Singapore will reveal a new open-ended fund structure in the next 12 months, hopes Justin Ong, a PwC consultant who has advised the regulator.
As an entrepot, a cosmopolitan, outward-looking trading hub, an established jurisdiction offering tax transparency and tax treaties with more than 70 countries, Singapore has been seen as a natural home for cross-border funds in Asia.
The local industry has grown since 2000, when Singapore’s regulator, the Monetary Authority of Singapore (MAS), overhauled the regulatory regime to open the market to offshore funds – including a light-touch offer for hedge funds, which allowed them to set up without a licence.
This stalled when hedge funds were, fairly or unfairly, singled out for causing instability in the financial system.
Now that hedge funds are regulated and licensed, the MAS is turning to the next challenge, says Justin Ong, Asia Pacific asset management leader, PwC Singapore – creating an open-ended fund structure that will allow Singapore to rival the likes of the Cayman Islands and the British Virgin Islands (BVI) as a domicile.
“One of the disadvantages of Singapore is we’ve never had an effective fund platform,” says Ong. “You might set up a fund company, but you would manage a Cayman-domiciled fund. The regulator didn’t offer an investment vehicle that was attractive.”
The main problem is that Singapore law requires funds to be established as unit trusts, but this rather outdated vehicle, not recognised outside Commonwealth countries, is not transportable. It is also possible to structure a fund as a Singapore-based company, but the regulations are based on British company law from the 1950s and require full disclosure of shareholders, which private clients typically do not want.
Ong’s solution is to create a Singaporean fund vehicle similar to a Sicav (a European structure – the name is a French acronym that means ‘a company with variable capital’) or an open-ended investment company (Oiec). PwC produced a white paper for the MAS outlining this solution, which included various industry studies.
“It’s starting to pick up steam,” says Ong. “There are discussions and MAS is looking at bringing this to market. No details released, but we’re hoping in 12 months we will see some form of regulation issued.”
The regulations will probably be aimed primarily at funds for professional investors and institutions. Given Singapore’s history as a hub for alternative managers, it is likely that take-up will come initially from these players. Ong envisages the vehicle will be popular for Asia-based investment firms that want to invest in Asia. He hopes the structure will ultimately be usable by retail funds as, for instance, are European Ucits funds.
CHALLENGERS
Rather than Ucits, Ong sees the main challengers to the scheme as the Cayman Islands and BVI, which also offer light-tough regulations that are popular with hedge funds. These jurisdictions are better established than Singapore. However, as the tide of global regulation turns against light-touch regulators, and there is a growing unease about the use of ‘brass-plate’ companies and so-called tax havens, the Singapore regulator’s requirement that investment companies have “substance” in Singapore might increasingly be seen as a benefit.
“Unlike a lot of tax havens, it’s not a post box – you have to have people on the ground,” says Ong. “Asset managers in Singapore with a licence from MAS have to use a Singapore administrator, a lot of ancillary services around funds, prime brokers.”
Such requirements might have been seen as unnecessarily onerous a few years ago, but in the post-financial crisis world, that has changed. “Around the world, being unregulated is going to be history,” he says. “With AIFMD and Ucits, there is no such thing as an unregulated manager any more.”
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