fund Management solutions

Selecting the appropriate fund structure is critical for aligning your investment strategy with the operational and regulatory environment. Different fund structures offer varying levels of flexibility, protection, and control, making them more or less suitable depending on the type of investments and the target investor base.

This section provides an in-depth look at the most common fund structures available in Singapore and the Cayman Islands, and how they align with specific investment strategies.

Matching Fund Strategies with Fund Structures

1. Hedge Funds:

• Typical Structure: Open-Ended Funds, such as the Variable Capital Company (VCC) in Singapore and the Segregated Portfolio Company (SPC) or Exempted Company in the Cayman Islands.

• Investment Strategy: Hedge funds typically employ strategies that require high liquidity and flexibility, such as long/short equity, global macro, and market-neutral strategies. These strategies benefit from open-ended structures, which allow for frequent redemptions and subscriptions, accommodating the dynamic trading activities of hedge funds.

• Licensing Requirements: In Singapore, hedge funds structured as VCCs must be managed by a Licensed Fund Management Company (LFMC). In the Cayman Islands, SPCs or Exempted Companies must be registered with the Cayman Islands Monetary Authority (CIMA) if they have multiple investors.

2. Private Equity Funds:

• Typical Structure: Closed-Ended Funds, such as Limited Partnerships (LP) in both Singapore and the Cayman Islands.

• Investment Strategy: Private equity funds focus on long-term investments in private companies, such as buyouts, venture capital, and growth equity. Closed-ended structures are ideal because they lock in capital for the duration of the fund, typically 7-10 years, allowing fund managers to focus on the growth and exit strategies of their investments.

• Licensing Requirements: In Singapore, private equity funds must be managed by an LFMC. In the Cayman Islands, LP structures are subject to CIMA regulations, including economic substance requirements.

3. Real Estate Funds:

• Typical Structure: Both Open-Ended and Closed-Ended Funds, such as VCCs or Private Limited Companies (Pte Ltd) in Singapore, and SPCs or Exempted Companies in the Cayman Islands.

• Investment Strategy: Real estate funds may invest in income-generating properties or development projects. Open-ended structures are suitable for funds focusing on rental income and frequent distributions, while closed-ended structures are better for long-term development projects where capital is tied up until project completion.

• Licensing Requirements: Real estate fund managers in Singapore must hold an LFMC license, while in the Cayman Islands, the chosen structure must comply with CIMA regulations.

4. Venture Capital Funds:

• Typical Structure: Closed-Ended Funds, typically structured as LPs in both Singapore and the Cayman Islands.

• Investment Strategy: Venture capital funds invest in early-stage companies, providing them with the capital needed to scale. These funds typically have a fixed lifespan, with investments being made over the first few years, followed by a period of managing and exiting those investments.

• Licensing Requirements: Venture capital funds must be managed by licensed entities in both jurisdictions, with Singapore requiring an LFMC license and the Cayman Islands enforcing compliance with CIMA regulations.

Fund Structures Explained

Variable Capital Company (VCC) - Singapore: The VCC is a flexible corporate structure introduced in Singapore in 2020, specifically designed for investment funds. It allows for the creation of multiple sub-funds under a single umbrella entity, with each sub-fund’s assets and liabilities segregated from others. This structure is particularly advantageous for hedge funds, private equity, and real estate investments, providing tax efficiency and privacy, as the register of members is not publicly accessible.

Segregated Portfolio Company (SPC) - Cayman Islands: The SPC is an exempted company that can create segregated portfolios within one corporate entity. Each portfolio’s assets and liabilities are legally segregated from those of other portfolios, providing significant protection against cross-liabilities. This structure is commonly used for multi-strategy hedge funds, umbrella funds, and private equity funds, particularly where different strategies or investor classes require segregation.

Exempted Company - Cayman Islands: An exempted company is a flexible corporate structure used for various fund types, including hedge funds, private equity funds, and other investment vehicles. It benefits from the Cayman Islands' tax-neutral environment and is not required to conduct business within the jurisdiction, making it ideal for international investments. The exempted company structure is a typical choice for open-ended funds, especially in the hedge fund space, where the ability to frequently redeem shares at Net Asset Value (NAV) is crucial.

Limited Partnership (LP): The LP structure is favored for private equity and venture capital funds. It involves general partners (GPs) who manage the fund and have unlimited liability, and limited partners (LPs) who contribute capital and have liability limited to their investment. This structure is optimal for closed-ended funds that focus on long-term, illiquid investments.

Conclusion

Choosing the right fund structure involves understanding the specific needs of your investment strategy and the regulatory environment of your chosen jurisdiction. Whether operating under Singapore's VCC structure or the Cayman Islands' SPC, Exempted Company, or LP structures, aligning your strategy with the appropriate fund structure ensures operational efficiency, compliance, and optimal returns for investors. By carefully considering the advantages and requirements of each structure, fund managers can better position their funds for success.

