Singapore has rapidly emerged as a premier destination for hedge fund managers and high-net-worth investors. As of 2022, the city-state is Asia’s second-largest hedge fund hub, home to over 300 hedge funds managing more than US$210 billion in assets.
This prominence is underpinned by Singapore’s political stability, robust regulatory oversight, and investor-friendly tax regime – including an extensive network of tax treaties and no capital gains tax.
In recent years, Singapore’s introduction of the Variable Capital Company (VCC) structure has further enhanced its appeal.
The VCC is a game-changing fund vehicle designed to attract hedge funds and other investment funds to Singapore, offering flexibility and benefits comparable to traditional offshore domiciles.
This article explores why establishing a Singapore hedge fund via a VCC is advantageous, explains what a VCC is, outlines how to set one up, and highlights real-world examples of success.
What is a Variable Capital Company (VCC)?
A Variable Capital Company (VCC) is a specialized corporate structure for investment funds, launched in Singapore in January 2020 under the Variable Capital Companies Act.
Unlike a standard company, a VCC is tailored for collective investment schemes, allowing fund managers to house one or multiple sub-funds within a single legal entity.
Each sub-fund can have different investors and investment strategies while remaining segregated from others under the umbrella. The VCC framework is administered by the Accounting and Corporate Regulatory Authority (ACRA), with the Monetary Authority of Singapore (MAS) overseeing compliance in areas like anti-money laundering and the regulation of fund managers.
Notably, every VCC must be managed by a Permissible Fund Manager – i.e. a fund management company that is licensed or registered by MAS.
In essence, the VCC provides a legal wrapper that is purpose-built for funds, offering the flexibility of an open-ended or closed-ended fund structure (for mutual funds, hedge funds, private equity, real estate, etc.) within Singapore’s highly regarded regulatory environment.
Advantages of the VCC Structure for Hedge Funds in Singapore
The Singapore VCC offers numerous benefits that make it especially attractive for hedge funds and other investment vehicles. By combining corporate efficiency with fund-specific flexibilities, the VCC structure addresses many needs of fund managers and investors:
Flexible Capital and Redemptions
Unlike a traditional company with fixed capital, a VCC has a variable capital structure, which makes it easy to admit new investors and redeem investments.
Share capital can increase or decrease as investors come and go, facilitating subscriptions and redemptions without cumbersome procedures.
Redemptions do not require a solvency test and can be executed efficiently at net asset value, allowing hedge funds to meet investor liquidity demands more easily.
Umbrella Fund with Sub-Funds
Fund managers can establish a single VCC with multiple segregated sub-funds, each holding different portfolios or strategies.
This umbrella structure enables economies of scale – shared administration, service providers, and governance – while keeping assets and liabilities of each sub-fund legally ring-fenced.
The assets of one sub-fund cannot be used to satisfy the liabilities of another, which is vital for risk management.
For a multi-strategy hedge fund, this means different strategies (e.g. a global macro sub-fund and a credit sub-fund) can operate under one VCC, but with complete liability separation between them.
Investor Confidentiality
VCCs offer greater privacy for investors. Shareholders’ identities and financial statements of a VCC are not publicly disclosed, unlike in a typical Singapore company where such information must be filed and can be inspected.
This confidentiality appeals to HNWIs and institutional investors who prefer discretion. (Regulators can still access these records when necessary, ensuring transparency to authorities.)
Flexible Distributions
The VCC can pay dividends and make capital distributions from its net assets (including capital) rather than only from accounting profits.
This gives fund managers flexibility to pass through investment gains or return capital to investors at any time.
For hedge funds aiming to deliver absolute returns, the ability to distribute gains without traditional dividend restrictions is a significant advantage.
Single Investor or Asset Feasible
A VCC can be formed with a single shareholder and even a single asset if needed.
This makes it suitable for use in master-feeder structures (e.g. a feeder fund feeding into a master fund, both as sub-funds within one VCC) or for bespoke single-investor funds.
It provides structural flexibility for family offices or proprietary funds that may start with one primary investor.
Tax Efficiency
Singapore extends its attractive tax exemptions for funds to VCCs as well. VCC funds are eligible for schemes like the Monetary Authority of Singapore’s Section 13O (Onshore Fund) and 13U (Enhanced-Tier Fund) tax exemption programs, subject to conditions.
Qualifying funds pay no tax on specified investment income earned in Singapore, which can substantially enhance after-tax returns.
Moreover, because a VCC can obtain Singapore tax residency, it can access Singapore’s network of double taxation avoidance agreements, potentially reducing withholding taxes on foreign investment income.
