Over the past decade, Singapore has developed rapidly as an asset management hub and fund domicile, with total assets under management (AUM) increasing from S$1.6 trillion in 2012[1] to a peak of S$5.4 trillion in 2021.[2] While this has dipped slightly to S$4.9 trillion in 2022 in line with the wider decline in global AUM due to economic uncertainties, market corrections in valuations were partially offset by healthy net AUM inflows into Singapore. The steady growth of Singapore’s AUM is illustrative of its importance to foreign investors and asset managers as a global financial centre, with approximately 76 per cent of Singapore’s AUM sourced from outside Singapore and 88 per cent of Singapore’s AUM invested in assets outside Singapore in 2022.
This is also borne out by the rapid increase in the number of asset managers that have set up operations in Singapore. From 2014 to 2022, the number of registered and licenced fund management companies in Singapore doubled from 591 to 1,194.[3]
In this article, we explore several key reasons why we believe Singapore continues to attract asset managers to raise private capital here.
At The Crossroads Of Asia
According to McKinsey, Asia accounted for 57 per cent of global GDP growth between 2015 and 2021.[4] Singapore’s strategic location as a gateway to the rapid growth markets of South-east Asia, and its politically neutral and open outlook in cultivating close ties with both the East and West, make it a natural launchpad for asset managers looking to invest and deploy capital in Asian strategies.
The International Monetary Fund has projected “emerging and developing Asia” to grow by 5.2 per cent in 2023 and by 4.8 per cent in 2024, well ahead of the global growth rates of 3 per cent and 2.9 per cent respectively.[5] Driven by the hunt for better value and higher yielding investments, both investors and asset managers are increasingly focusing their investment strategies on Asia. According to alternative assets data platform Preqin, Asia-Pacific-focused private equity (PE) and venture capital (VC) AUM growth rate has overtaken North America and Europe, growing 2.5 times since 2018.[6]
For global asset managers looking to have feet on the ground and have their investment and research teams closer to their target investments, Singapore’s proximity to other Asia-Pacific markets and well-connected travel links around the region make it an ideal base for investment teams to monitor and grow their Asia-focused portfolios and source for potential deals. In 2022, more than half of Singapore’s total AUM was made up of discretionary mandates, highlighting Singapore’s attractiveness as a destination for asset managers to base their key investment professionals and decision makers.
Robust Regulatory Oversight That Balances Business Needs
Singapore’s pro-business outlook, political stability and strong rule of law remain its calling cards and are key factors in an asset manager’s decision to establish operations in the jurisdiction. The high standard of governance and clear governmental policies are also seen in the regulatory environment for asset managers seeking to conduct fund management activities in Singapore that are overseen by the Monetary Authority of Singapore (MAS). Fund management is a regulated activity under the Securities and Futures Act 2001 of Singapore (SFA), and is defined as managing the property of, or operating, a collective investment scheme, or undertaking on behalf of a customer (whether on discretionary authority or otherwise) (i) the management of a portfolio of capital markets products, or (ii) the entry into spot foreign exchange contracts for the purpose of managing such customer’s funds. Any person that carries on business in fund management in Singapore will need to hold a capital markets services licence (CMS Licence) for fund management unless otherwise exempted.
There are three tiers of CMS Licences for fund management companies (FMCs) under Singapore’s regulatory regime, and which tier is appropriate for a particular FMC will depend on its intended clientèle and/or the type of fund(s) it manages. The three tiers are as follows:
i. FMCs carrying on business with retail investors: These FMCs are required to meet the most stringent criteria and are subject to more ongoing conduct of business, reporting and other regulatory obligations.
ii. FMCs carrying on business only with accredited and/or institutional investors: Given that their investors would be more sophisticated institutions and high-net-worth individuals, these FMCs are subject to fewer requirements and obligations.
iii. FMCs that only manage VC funds that meet certain criteria, including being offered only to accredited and/or institutional investors: This is the lightest touch regulatory regime for FMCs, which was introduced by MAS having taken into account the characteristics of typical VC funds, such as being offered only to sophisticated investors, not investing in public markets, and being closed-end, as well as the reduced level of operational and business conduct risks in managing such funds. With a lighter regulatory burden on such FMCs, MAS aims to encourage the growth of VC funds which could support start-ups, and this in turn would help sustain innovation and growth in the economy.
