Singapore PE and VC Landscape Series – A Brief Introduction

Singapore’s asset management industry has fast become a global hub for investors and managers and is central to the country’s financial services industry. In 2020, total assets under management (AUM) in Singapore grew 17 percent to reach S$4.7 trillion, up from S$4.0 trillion in 2019[1]. This robust growth was driven by strong inflows into both traditional and alternative investment strategies, including the private equity (PE) and venture capital (VC) asset classes. PE and VC AUM grew by 54 percent and 49 percent to S$375 billion and S$16 billion, respectively, in that year. In our view, the size of the industry in Singapore will continue to grow in the coming years.

This industry is of great importance for a variety of reasons, mainly that it fuels the creative destruction processes that now underpin economic growth and progress (taken in a purely material context). Some of the most important new technologies are made possible or widely available thanks to the investments provided by the industry. At times, existing companies are restructured to run more efficiently and maximise potential while other companies are sometimes torn to pieces if the industry takes the view (sometimes perhaps unfairly) that they lack a clear value proposition.

Legal Structure of Funds in Singapore

The last few years have seen substantial changes in this area in Singapore. The most important refer to the creation of Singapore limited partnerships and variable capital companies as new structures available to the PE and VC industries.

Compared to a private limited company (not discounting the fact that a handful of PE or VC funds still choose to set up in Singapore as private limited companies), these new vehicles provide a great deal of flexibility, as well as enhanced privacy for investors. This has resulted in an increased interest in setting up fund vehicles in Singapore, as opposed to such vehicles being created almost exclusively in offshore jurisdictions such as the Cayman Islands and the British Virgin Islands (notwithstanding that such offshore jurisdictions remain relevant and important jurisdictions for setting up of fund vehicles).

Below is a brief introduction to these three structures:

Limited Partnerships

Limited partnerships comprising a general partner (GP) and limited partners (LPs) have typically been the preferred legal structure for PE funds managed in Singapore. The Limited Partnerships Act 2008 governs the establishment of Singapore LPs. However, given the familiarity of the more established master-feeder Cayman Islands structure, PE funds generally favour the use of the Cayman legal structure. In such cases, a Cayman Islands limited partnership is incorporated under the Cayman Island’s Exempted Limited Partnership Act to serve as the master pooling vehicle that owns a Singapore-incorporated feeder fund. By domiciling the fund entity in Singapore as a company, the fund is able to benefit from Singapore’s extensive network of double taxation treaties.

Variable Capital Companies

To cater to the needs of global and regional fund managers seeking to set up fund structures in Singapore and to further enhance Singapore’s position as a leading asset management centre, the Monetary Authority of Singapore (MAS) introduced the variable capital company (VCC) as a new corporate vehicle targeted at investment funds. Unlike a private limited company, a VCC is not bound by any capital maintenance requirements, allowing investors to redeem their shares freely, and is allowed to distribute dividends from its net assets or capital. A VCC is also a separate legal entity, and shareholders are not liable for the VCC’s debts beyond the amount of share capital they have contributed.

A VCC can be set up as a single standalone fund or an umbrella fund with two or more sub-funds, each holding a portfolio of segregated assets and liabilities. It can be used for both open-ended fund strategies where investors are allowed to redeem their investments at their discretion, and close-ended fund strategies where redemption is restricted.

The attractiveness of the VCC framework with greater flexibility in share issuances and dividend payments have resulted in more than 400 VCCs incorporated or re-domiciled in Singapore as of October 2021. (We have been receiving increasing number of queries on the incorporation of VCCs and have assisted with several fund formation that tap on the VCC legal structure.) In addition, MAS has indicated that it is in the process of revising its VCC fund structure to expand the pool of fund managers that can use the scheme and to make fund conversions and multiple offshore fund redomiciliation easier.

Limited Liability Companies

Separately, PE funds have also adopted the form of a Singapore incorporated limited liability company. However, strict limitations in relation to capital maintenance imposed under the Companies Act 1967 of Singapore has made it difficult for such funds to distribute returns or dividends earned from its investments.

Licensing Regime for Fund Managers

The other area where significant changes have occurred in the industry is in the applicable licensing regime.

In some areas, the regime has been liberalised, for instance, by creating a simplified licensing regime for venture capital investments that do not provide for any minimum capital requirements or years of experience for the relevant professionals of the fund manager. In other areas, the regime has been made more stringent as is the case with the registered fund managers that are only allowed to service up to 30 qualified investors and have no more than S$200M AUM. In the past, a simple notice was required to be given to the MAS 14 days from the date of commencement of business, but now the “registration” process is somewhat akin to obtaining a full licence.

In spite of the changes, there appears to be a strong and growing demand for fund management services in the industry, with asset managers keen to establish a presence in Singapore: to date, the total number of registered and licensed asset managers in Singapore has risen to around 1,106[2].

Conclusion

Singapore is undoubtedly one of the leading asset management and private wealth centres in Asia, experiencing double-digit compound annual growth rate in AUM over the last five years. Besides PE and VC funds being a mainstay in the industry, we have seen increasing interest in the formation of private debt/credit funds that seek to capitalise on Southeast Asia’s increasing demand for non-traditional lending solutions that offer attractive returns amid high growth[3].

Next Article on the Singapore PE and VC Landscape Series – The Singapore Limited Partnership

For More Information
If you have any questions about this Alert, please contact Ramiro Rodriguez, Suilyn Yip, Jacob Low, any of the attorneys in our Singapore office or the attorney in the firm with whom you regularly in contact.

About Duane Morris & Selvam LLP

Duane Morris & Selvam LLP (DMS) is a joint law venture between international firm Duane Morris LLP (DM) and Singapore-based firm Selvam LLC. DMS runs a unique Latin American-Asian practice out of Singapore, with a team of international lawyers qualified in multiple jurisdictions including Singapore, the US, the UK, Canada, Mexico and Colombia, with substantial experience in international transactions and disputes. DMS also has a wide cooperation network with some of the best Latin American and Asian law firms.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.

[1] 2020 Singapore Asset Management Survey by the Monetary Authority of Singapore

[2] Monetary Authority of Singapore directory of financial institutions

[3] 2021 Preqin Global Private Debt Report

 

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

Proudly powered by WordPress