Singapore also does not impose capital gains tax, benefiting investors in growth-oriented hedge fund strategies.
Regulatory Credibility and Governance
By domiciling a hedge fund in Singapore as a VCC, managers signal a commitment to a well-regulated, reputable jurisdiction.
The MAS oversight of fund managers and stringent anti-money-laundering (AML) standards for VCCs inspire confidence among global investors. Governance requirements – such as having a board of directors and a Singapore-based company secretary and auditor – ensure that a VCC is properly administered in Singapore.
At least one director of the VCC must be locally resident (and if the VCC is retail-facing, a majority of directors must be independent). These measures align with global best practices, making Singapore VCCs attractive to institutional investors who perform due diligence on fund governance.
Re-domiciliation of Offshore Funds
The VCC framework allows existing overseas investment companies (from jurisdictions like Cayman or Luxembourg) to re-domicile to Singapore as a VCC.
This means a hedge fund that was previously set up offshore can migrate into Singapore without liquidating the original fund.
Many fund managers are seizing this opportunity to consolidate their operations in Singapore’s favorable environment. (Notably, while inbound re-domiciliation is allowed, converting a Singapore VCC to an overseas entity isn’t permitted under current rules.)
Government Support and Grants
Singapore authorities actively encourage adoption of the VCC structure.
A VCC Grant Scheme (VCCGS) was introduced alongside the VCC launch, which co-funds part of the expenses of setting up a VCC. Initially, the scheme covered 70% of eligible incorporation costs (capped at S$150,000 per fund).
It has since been extended: under the current extended VCCGS (available until January 15, 2025), the government will co-fund 30% of qualifying setup expenses, up to S$30,000 per VCC.
This tangible support lowers the barrier to entry for new fund setups, effectively subsidizing legal, tax, and administrative fees for HNWIs or managers establishing a Singapore hedge fund via a VCC.
In summary, the VCC structure combines operational flexibility, legal protections, and fiscal advantages that cater to the needs of modern hedge funds.
It mirrors popular fund vehicles in other hubs (for example, the Cayman Islands’ exempted companies or Luxembourg’s SICAV structures) while embedding Singapore’s regulatory rigor and incentives. For fund managers and investors, this means one can enjoy the benefits of an offshore-style fund within a reputable onshore jurisdiction.
Setting Up a VCC in Singapore: Step-by-Step Guide
For those ready to establish a Singapore hedge fund through a VCC, the process involves several key steps and requirements. Below is an overview of how to set up a VCC in Singapore:
Determine the Fund Structure
Decide whether to create a standalone VCC (single fund) or an umbrella VCC with multiple sub-funds. This will depend on your investment strategies and goals.
A standalone VCC might be sufficient for a single-strategy hedge fund, whereas an umbrella VCC is ideal if you plan to host multiple strategies or funds (sub-funds) under one entity.
The umbrella option offers flexibility to add new sub-funds over time as your fund offerings expand.
Appoint a Permissible Fund Manager
Every VCC must have an approved fund manager in place. You’ll need to engage a MAS-regulated fund management company (either already licensed or registered, or a new entity you establish and license for this purpose). The fund manager can be:
- A licensed Fund Management Company (FMC) authorized to serve retail or accredited investors, or
- A Registered Fund Management Company (RFMC) for smaller, non-retail fund operations (managing up to S$250 million and serving only qualified investors), or
- An exempt financial institution (such as a bank or insurance company with MAS approval to conduct fund management).
Appoint Key Officers and Service Providers
Similar to incorporating a company, a VCC requires certain appointments:
- Directors: Nominate the board of directors for the VCC. A minimum of one director must be ordinarily resident in Singapore (citizen or permanent resident). If the VCC is an umbrella with sub-funds offered to retail investors (authorized schemes), a majority of directors must be independent of the fund manager. Directors should be qualified individuals who can fulfill fiduciary duties and oversee the fund’s activities.
- Company Secretary: Appoint a Singapore-resident company secretary to handle corporate secretarial matters.
- Auditor: Appoint an accredited auditor in Singapore within 3 months of incorporation. The auditor will audit the VCC’s accounts (umbrella VCCs can prepare consolidated financial statements with sub-fund details).
- Custodian: If the VCC is offered to retail investors or required by regulation, appoint a custodian (typically a licensed bank or trust company) to safekeep the fund assets. For non-retail hedge funds, the prime broker often fulfills the custodian role, provided they meet eligibility criteria.
- Registered Office: Secure a local Singapore registered office address for the VCC, which will be the official address for legal correspondence.