In a sign of the growing maturity of the asset management industry in Singapore, MAS announced in October 2023 that it intends to streamline the regulatory framework for FMCs by repealing the registered fund management company (RFMC) regime. The RFMC regime was short of a full licence and was meant for small fund managers that could comply with certain limits placed on their AUM and number of investors. It is anticipated that the repeal and transition away from the RFMC regime will take place later in 2024.
MAS has also provided specific exemptions from the licencing regime. In particular, FMCs that manage funds which solely invest in immovable assets such as real estate are exempt from licencing. FMCs that only manage proprietary funds of their related corporations (and not monies from third party investors) are also exempt from licencing.
The clear and balanced regulatory regime governing FMCs with differentiated criteria and requirements depending on their risk profile, coupled with the strong and transparent oversight by MAS, provides asset managers with greater certainty to conduct their business whilst giving investors the confidence to invest their funds with Singapore-based asset managers.
Providing Onshore Fund Structuring Options To Complement Traditional Offshore Structures
Traditionally, private funds have been domiciled in offshore jurisdictions, such as the Cayman Islands and the British Virgin Islands. More recently, Singapore has actively sought to bring funds back “onshore” – to be both an asset management hub and a fund domicile of choice. One of the ways it has tried to encourage funds to be domiciled in Singapore is to offer asset managers a full suite of Singapore legal structures that may potentially be used as investment fund vehicles. With the launch of the variable capital company (VCC) framework in January 2020, the array of available investment fund structures in Singapore has now broadened to include a corporate fund structure, comparable to other segregated portfolio and protected cell fund structures in other jurisdictions such as the Cayman Islands, Luxembourg, and Hong Kong SAR.
The VCC’s flexibility and versatility has seen it being rapidly adopted by asset managers. In less than three years since its introduction, there were 969 VCCs incorporated or re-domiciled in Singapore as of 2 October 2023, which have been deployed in a range of investment strategies, including PE, VC and hedge funds, as well as wealth management / multi-family office investment vehicles.2 Its key features are tailored specifically for it to be used as an investment fund vehicle, including the ability to vary its capital structure easily through redemption of its capital, and to pay distributions from its capital and not only out of profits, the confidentiality of the identity of its investors and its constitution, and the ability to create separate sub-funds under a single umbrella VCC, each with different assets and different investors that are ringfenced from one another.
Aside from the VCC, Singapore also has had since 2009 its own limited partnership structure. It is primarily modelled after the equivalent legislation in the United Kingdom, and is largely comparable to the Cayman Islands limited partnership – traditionally one of the most popular fund structures used for closed-end PE and VC funds. The limited partnership structure therefore benefits from investor familiarity, especially for foreign investors that may not have invested through a VCC before. A limited partnership is generally very flexible and subject to fewer statutory requirements and rules as compared to corporate structures. Similar to limited partnerships in many jurisdictions, including the Cayman Islands, one key characteristic of Singapore limited partnerships is that they are treated as tax transparent vehicles, meaning that tax is not levied on the limited partnership itself. Instead, the share of income accruing to each partner will be taxed at the rates applicable to each of them respectively.
Singapore-domiciled funds may also take the form of a unit trust, which is usually used for authorised retail funds or private real estate funds that may wish to exit via a listing on the Singapore stock exchange as a real estate investment trust or business trust. Alternatively, an ordinary private company may be used, typically in more joint-venture-type transactions.
Apart from Singapore fund vehicles, Singapore-based asset managers may also continue to utilise and manage offshore funds, with the Cayman Islands fund structures being the most common in the market. Such offshore fund structures (that may be managed out of Singapore and serviced by Singapore-based professionals and service providers) continue to be widely used alongside Singapore structures.
Asset managers need to consider a multitude of factors and considerations in determining what fund structure and domicile is optimal for them, including legal and tax requirements, as well as investor preference. Following the introduction of the VCC, Singapore now offers a wide range of different fund vehicles to cater to the specific requirements across different investment strategies and characteristics. With increasingly complex cross border regulatory considerations and an investor base that is becoming more global, Singapore-based asset managers can also make use of these structures in tandem with investment vehicles in other established fund jurisdictions, like Cayman Islands and Luxembourg, through feeder or parallel funds and alternative investment vehicles to achieve their commercial objectives.