When establishing a fund, selecting the appropriate jurisdiction is a critical decision that impacts regulatory compliance, tax efficiency, investor confidence, and operational costs. Below is an analysis of key considerations and a comparison of six fund setup jurisdictions: Cayman Islands, Singapore, Jersey, British Virgin Islands (BVI), Luxembourg, and Ireland.

Key Considerations for Fund Setup Jurisdiction

1. Investor Familiarity and Confidence

• Reputation and Stability: Investors typically favor jurisdictions known for their political and economic stability, as well as those with a robust legal framework.

2. Regulatory Environment

• Regulatory Rigor vs. Flexibility: Jurisdictions offer varying levels of regulatory strictness or flexibility, which may suit different types of funds based on their target investor base and operational strategy.
  

• Global Compliance: Jurisdictions that adhere to international standards, such as anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, are often more attractive to global investors.
  

3. Taxation

• Tax Efficiency: Jurisdictions providing tax-neutral or low-tax environments are particularly appealing. This includes considerations such as corporate income tax, capital gains tax, and withholding taxes.
  

• Double Taxation Treaties (DTAs): DTAs can significantly reduce the tax burden on cross-border investments, enhancing the fund's overall tax efficiency.
  

• Economic Substance Requirements: While many jurisdictions have implemented economic substance laws, funds in the Cayman Islands, BVI, Jersey, and Ireland are generally exempt from these requirements. Instead, the economic substance obligations typically apply to the fund management entities, ensuring that they maintain sufficient local presence and conduct core income-generating activities within the jurisdiction.

4. Availability of Service Providers

• Financial Services Infrastructure: Access to experienced legal, accounting, and administrative professionals is essential for efficient fund operations.
  

• Market-Specific Expertise: Expertise in specific regions, like the EU or Asia, adds significant value for fund managers operating in those markets.
  

5. Cost of Setup and Maintenance

• Initial and Ongoing Costs: Setup and maintenance costs vary across jurisdictions and must be weighed against the benefits they provide.
  

6. Access to Markets

• Investor Base: Jurisdictions that provide easy access to target investors, whether regional or global are preferable.
  

• Ease of Marketing: The ability to market funds across multiple countries with minimal additional requirements is a significant advantage.

Jurisdictions for Fund Setup

1. Cayman Islands

• Regulatory Environment: The Cayman Islands offers a flexible regulatory framework under the Mutual Funds Act, overseen by the Cayman Islands Monetary Authority (CIMA). As of 2020, any mutual fund with more than one investor is required to register with CIMA, a significant change from the previous exemption for funds with 15 or fewer investors. Single-investor funds remain exempt from this requirement. Additionally, new rules on corporate governance and internal controls introduced in April 2023 have further strengthened regulatory oversight, requiring all regulated entities to establish robust internal control frameworks and comply with updated corporate governance standards.
  

• Taxation: The Cayman Islands is a tax-neutral jurisdiction with no direct taxes on income, capital gains, or profits, making it attractive to global investors.
  

• Economic Substance Requirements: While fund management companies in the Cayman Islands are subject to economic substance requirements, the funds themselves are generally exempt. The focus is on ensuring that management entities maintain physical premises, sufficient staff, and conduct core income-generating activities within the jurisdiction.
  

• Service Providers: The Cayman Islands has a well-established financial services industry, providing extensive support for fund operations.

• Considerations: Compliance with CIMA’s registration requirements, economic substance laws, and new audit obligations is now essential for mutual funds with multiple investors.

2. Singapore

• Regulatory Environment: Singapore is a major financial hub in Asia with a robust regulatory framework governed by the Monetary Authority of Singapore (MAS). The Securities and Futures Act (SFA) regulates fund management activities, requiring fund managers to hold a Capital Markets Services (CMS) license or be registered with MAS.
  

• Taxation: Singapore offers significant fund tax incentives through Sections 13O and 13U of the Income Tax Act, which provide exemptions on specified income derived from designated investments. Section 13O applies to onshore funds with a minimum local annual expenditure of S$200,000. Section 13U applies to both onshore and offshore funds, requiring a higher threshold, with a minimum fund size of S$50 million and an annual local spending of at least S$500,000. Additionally, Singapore imposes no taxes on capital gains, dividends, or interest income, making it highly tax-efficient. The corporate tax rate is a flat 17%, though various exemptions and incentives often reduce the effective tax rate for many companies.
  

• Service Providers: Singapore’s financial services sector is highly developed, offering access to a skilled workforce and advanced infrastructure.
  