Incorporate the VCC with ACRA
With the above decisions and appointments in place, you can proceed to incorporate the VCC through ACRA (the same authority that handles company registrations). This involves:
- Name reservation: Choose a unique name for your VCC (e.g., “XYZ Variable Capital Company”), subject to ACRA’s approval.
- Constitution: Prepare the VCC’s constitution (analogous to articles of incorporation). You may adopt the model constitution provided by the Singapore Academy of Law, which has standard provisions for open-ended or closed-end funds, or draft a customized constitution via legal counsel. The constitution will stipulate key rules, such as the VCC’s share capital always equating to its net asset value, and the mechanics for issuing and redeeming shares at NAV.
- Filing and fees: Submit the incorporation application to ACRA, including particulars of the VCC (directors, manager, registered office, etc.) and pay the registration fee. Upon approval, ACRA will issue the Certificate of Incorporation for the VCC. If you are establishing an umbrella VCC, you can register the initial sub-funds at the same time (each sub-fund will be identified by its own name under the VCC).
Post-Incorporation Actions
After the VCC is set up, there are a few additional steps to operationalize your hedge fund:
- Apply for Tax Incentives: If your fund seeks to avail itself of Singapore’s fund tax exemption schemes (e.g. Section 13O or 13U), you will need to apply to MAS/IRAS for approval of the scheme, typically within the fund’s first year of operation. These applications require meeting certain criteria (such as minimum fund size and local business spending) and obtaining MAS’s sanction that the fund qualifies. Once approved, the fund’s income from designated investments will be exempt from tax, greatly enhancing tax efficiency.
- Open Bank/Brokerage Accounts: Open a bank account in the VCC’s name for cash holdings and set up brokerage/custodian accounts for trading, under the VCC or sub-fund names as appropriate.
- Compliance and Reporting: Ensure ongoing compliance with MAS regulations. This includes periodic filings with ACRA (annual returns, financial statements) and adherence to the VCC’s AML/CFT obligations (VCCs must implement anti-money-laundering controls, often via their fund manager, and file necessary compliance reports. An annual audit of the VCC’s financial statements is required. If any new sub-funds are created later, they must be registered with ACRA and likewise comply with these requirements.
- Utilize the VCC Grant (if available): Don’t forget to claim the VCC Grant Scheme reimbursement for setup costs if your VCC qualifies. This can substantially offset legal and administrative expenses – e.g. a S$30,000 rebate on a S$100,000 setup cost. Applications for the grant should be submitted to MAS within the stipulated timeframe after incorporation, with proof of qualifying expenses.
By following these steps, a high-net-worth investor or fund promoter can successfully launch a hedge fund as a Singapore VCC. It is advisable to engage professional advisors (lawyers, corporate service providers, and tax advisors) who are familiar with the VCC framework to streamline the process.
Fortunately, Singapore has a well-developed ecosystem of service providers experienced in fund setups, which complements the VCC regime.
Case Studies: Singapore Hedge Funds Leveraging the VCC Structure
The impact of the VCC framework on Singapore’s fund industry has been significant. Fund managers and HNWIs around the world have embraced “VCC Singapore” structures for their flexibility and benefits. Below are a few examples and trends illustrating the successful use of VCCs:
Rapid Industry Adoption
Since its introduction, the VCC has seen widespread uptake by hedge funds and other investment funds.
In the initial months after the launch in 2020, over 70 VCCs were registered – a remarkable rate of adoption that demonstrated immediate market confidence in the new structure.
This momentum continued: by early 2023, “hundreds of VCCs” had been established in Singapore, many by foreign fund managers drawn to the domicile’s advantages.
This rapid growth underscores Singapore’s success in positioning itself as a viable alternative to traditional offshore fund havens. Fund sponsors have cited the VCC’s flexible features and Singapore’s strong reputation as key reasons for choosing to set up funds under the VCC framework.
Re-domiciliation of Offshore Funds
A number of fund managers have re-domiciled their existing hedge funds from offshore jurisdictions to Singapore using the VCC vehicle.
For example, Singapore-based fund managers who historically ran funds in the Cayman Islands or British Virgin Islands have migrated those funds into Singapore as VCCs to benefit from local tax treaties and closer proximity to Asian investors.
By doing so, they maintain the fund’s track record and assets while now enjoying Singapore’s regulatory stability and potential tax advantages.
This trend has been especially popular among managers targeting Asian assets or investors, for whom Singapore’s time zone and reputation add value. MAS’s re-domiciliation provision in the VCC Act made this a seamless process, and many global funds now consider Singapore when launching Asia-focused vehicles.
