24/03/17

Singapore plans new multi-asset, open and closed ended investment vehicle

The moves were introduced at today’s Investment Management Association of Singapore’s 20th Anniversary Conference, where IMAS proposed a move to offset the cost of companies issuing sustainability-oriented ‘green’ bonds and announced that is also consulting on its plans to introduce a new type of investment into the region, via its new Singapore Variable Capital Company, or S-VACC model, reports International Investment.

Singapore’s Asset Management Industry was also told that if its bid to rebuild public trust in its investment industry is to be successful, then sustainable or ‘green’ investments could be the best route to success.

In his keynote address at the IMAS Conference, held at the Ritz Carlton in Singapore, Nicholas Hadow, chairman of IMAS, outlined the plans adding that sustainable investing is key to be able to “innovate and add value to investors”.

Hadow added that MAS and IMAS are looking at corporate structures for investments to add to three types of structures currently used by investment funds in Singapore, namely unit trusts, companies formed under the Companies Act, and limited partnerships and announced the launch of a public consultation into a new Singapore Variable Capital Company, or S-VACC offering.

Variable investment solution

“At this conference last year, we said that MAS and ACRA were exploring the feasibility of introducing a new corporate structure for investment funds, to accommodate open-ended investment companies,” he said. “These entities allow for the entry and exit of capital at any time, through the issuance of new shares and redemption of existing shares.

“MAS will be launching a public consultation today, to solicit feedback on the new corporate structure, which is called the Singapore Variable Capital Company, or S-VACC. The S-VACC will complement our existing corporate structures with one that is tailored for investment funds.”

The S-VACC proposes to allow asset managers to further consolidate their operations in Singapore, by domiciling more of their funds here alongside their fund management activities.

“We believe this will spur demand for fund-servicing activities such as accounting, legal, custody and tax in Singapore, therefore creating more jobs in the broader professional services sector,” said Hadow.

Flexibility

“In addition, S-VACC provides greater flexibility and cost efficiency to asset managers,” he said. “It allows for both open-ended and close-ended fund structures. It allows for investments across all asset classes, and may be used by both retail and private funds. S-VACCs can be listed and unlisted and invest in a wide range of asset classes, which will open up more options for retail investors to purchase shares in S-VACC funds, and invest beyond unit trusts.

“S-VACC will also allow asset managers to harness economies of scale, by consolidating administrative functions at the umbrella fund level. This means that sub-funds, with varying risk levels, different investment objectives and classes of investors can be housed together under the same umbrella as a single legal entity,” said Hadow.

The broad outlines of this proposed S-VACC structure are in a consultation document which MAS will be releasing after today’s event.

Green Bond Grants

IMAS said that it recognises that green bond issuers may have to bear additional costs as they engage external reviewers to ascertain their green bond status. The Green Bond Grant scheme will be able to offset 100% of the cost of obtaining an external review for green bonds for qualifying issuances, up to S$100,000 per issuance, it said.

Green bonds are debt instruments with proceeds earmarked for projects with environmental benefits, such as those to reduce greenhouse gas emissions. The global green bond market has grown rapidly over the years, reaching more than US$80bn (S$112bn) in 2016, and they are now starting to take off in Asia.

“Investors everywhere are allocating more capital to sustainable businesses, and integrating sustainability factors into their investment requirements,” added Hadow. “A recent study by Morgan Stanley found that more than 70% of investors surveyed were interested in sustainable investments.

“At the same time, there is growing evidence that good sustainability practices are also good for business, and can have a positive impact on companies’ stock prices. Conversely, poor sustainability practices in companies can translate into operational risks, and pull down the business in the long term.”

Complacency warning

Hadow finished by saying that he believed that Singapore has made “good progress” as a financial centre, but warned against complacency and urged asset management houses to continue in their bid to regain investors trust after a series of financial scandals and the 2008 crash.

“We should not rest on our laurels,” he said. “We have to build on the progress we have made over the last 20 years to reach greater success for our asset management industry.  At the heart of asset management is a simple relationship of trust.”

Hadow, added that investors everywhere have higher expectations of returns and are “getting fussier” on fees, while at the same time, competing funds and products, including index instruments, which in some cases are outperforming managed funds at lower fees.

“This means that asset managers must up their game, and offer real value-for-money to investors to serve as long-term savings vehicles,” he said. “The asset management industry and the financial sector on the whole, is on a journey towards better public trust and confidence. It is important that we work even harder towards this goal, through greater consumer education, enhanced disclosure and fair dealing.