Tax Efficiency And Certainty
Where any fund (whether offshore or onshore) is managed by a Singapore-based asset manager, the gains and income derived by the fund are generally considered to be derived from Singapore and thus subject to Singapore income tax.
To encourage the growth of the asset management industry and to have more funds set up ‘onshore’ in Singapore (instead of tax neutral offshore jurisdictions), MAS has put in place various tax incentives which may allow such funds to be exempt from Singapore tax on certain specified income derived from designated investments of the fund. Generally, income derived from most typical fund investments like stocks, shares, securities, and derivatives would fall within the scope of the exemption (although immovable properties in Singapore is a key exclusion).
The main tax incentives for funds in Singapore are:[7]
i. Offshore Fund Scheme under section 13D of the Income Tax Act 1947 of Singapore (ITA): This incentive is available to offshore funds that are not tax resident in Singapore and that are managed by a Singapore-based fund manager. It is meant to attract foreign investors to use Singapore-based fund managers to manage their offshore funds. The fund’s legal form must be a company, trust, or an individual. It should be noted that a limited partnership itself cannot be a qualifying offshore fund as it is treated as transparent for Singapore tax purposes. The applicable tests to determine if a fund is a qualifying fund would thus be applied at the level of the partners of the limited partnership, and the partners in such limited partnerships would need to meet the relevant qualifying conditions for this incentive.
ii. Resident Fund Scheme under section 13O of the ITA: This incentive affords Singapore-resident funds the same tax exemption as an offshore fund qualifying under the Offshore Fund Scheme (above), to encourage asset managers to base their funds in Singapore. To benefit from this incentive, asset managers are required to make an application to the MAS, and the conditions include the fund being a Singapore tax resident company or a VCC, the fund being managed by a Singapore-based fund manager, the fund appointing a Singapore-based fund administrator, and the fund incurring minimum annual expenditure of at least S$200,000.
iii. Enhanced-Tier Fund Scheme under section 13U of the ITA: This incentive is available to both offshore as well as Singapore funds regardless of the legal form. Application to the MAS is required to make use of this incentive, and the conditions include a minimum fund size of S$50 million at the time of application, the fund being managed by a Singapore-based fund manager, the fund appointing a Singapore-based fund administrator if the fund is a Singapore tax resident company incorporated in Singapore, and the fund incurring minimum annual local business spending of at least S$200,000.
It was announced in the Singapore Budget Statement 2024 that the Offshore Fund Scheme, Resident Fund Scheme and Enhanced-Tier Fund Scheme will be extended till 31 December 2029. In addition, the following key changes will be made with effect from 1 January 2025 and the MAS will be providing further details by the third quarter of 2024:
(i) The Resident Fund Scheme will be enhanced to include limited partnerships registered in Singapore.
(ii) The economic criteria for funds to qualify under the Offshore Fund Scheme, Resident Fund Scheme and Enhanced-Tier Fund Scheme will be revised.
In addition to the tax incentives available for funds above, asset managers that hold a CMS Licence may also apply to the MAS under the Financial Sector Incentive-Fund Management Award which affords a concessionary tax rate of 10 per cent (compared to the corporate tax rate of 17 per cent) for fund management and investment advisory services activities, subject to meeting certain conditions.
The extensive tax incentive schemes offered by the MAS provide clarity and certainty to asset managers on how the income derived from their investments will be treated in Singapore. This closes the gap between Singapore and tax neutral offshore fund domiciles from a tax perspective, allowing them to structure their funds in a tax efficient manner and minimise tax leakage at the Singapore fund level.
It is also worth noting that Singapore has an extensive network of double taxation agreements with around 100 jurisdictions, which may afford additional tax benefits depending on the jurisdiction where the target investment is located or domiciled.
Wealth Management Hub With Access To Growing Pools Of Private Capital
Singapore is increasingly being seen by investors as a safe haven amidst a volatile and uncertain geopolitical climate. This has enhanced its reputation as Asia’s wealth management hub and fuelled strong capital inflows from foreign investors. According to MAS, around 1,100 single family offices had qualified for tax incentives as of 2022, an increase of 57 per cent from 700 in 2021.[8] It is also estimated that more than half of the family offices in Asia are located in Singapore.[9] Often touted as the ‘Switzerland of Asia’, Boston Consulting Group estimates that foreign wealth booked in Singapore will grow by 9 per cent over the next five years, three times faster than Switzerland itself.[10]
Other than high-net-worth individuals and family offices, a significant number of large global institutional investors have also been setting up operations or expanding their offices in Singapore over the past few years, including Canadian pension funds Alberta Investment Management Corporation, Ontario Teachers’ Pension Plan, Ontario Municipal Employees' Retirement System (OMERS), Norges Bank Investment Management (which manages Norway’s sovereign wealth fund), and Harvard Endowment Fund.