Multi-Strategy Hedge Fund Platforms
The umbrella nature of the VCC has enabled multi-strategy and multi-manager platforms to flourish. In practice, a hedge fund firm can set up a single VCC and roll out several distinct sub-funds – each akin to a standalone fund – under that umbrella.
For instance, one licensed fund manager in Singapore launched an umbrella VCC for its clients, where each sub-fund pursues a different strategy (long/short equity, macro, quant, etc.) for separate investor groups.
This consolidated structure simplifies administration and reduces costs: shared service providers (auditors, administrators) serve the umbrella, and adding a new strategy is as simple as registering a new sub-fund rather than incorporating a whole new company.
Such flexibility has attracted global managers to use Singapore for incubating new strategies.
As noted earlier, hedge funds can use sub-funds to run multiple strategies with different risk profiles simultaneously, all while keeping them segregated – a capability that has been leveraged in several high-profile fund launches.
Family Office Funds and Custom Structures
Singapore’s HNWIs and family offices have also utilized VCCs to set up bespoke investment funds.
In one example, a large family office created an umbrella VCC to house its diverse investments – one sub-fund holds a public equities portfolio, another holds a private equity portfolio, and a third is a hedge fund-style opportunistic fund.
This allows the family to segregate assets by strategy and beneficiary within a single legal vehicle, streamlining governance across the family’s wealth.
The privacy afforded by the VCC (no public disclosure of investors) is a crucial benefit for family-owned funds. Additionally, by obtaining Section 13O tax exemption, the family office’s VCC pays no tax on investment gains, effectively creating a tax-efficient “private fund” for the family’s assets.
This case demonstrates the VCC’s versatility beyond traditional hedge funds – it’s equally useful for other private investment structures that HNWIs in Singapore often seek.
Global Fund Managers Choosing Singapore
The VCC has attracted not just local players but also renowned global asset managers to set up funds in Singapore. For example, venture capital and private equity funds, as well as hedge funds, have launched Singapore VCCs to tap Asian investor demand.
Some U.S. and European fund managers have cited the ability to offer both open-end and closed-end sub-funds under one roof as a unique draw – they can run a liquid hedge strategy and an illiquid private equity strategy side by side within one VCC, catering to different investor appetites while using one Singapore platform.
This kind of structural innovation, combined with MAS’s supportive stance, has been widely regarded as a success in elevating Singapore’s status in the fund management world.
These examples highlight the practical success and flexibility of the VCC regime. Singapore hedge funds structured as VCCs are able to operate with the ease of offshore funds, yet within a respected onshore jurisdiction.
Investors in these funds gain comfort from the regulatory oversight and potential tax efficiencies, while fund managers benefit from operational synergies and government support. The case studies also illustrate that VCCs are not one-size-fits-all – they can be tailored to a variety of use cases, from classic hedge funds to family investment vehicles.
Conclusion
In conclusion, the Variable Capital Company (VCC) in Singapore has proven to be a transformative vehicle for hedge funds and investment structures. It marries the flexibility traditionally associated with offshore fund vehicles with the trust and credibility of Singapore’s regulatory regime.
For global high-net-worth individuals and fund managers, Singapore’s VCC offers an opportunity to establish a hedge fund or private fund that is efficient, confidential, and well-supported by incentives.
Singapore’s stature as a hedge fund hub is only set to grow, thanks in large part to innovations like the VCC that make fund establishment more attractive than ever.
By setting up a Singapore hedge fund under the VCC framework, investors can take advantage of a favorable tax environment, robust legal protections, and a gateway to Asia’s dynamic markets.
Whether you are launching a new hedge fund, re-domiciling an existing fund, or creating a bespoke family investment vehicle, the VCC provides a compelling structure to achieve your objectives.
As the case studies have shown, this structure is already delivering results for many – positioning Singapore as a world-class center for hedge funds and investment management in the years to come.
Sources:
- Monetary Authority of Singapore – Variable Capital Companies Framework & Grant Schemeocorian.comocorian.com
- Ocorian (Yvonne Ang & Novia Lu) – Understanding VCCs in Singapore: Key Features and Benefitsocorian.comocorian.com
- Reed Smith LLP – The Singapore Variable Capital Company – A new tool for asset managersreedsmith.comreedsmith.com
- Vistra – Insights on VCC: Adoption and Tax Incentivesvistra.comvistra.com
- Moomoo/Bloomberg – Hedge Fund Industry in Singapore (2022)moomoo.com
- MAS Section 13O/13U Tax Scheme – Hedge Funds and Family Officesvistra.com
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