In our previous blog, we reflected on Singapore’s success following its launch of the Variable Capital Companies (VCC) framework and how Singapore’s latest fund innovation has been warmly received with almost 250 VCCs incorporated by March 2021. Supported by a strong pipeline of newly licensed asset managers seeking investment opportunities, the possibility that the Monetary Authority of Singapore (MAS) will widen the scope of permissible fund managers could play a key role in continuing to attract more single-family offices (SFOs) to Singapore.
The possibility that MAS will widen the scope is subject to certain conditions and would allow SFOs to expand their range of services to high net worth families looking to set up their own VCCs to manage the family’s money.
Under the current rules, it is difficult for SFOs to establish VCCs without a local asset management license, however, we believe the ongoing collaborative work of the Family Office Development Team (FODT), established by MAS and the Singapore Economic Development Board in 2019, would be a welcomed move. As well as this, the current consultation process underway with MAS and the ‘Family Office Circle’ to extend the VCC structure to SFOs, if approved, would also be welcomed as it continues to increase Singapore’s popularity as the jurisdiction of choice for the setup of SFOs and family funds.
With Singapore seeing rapid growth in recent years, the regulator now estimates there were approximately 400 SFOs operating in Singapore by the end of last year with an estimated assets under management (AUM) of S$27.2 billion. As the pandemic drives greater awareness of the need for wealth structuring, tax planning, and philanthropic interests, Singapore is seeing a strong response to family office services, and the appetite for SFOs and fund houses to establish their own VCCs grows. It was reported in December 2020 that billionaire Ray Dalio, founder of Bridgewater Associates, would open a family office in Singapore to run his investment and philanthropy activities in the region. As well as Ray Dalio, other billionaires have established family offices here, including tech tycoon, James Dyson, and Shu Ping, who co-founded Hong Kong-listed Haidilao.
According to Kelly Teo, deputy director and head of banking development division at MAS, who was one of the panellists discussing the future of Singapore’s family office landscape at an event hosted by DBS Private Bank, Singapore family offices are likely to see the current restrictions from setting up a VCC change this year and work is ongoing to see how best this can be facilitated, to possibly expand the VCC framework to allow SFOs to manage VCCs.
If we do see the scope of permissible fund managers extended to SFOs, with adequate regulatory and anti-money laundering safeguards in place, the VCC framework would help SFOs achieve key tax objectives, giving them access to tax incentives available for investment funds.
Another important benefit we see is the mandatory Singapore substance VCCs delivers. Furthermore, the ability to structure VCCs as an umbrella fund, thereby ring-fencing the assets and liabilities for each sub-fund, would mitigate the risk of commingling and allow different branches of the families to invest together. This in turn would also offer cost and operational efficiencies.
As we look at what is next for the expansion of VCCs we believe the enhancement of the VCC framework would offer a wide number of benefits to SFOs setting up in Singapore to further achieve key objectives for a family office. This is a positive step for Singapore as it continues to reinforce its position as a key hub in the region and helping Singapore to strengthen its appeal as a destination for SFOs in the region.
Michelle is Business Development Manager for the APAC region at TrustQuay