These large pools of private capital in Singapore represent strong fundraising opportunities for asset managers with the expertise and track record to deploy funds into Asia-Pacific investments and strategies.
Conducive Environment For Business And Innovation
As a global financial hub and a cosmopolitan city-state, Singapore has been lauded for its open economy, pro-business environment and stable government. Singapore ranks highly across many key business metrics, including having the world’s best business environment[11], and being one of the world’s most competitive economies[12], and one of the world’s most connected countries[13]. This favourable business climate has seen global corporations establish not just their regional offices here, but in some cases, even their global headquarters. All these factors contribute to a vibrant and open economy that continues to attract qualified and talented investment and other professionals to live and work here.
In addition, Singapore is regarded as one of the most innovative economies in the world[14], and its asset management industry has also embraced innovation and technology. An industry trend we have observed is the tokenisation of assets and the adoption of decentralised finance (DeFi) - such as blockchain technology - to manage financial transactions. In light of this, one initiative led by MAS is Project Guardian, a collaborative initiative with policymakers and the financial industry that seeks to test the feasibility of applications in asset tokenisation and DeFi while managing risks to financial stability and integrity. Some of its pilot projects in the asset management space include various tokenised investment funds and digitally native investment products.[15] The adoption of new technologies in a careful and calibrated way should ensure that Singapore’s funds and asset managers can leverage on new and more efficient ways of operating in a secure manner, while giving confidence to investors to invest with innovative asset managers utilising nascent technologies.
A Stable And Flexible Way Forward
Singapore’s growth as an asset management hub in the last decade has been very encouraging. With favourable government policies and a robust regulatory regime, a deep pool of qualified professionals and service providers, and good access to investments and investors, Singapore offers global asset managers a stable and flexible platform to raise and deploy capital in Asia-Pacific and capitalise on growth in the region.
The rising number of asset managers in the Singapore market, and the increasing sophistication and complexity of fund structures involving both onshore and offshore elements, have also accelerated the development of the Singapore funds ecosystem, including growing the fund financing market, increasing distribution channels through tokenisation and trading of fund interests on the blockchain, and development of newer asset classes like private credit. These developments illustrate the vibrancy and potential of the Singapore asset management industry and place it as one of the key fund hubs globally.
[1] Monetary Authority of Singapore, 2017 Singapore Asset Management Survey. See https://www.mas.gov.sg/-/media/mas/news-and-publications/surveys/asset-management/singapore-asset-management-survey-2017.pdf.
[2] Based on latest available data found in Monetary Authority of Singapore’s 2022 Singapore Asset Management Survey. See https://www.mas.gov.sg/-/media/mas/news-and-publications/surveys/asset-management/asset-management-survey-report-2022_version-finalised.pdf.
[3] Publicly available data on the number of registered and licenced fund management companies in Singapore before 2014 is not available.
[4] McKinsey Global Institute, Asia on the cusp of a new era (22 September 2023). See https://www.mckinsey.com/mgi/our-research/asia-on-the-cusp-of-a-new-era.
[5] International Monetary Fund, World Economic Outlook (October 2023). See https://www.imf.org/en/Publications/WEO/Issues/2023/10/10/world-economic-outlook-october-2023.
[6] The Business Times, Asia-Pacific VC and PE growth overtakes North America: Preqin (13 June 2023). See https://www.businesstimes.com.sg/startups-tech/asia-pacific-vc-and-pe-growth-overtakes-north-america-preqin.
[7] The criteria for the tax incentive schemes mentioned in this article only apply to funds with asset managers managing third party capital and not those managed by single family offices, which are subject to different criteria.
[8] The Business Times, Asia’s family offices to play a bigger role in private markets (23 August 2023). See https://www.businesstimes.com.sg/wealth/wealth-investing/whos-who-private-banking-aug-2023/asias-family-offices-play-bigger-role.
