While Hong Kong’s OFC was the first to
get off the line in August 2018, it has had
a very slow start, as the first fund launch
using this structure did not occur until
October 2019 – Pacific Hawk launched an
open-ended private fund and appointed
HSBC as the custodian and fund
administrator.
In contrast, Singapore has taken an
early lead with its pilot programme with
some local players deciding to redomicile
their funds. The incentive scheme
offered by the Monetary Authority of
Singapore (MAS), whereby the Financial
Sector Development Fund would offset
up to 70% (or S$150k) of the costs of
incorporating and registering the VCC.
According to Ciara Houlihan, head of
trustee and fiduciary services, Singapore,
at HSBC Securities Services, the
Singapore regulator has benefited from
taking a steady approach and learning
from its local rivals.
“The Singapore regulator would have
looked at how other regulators have
approached this, and have so far been
successful in onboarding pilot asset
managers. MAS has listened a lot to
parties, have taken their time with
implementing the new structure, and
worked through the topical implications
practically for new managers and
different types of managers. Because of
this, we believe more fund managers are
going to apply for the VCC structure,”
says Houlihan.
In addition, the VCC has already
become embedded into the local
institutional landscape, particularly in
the alternatives space. Out of the $3.5
trillion of Singapore’s assets under
management, around $600 billion is
invested in alternatives, and many expect
this number to grow as asset managers
look to expand into the VCC structure.
“Singapore’s taxation regime is one
of the best in the world. With issues
in Cayman and other locations, fund
managers are looking at local products
more closely. I imagine over next year
there will be over 200 funds set up under
this vehicle,” predicts Paddy Kirwan,
head of client operations and head of
APAC, MUFG Investor Services.
The early pick-up in VCC funds has
caught the Hong Kong regulator’s
attention, and proposals are underway to
further entice asset managers to adopt to
the OFC structure.
“There has been a focus in Hong Kong
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Global Custodian
Spring 2020
of enhancing the OFC structure by
making it more attractive to private fund
managers. There are proposals around
who can be a custodian for these funds,
how funds can be re-domiciled, and
what kind of investors can be in-scope
for OFC. Given the early adoption of the
VCC for private assets, the Securities
and Futures Commission (SFC) wants to
broaden the scope of the OFC to try to
tap into similar demand in Hong Kong,”
says Chris Pigott, head of Hong Kong
ETF services, Brown Brothers Harriman
(BBH).
Competing with UCITS
The ultimate goal of these new funds is
to take on the established pan-European
UCITS structure which has established
itself as the preferred choice for asset
managers in Asia. According to a
study by McKinsey in September 2019,
UCITS and feeder funds represented
28% and 21% of all cross-border assets
respectively, and remain the key domestic
and international fund vehicle for asset
managers in South East Asia.
The ARFP, which came into force in
February 2019 for Japan, Thailand and
Australia, perhaps stands the greatest
chance of taking on UCITS. With a fund
passporting scheme, an Asia-based asset
manager could set up a fund in one
domicile, and then achieve access to any
country that is in the same scheme.
However, the fact that the Asia-Pacific