Staying in the loop about fund administration trends is crucial for every fund administrator because they are responsible for managing and balancing the portfolio of many investors. Here are five fund administration trends fund managers should know about the fund industry today and how Singapore corporate taxes work:
1. Singapore is the most preferred hub
Singapore has placed itself as one of the leading financial hubs globally, as evidenced by Singapore’s burgeoning “Assets Under Management” (AUM). In 2020, its AUM grew 17% to reach S$4.7 trillion. The year before, AUM grew by 15.6%, signifying investors’ keenness to keep their assets in the Merlion city.
This investor preference should come as no surprise, given Singapore’s stable and supportive government for business and investing. This can be seen by its tax-friendly regulations and the ease of establishing one’s business footprint here, a sentiment that the World Bank supports via their “Ease of Doing Business Index“.
2. The Variable Capital Company (VCC) structure.
The Monetary Authority of Singapore (MAS) launched this new corporate structure in January 2020 that aims to make the investment process more flexible for investors and help save money for both investors and fund managers. Unlike a company that’s used to carry out a business, the sole purpose of a Variable Capital Company (VCC) is to create one or more collective investment schemes (CIS) in the form of a corporation. The investment can include either open-end or closed-end funds.
During its first year alone, there were approximately 200 entities registered under this new structure, revealing the popularity of the VCC Act. Such enthusiasm is buoyed by the likes of the VCC Grant Scheme, which means the government will pay up to 70% of eligible expenses for the first three years of fund companies operating in Singapore. The grant is capped at S$150,000 for each application, with a maximum of three VCCs per fund manager.
Aside from the grant mentioned above, there are numerous tax incentives offered that a VCC can enjoy. These include the tax incentives under Section 13R (Singapore Resident Fund) and Section 13X (Enhanced Tier Fund). Essentially, there will be no taxable income from the gains or income derived from VCC investments, giving maximum income to both the investor and the fund manager. Additionally, VCCs have flexibility in issuing and redeeming shares without seeking shareholders’ approval, allowing investors to exit anytime they wish.
3. The growth of ESG investing
Climate change, global warming, and sustainability are a few buzzwords that have been gaining steam over the past years as people become more environmentally conscious — boosted by high profile events like COP26. This translates to how people are making their investments. Ethical investing or more commonly known as Ethical, Government, and Social (ESG) investing, is on the rise, as evidenced by its 53% growth over the last year, reaching US$2.7 trillion in managed assets globally.
In Singapore, MAS has announced plans to invest an estimated US$1.8 billion into climate-related investment opportunities. With such a goal, MAS became the first central bank in Asia and second in the world to publish a standalone sustainability report. Moreover, it also follows the trend where 80% of Singapore’s fund managers have signed the UN’s Principles for Responsible Investments.
The shift towards a more sustainable approach has resulted in better gains for investors. One example was when the COVID-19 pandemic first hit, where ESG-focused companies performed better than those who didn’t.
4. The explosion of cryptocurrency
Did you know that 93% of Singaporeans have heard the term “cryptocurrency?” And the number of cryptocurrency owners in Singapore stands at an estimated 15.8%, slightly above the global average of 15.5%. Therefore, it’s no surprise if fund managers want to jump on the bandwagon. One example was the launch of two institutional-grade Bitcoin (BTC) funds by Fintonia Group, a Singapore-based fund manager regulated by MAS, in November 2021.
Another example that proves the allure of cryptocurrency is widespread was the release of a trust solution by DBS Private Bank, enabling their high-net-worth clients to keep these digital currencies in their wealth portfolio for diversification purposes. Meanwhile, retail investors with limited funds may dip their toes in this new world by registering on an exchange platform, such as Bitmex, Zipmex, and Coinbase. With just S$1, you can open an account on Zipmex and start your crypto journey.
Remember that investing in crypto is not all rainbows and unicorns; it comes with several risks that you should assess based on your risk appetite.
The pandemic has highlighted the importance of going digital for all industries, including the fund management industry. Doing so ensures one’s business thrives and adapts to customers’ needs in the digital era. Digitalisation can be implemented in various areas of fund management, ranging from know-your-customer (KYC) regulations to processes and operations.
Going digital means embracing technology in your workflows, such as using video conferencing solutions to conduct KYC policies or leveraging robotics and automation for manual processes, like the cash and stock reconciliation process. Digitisation will increase efficiency and productivity, meaning employees can focus on meaningful tasks, like growing the fund, instead of doing repetitive work. Not to mention, it also diminishes the possibility of human errors and also saves cost and time for the business itself.
The fund management industry is not a constant landscape. It’s continuously evolving with the changing times. Fund managers should keep tabs and look for the latest trends and changing regulations in the fund management space to best serve their growing customer base.
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