[9] KPMG Private Enterprise and Agreus, The 2023 Global Family Office Compensation Benchmark Report (June 2023). See https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2023/05/global-family-office-compensation-benchmark-report.pdf.
[10] Boston Consulting Group, BCG Global Wealth Report 2023 (June 2023). See https://web-assets.bcg.com/fb/64/e10897864913a480415d0e1fe3c6/bcg-global-wealth-report-2023-june-2023.pdf.
[11] Economist Intelligence Unit, Assessing the best countries for doing business (13 April 2023). See https://www.eiu.com/n/eius-business-environment-rankings/#:~:text=Singapore%20has%20retained%20its%20position,of%20economic%20and%20political%20stability.
[12] International Institute for Management Development World Competitiveness Ranking 2023. See https://www.imd.org/centers/wcc/world-competitiveness-center/rankings/world-competitiveness-ranking/#:~:text=Denmark%20maintained%20its%20grip%20on,and%20first%20place%20in%202021.
[13] DHL Global Connectedness Index 2022 (February 2023). See https://www.dhl.com/content/dam/dhl/global/delivered/documents/pdf/dhl-global-connectedness-index-2022-complete-report.pdf.
[14] World Intellectual Property Organization, Global Innovation Index 2023: Innovation in the face of uncertainty. See https://www.wipo.int/edocs/pubdocs/en/wipo-pub-2000-2023-en-main-report-global-innovation-index-2023-16th-edition.pdf.
[15] Monetary Authority of Singapore, Project Guardian (19 October 2022). See https://www.mas.gov.sg/schemes-and-initiatives/project-guardian.
Jerry Koh
Jerry has been practising as a corporate lawyer since 1993. Jerry’s main areas of practice cover investment funds, capital markets, and mergers and acquisitions; and he has advised on numerous international and domestic transactions. Jerry joined the Firm as a Partner in 2001 from an international firm in Hong Kong.
Jerry also heads the Firm’s Investment Funds Practice and REITs Practice. He was formerly Co-Head of the Financial Services Department, Deputy Managing Partner and Joint Managing Partner of the Firm prior to assuming the current role of Managing Partner.
Jerry regularly advises on the structuring and establishment of investment funds, capital markets transactions, M&A, complex securitisation and structured finance transactions, and corporate governance.
Jerry is the leading authority on REITs and business trusts, and he has been involved in the listing of almost all the REITs and business trusts in the Singapore market. He was the lead counsel of Hutchison Port Holdings Trust in the largest IPO in South-east Asia to-date. Jerry has been involved in almost all the secondary offerings and convertible bond issues by Singapore REITs and business trusts. He has further advised on a number of REIT listings in Malaysia as international counsel.
Jerry is cited as a leading practitioner in Chambers Global, Chambers Asia-Pacific, IFLR1000, The Legal 500 Asia Pacific and Who’s Who Legal. He has also been recognised as a thought leader by Who’s Who Legal and a market leader by IFLR1000 Asia-Pacific.
Jerry was the former Co-Chair of the Securities Law Committee of the International Bar Association (IBA) and is now a member of its Advisory Board. Jerry is the Founding Member and Secretary of the REIT Association of Singapore, a fellow of the Singapore Institute of Arbitrators and an editorial board member of Business Law International. Jerry currently serves as a director of the National Kidney Foundation and the Singapore Land Authority. He also serves as a member of the Nee Soon Town Council and Chairman of its Legal and Contracts Committee.
Jerry is actively involved in community work and is passionate about helping the poor and needy.
Jonathan Lee
Jonathan’s practice encompasses investment funds and capital markets with a focus on private funds, REITs and business trusts.
He advises fund managers, financial institutions, property developers and family offices on the structuring and establishment of private funds, and on their fund-raisings, closings and secondary transactions. He also advises corporate and financial institutions on their investments into private funds.
In addition, he has worked on many initial public offerings of REITs and business trusts, as well as their subsequent acquisitions/disposals and fund-raisings by way of secondary offerings, structured finance and convertible/perpetual securities offerings.
He also regularly advises on the regulatory and compliance matters for investment funds, REITs and business trusts.
Jonathan joined the Firm after being called to the Singapore Bar in 2011 and has been a Partner since 2017.