Asia’s leading fund domiciliation hub
By Mark Voumard, Gordian Capital – Readers will be familiar with onshore domiciles such as Dublin or Luxembourg. How does Singapore differ?
With a current AUM of approx. USD2.9 trillion, the asset management industry in Singapore has seen significant growth in recent years. In addition to other well-known attributes, its rankings in the 2020 World Bank metrics – government effectiveness, political stability, world’s easiest place to do business, rule of law, control of corruption – all surpass both Luxembourg and Dublin and unlike them, it is a significant private banking centre (World No4). As a sign of its competitiveness ranking among all financial centres, Singapore is currently ranked No5 in the Global Financial Centres Index vs Luxembourg (18) and Dublin (30).
Singapore’s long-term strategy of co-location is paying off. Over 895 regulated/licensed asset managers are based here, with physical operations and staff located in this jurisdiction providing real substance. With the launch of the Variable Capital Company (VCC), the fund management company, the regulator and the fund are now domiciled in the same locale. This is materially different to “ManCo” regimes in Dublin or Luxembourg where there are thousands of funds domiciled but a relatively small number of “real” managers with a physical presence; the funds are in fact managed by asset managers in totally different countries. As such, Singapore is well positioned to meet the OECD BEPS Action 6 and the Principal Purpose Test.
With the growing global trend towards onshore domiciliation, Singapore was rated as the #1 most politically stable country in Asia, offering a highly pro-business environment. As a result, it is well positioned for this trend. It is an OECD & full FATF member, has low business and personal tax rates and favourable tax incentives for Singapore-domiciled funds. Despite this, it is not regarded as a tax haven. With a rigorous corporate governance framework, it adheres to international accounting standards, has world-class physical infrastructure and a skilled workforce with globally leading educational standards. With 69 per cent of Singapore fund AUM invested in Asian assets, it makes sense to base a fund entity investing within the region, in Singapore.
What’s your view on the new Singapore domiciled Variable Capital Company – “VCC”?
As Asia’s leading institutional fund management platform, having launched over 100 funds in multiple jurisdictions, we are always seeking new structures that make sense both for managers and investors. We were pleased to have been a participant in the MAS pilot platform, launching the first wave of VCCs. For our asset management, corporate, institutional investor and family office clients, as far as Singapore structures are concerned, we tended to use Singapore companies, investing in private assets (private equity, real estate, venture capital, private credit and infrastructure). Corporate status (and real substance in Singapore) allow these funds to access the DTA network. The limitations of these existing domestic fund structures, however, have impeded growth in the (onshore) Singapore-domiciled fund industry. The VCC addresses those issues by combining the best of the two i.e. corporate tax treatment and the optionality and segregation benefits of a unit trust. The end result is that managers and investors worldwide have been provided an additional robust, logical and future-proofed fund structure and domicile option to consider. The VCC provides fund managers with greater operational flexibility and helps them reap economies of scale and monetary savings, covering both traditional and alternative assets and can be open-end and closed-ended.
As of its introduction in January 2020, despite Covid-19, more than 120 VCCs had launched by mid-September 2020, with roughly one VCC launching every 2-3 days. Although competition among offshore and onshore centres will heat up, the outcome is not a binary one. The VCC is designed to complement existing structures and a Cayman Limited Partnership or a Luxembourg RAIF feeding into a VCC for investments into Asian private assets, for example, is one structure we could envisage with such outcomes always being driven by the needs of investors. The VCC has been very well received, however like any new vehicle will take time to gain global acceptance. That said, we are confident that, over time, it will strengthen the jurisdiction’s claim as Asia’s dominant alternative fund domicile hub.
How can managers located outside Singapore access and enjoy the benefits of the VCC?
Non-Singapore based managers can engage a Permissible Fund Manager such as Gordian Capital to manage the re-domiciliation process of their offshore funds and or to establish and operate a new VCC on their behalf. Three recent VCC vehicle launches entrusted to us by clients, none of whom have a presence in Singapore, include: an HK based manager, listed ESG fund, est. size USD100 million, initial investors Asian Family offices; a US based USD5 billion AUM manager, ultimate investors are US endowments and pension funds, investing from a Delaware structure, investing into Indian private equity assets; Korea based manager, a domestic Korean pooling vehicle investing into the VCC, strategy is aircraft finance. Our dedicated VCC page gordian-capital.com/vcc has more information on our VCC offering.
What have been the drivers of the fund platform business model in Asia?
As pioneers in the industry, looking back to 2005, it’s clear that the same business needs that drove our growth then, continue to drive it now. Managers require an institutional platform such as ours, to provide a regulated operational infrastructure, replicating the ecosystem of much larger and established asset management institutions, allowing investment professionals to focus on their portfolio without unnecessary distraction. The cost of regulation, compliance and infrastructure has increased exponentially over the last decade, with new launches having to meet the additional requirements that have come with the arrival of institutional investors in the alternatives world. We don’t manage any proprietary or third-party capital, resulting in no conflict of interest. Nor do we have a plethora of other businesses to distract us, thus satisfying institutional investors who seek both an independent fiduciary oversight as well as a strategic focus.
We expanded into private assets in 2014, driven by significant manager and investor demand. Private asset investment vehicles are very different to hedge funds, involving substantial and sometimes complex fund structuring, working collaboratively with both international and local legal and tax counsel and investors including SWF’s, DFI’s, pension funds and other institutions. As our clients’ needs have expanded, our licensed and regulated operations in both Singapore and Tokyo have provided them with a choice of location in the region.
Founder & CEO, Gordian Capital
Mark Voumard who has almost four decades of experience in Asia, is founder and CEO of Gordian Capital, Asia’s leading independent alternatives institutional platform and fund structuring specialist (AuM USD5 billion) where since 2005, he has been involved in the structuring and launch of over 100 funds (hedge, private equity, venture capital, real estate, and private credit).