How Single Family Offices Can Use Variable Capital Companies
Variable capital companies, VCCs make it possible for various fund managers several benefits such as safeguarding them against commingling of liabilities and assets between sub-funds. The framework within Singapore now offers an alluring alternative to investment managers the world over.
There are two types of variable capital companies, these are, an umbrella structure and a standalone single fund. The umbrella structure of variable capital companies are usually made up of segregated ring-fenced sub-funds. Single-family offices use this umbrella structure to allocate sub-funds to the various family members whether by the matriarch or the patriarch.
At the umbrella structure of VCCs, the board of directors can view all the assets within all the sub-funds. Therefore, this kind of arrangement would be suitable for single-family offices but not suitable for multi-family offices.
VCC Changes in Singapore
The city-state of Singapore is looking into ways of updating and revamping the current variable capital company structure. This move could result in rising in its allure over Hong Kong as the destination to be for all kinds of single-family offices.
Once these VCC changes are implemented, the result may be that Lion City could become more alluring than Hong Kong as a potential base for family office operations. This is because Hong Kong’s image as an international financial epicenter has been severely impacted by the political incursion of Beijing into the city.
According to one chief executive officer, the Monetary Authority of Singapore has now become very aware that the situation on the ground in Singapore is not ideal for single-family offices. Therefore, This authority is considering the move to make amendments to the existing VCC framework. This move is designed to allow for more single-family offices to set up their own VCC umbrella or standalone structures.
Currently, the situation that exists on the ground is that many single-family offices are hampered by the current licensing requirements. This is because they can manage to have enough money only on their own family’s behalf, and many of these single-family offices prefer to retain their privacy.
Alternative asset fund managers can use VCCs as a kind of financial vehicle. In January 2020, the Monetary Authority of Singapore introduced various rules and procedures for VCC intending to lure offshore and private equity fund managers to use Singapore instead of other offshore alternatives such as the Cayman Islands for their fund domiciles. However, the existing rules continued to make it unappealing to single-family offices because they would be required to first have a local asset management license before being able to establish their VCCs. Therefore, the intended reforms that would allow for single-family offices without local asset management licenses to create VCCs are a welcome change.
However, these changes and reforms will not come easy and may take some good time before they come to pass. If anything, the Monetary Authority of Singapore has just begun to prepare to engage in the consultation process, therefore it will probably be another one or two years to come before any real changes are made to the VCC Act.
A spokeswoman from this authority admitted that at the moment they were in the process of studying the probability of widening the scope so that a greater number of asset managers could be free to use the various VCC structures. The pertinent question was how to do so in a manner that would prevent and mitigate the risk of abuse of the various VCC structures for fraudulent and illicit purposes. However, this same spokeswoman was not forthcoming as to the potential changes that would be made or that would take place in the coming future.
Rising VCC Interest
By the end of March, more than 250 VCCs had been launched since the launch of the framework in January 2020. This same spokeswoman for the Monetary Authority of Singapore indicated that there had been a lot of expressed desire for fund houses and single-family offices to launch VCCs of their own. Various asset managers as well as other single-family offices that are currently not under the regulation of the Monetary Authority of Singapore had expressed keen interest to use the prevailing VCC structure. One example one such asset managers are real estate fund managers who make investments solely in immovable properties.
Some believe that the Monetary Authority of Singapore should move to reform its rules so that it can be made easier for single-family offices to use the VCC structure. This is because as it is, the city-state of Singapore has been working hard to grow the existing number of single-family offices for the past few years. By the end of the year 2020, there were approximately 400 single-family offices that were operating within Singapore. This figure of 400 is inclusive of the Western families who had established satellite single-family offices within the city. It is roughly estimated that sixty percent of the aforementioned single-family offices were established within the past three or four years.
Some within the space of wealth managers believe that with these new reforms, Singapore is on a good track. The head and founder of Singapore Consultancy commented that the Monetary Authority of Singapore is now seen to be doing more to make it much much easier for single-family offices to be established within the city-state. He also added that Singapore was proving to be a more preferred and favored location than Hong Kong due to the prevailing geopolitical factors that have been seen within the region. Even more Chinese single-family offices were also seen to be setting up within the city-state of Singapore.
Examples of Single Family Offices
Some examples of some of the single-family offices that were set up within the region of Lion City, included Sergey, the co-founder of Google, James Dyson, the vacuum cleaner tycoon, and Ray Dalio, the founder of Bridgewater Associates. In 2019, one of the most widely known billionaires of Haidilao International Holding, Shu Ping, established and launched within Singapore, Sunrise Capital Management.
