), limited partnerships, public accounting firms and VCCs.  

The numbers indicate continued growth in business activity in the region and suggest growing confidence in Singapore as a jurisdiction.  While these statistics are not sector specific and include non-fund related entities, from the managers we are dealing with, after a quiet period for China-focused funds, a number of hedge funds have started to re-enter the space.  We are also working with an increasing number of hedge fund and private equity managers who are focusing on India, in addition to existing APAC managers who continue to use Singapore as a base from which to invest across Southeast Asia.

The Maples Group can assist with the formation of a variety of domestic Singapore vehicles, in addition to entities from all key international financial centres across our extensive international network, as part of global investment structures.  This includes forming the following vehicles:

In addition to entity formation, our Singapore team can also assist with registered office and company secretarial services, as well as providing Singapore resident independent directors to companies, VCCs and general partners, either on an ongoing basis or for incorporation.  

The Maples Group

The Maples Group provides fiduciary services to funds and investment managers across the spectrum in Asia, with a dedicated offering complemented by our law firm Maples and Calder and our market leading fund services.  This leverages our long-standing presence in the region with our specialist expertise in alternative investments, our institutional infrastructure and expert knowledge of the regulatory landscape.  In addition to experienced independent directors, we provide accounting and financial reporting services, as well as company secretarial and board support, which give comfort from a compliance standpoint, enhance governance and reduce the administrative burden on managers.  

As Singapore continues to develop as an international hub for investments funds, the Maples Group is committed to providing our clients with the guidance and support they need in these key markets.  If you would like to learn more about how Maples Group can provide such assistance, please contact the authors of this article.