Parliament: Proposal for a new corporate structure for fund managers

A new structure to encourage fund managers to base their funds together with Singapore’s fund management activities has been proposed by the Monetary Authority of Singapore.
A new structure to encourage fund managers to base their funds together with Singapore’s fund management activities has been proposed by the Monetary Authority of Singapore.PHOTO: ST FILE

SINGAPORE - The Monetary Authority of Singapore (MAS) has proposed a new corporate structure to cater to the needs of fund managers in Singapore and grow the industry.

This structure is called the Variable Capital Company (VCC). This move will encourage more fund managers to base their funds together with their fund management activities in Singapore.

This proposal was brought up under The Variable Capital Companies Bill, which was moved for the first reading in Parliament on Monday (Sept 10).

Fund managers are those who provide services to help others manage their investments.

The Bill proposes to grant more flexibility to these fund managers who want another option in structuring their investment funds, besides the commonly used fund structures of a trust unit or investment company.

MAS noted that investment companies have restrictions that impede the normal operations of investment funds such as the flexibility to pay dividends and redeem shares as well as the ability to consolidate certain administrative functions.

One of the advantages under this new structure is that an investment fund constituted as a VCC will have the flexibility to issue and redeem shares without having to seek shareholders' approval, enabling investors to exit their investments in the investment fund when they wish to, and pay dividends using its capital. This is in contrast to the company structure that has restrictions on capital reduction and can only pay dividends out of profits.

Another advantage is that the VCC can also be a standalone structure or an umbrella structure with multiple sub-funds that may have different investment objectives, investors as well as assets and liabilities. MAS said: "The umbrella structure creates economies of scale, as sub-funds can share a board of directors and have common service providers, such as the same fund manager, custodian, auditor and administrative agent. Certain administrative functions, for instance the holding of general meetings and preparation of prospectuses, can also be consolidated."

The VCC will allow for a wider scope of accounting standards to be used in preparing financial statements, which helps to serve the needs of global investors. Apart from Singapore accounting standards and recommended accounting principles, International Financial Reporting Standards and US Generally Accepted Accounting Principles can be used by VCCs.

This new structure and its flexibility will help build Singapore as a global fund management centre, MAS added.

The registrar of VCCs and administrator of the new Bill will be the Accounting and Corporate Regulatory Authority (ACRA). However, MAS will oversee the anti-money laundering and counter-financing of terrorism obligations of VCCs.