• Considerations: Singapore’s regulatory environment is stricter than some offshore jurisdictions, which may result in higher operational costs, but the benefits of its tax incentives, including its extensive DTA network with over 90 countries, make it an attractive option.

3. Jersey

• Regulatory Environment: Jersey offers a sophisticated legal system with strong investor protection. It provides a range of fund structures, including regulated and unregulated funds.
  

• Taxation: Jersey is tax-neutral for non-resident investors, with no capital gains tax or withholding taxes, enhancing its appeal as a fund domicile.
  

• Economic Substance Requirements: Jersey's economic substance laws require fund managers to maintain a substantial presence on the island, including local management, staff, and conducting core income-generating activities within the jurisdiction. However, the funds themselves are generally exempt from these requirements, focusing the obligations on the entities that manage them.
  

• Service Providers: Jersey has a robust financial services sector, although the availability of service providers may be more limited compared to larger jurisdictions.

• Considerations: Compliance with AML regulations and economic substance requirements is mandatory, and operational costs may be higher than in some other jurisdictions.

4. British Virgin Islands (BVI)

• Regulatory Environment: The BVI offers a flexible regulatory framework, appealing to hedge funds and smaller fund structures. The BVI Financial Services Commission regulates financial services, including investment funds.
  

• Taxation: BVI is tax-neutral, with no corporate taxes, capital gains taxes, or withholding taxes, making it a cost-effective option.
  

• Economic Substance Requirements: Similar to the Cayman Islands, the BVI's economic substance laws require fund management companies to maintain adequate substance within the jurisdiction, including local staff, premises, and conducting core income-generating activities. However, the funds themselves are generally exempt from these requirements.
  

• Service Providers: BVI has an established financial services industry, though service providers may be more limited compared to larger jurisdictions.
  

• Considerations: Fund managers must ensure compliance with regulatory requirements and economic substance laws, and consider the potential impact of international scrutiny on transparency and oversight.

5. Luxembourg

• Regulatory Environment: Luxembourg is a well-regarded jurisdiction for funds targeting European investors, offering a sophisticated regulatory environment under the Financial Sector Supervisory Commission (CSSF).
  

• Taxation: Luxembourg offers a favorable tax environment supported by an extensive DTA network and tax-efficient vehicles like the Reserved Alternative Investment Fund (RAIF) and the Specialised Investment Fund (SIF).
  

• Economic Substance Requirements: Luxembourg requires fund management companies to demonstrate economic substance within the jurisdiction, ensuring that their activities are aligned with the regulatory expectations for managing funds domiciled there.
  

• Service Providers: Luxembourg has a comprehensive financial services infrastructure with a deep pool of experts in fund management.
  

• Considerations: Setup and maintenance costs in Luxembourg may be higher, but they are offset by strategic access to the European market, robust regulatory support, and compliance with economic substance requirements.
  

6. Ireland

• Regulatory Environment: Ireland provides a well-regulated environment for investment funds, particularly those targeting EU investors. The Irish Collective Asset-management Vehicle (ICAV) is a popular structure due to its flexibility and tax efficiency.
  

• Taxation: Ireland’s corporate tax rate of 12.5%, combined with exemptions for funds and investors on income and gains, makes it an attractive jurisdiction. Its extensive DTA network facilitates easier cross-border operations.
  

• Economic Substance Requirements: Like Luxembourg, Ireland imposes economic substance requirements on fund management companies to ensure that substantial activities are carried out within the jurisdiction, in line with global tax standards. However, the funds themselves are generally exempt from these requirements.
  

• Service Providers: Ireland’s financial services sector is well-developed, offering access to a broad range of professionals, particularly in fund administration and legal services.
  

• Considerations: The regulatory framework for UCITS and AIFs in Ireland is stringent, ensuring high levels of investor protection, and compliance with economic substance requirements is necessary for operating within the jurisdiction.

Conclusion

Selecting the appropriate jurisdiction for fund setup involves considering various factors, including regulatory requirements, tax efficiency, economic substance compliance, availability of service providers, and operational costs. Each jurisdiction offers specific advantages and challenges, and the decision should align with the fund’s objectives and the needs of its investors.

Simplifying Fund Management:

At Ternary, we understand that navigating the complexities of fund management can be daunting. That's why we've made it our mission to streamline the process for you, providing expert guidance and support at every stage.

1. Fund Structuring Made Simple

Structuring a fund involves navigating intricate tax and legal frameworks. At Ternary, we offer specialized advice on these critical aspects, ensuring your fund is structured efficiently and compliantly. With our team of experienced lawyers and tax advisors, we can significantly expedite the structuring process, saving you valuable time and resources.

2. Choosing the Right Service Providers

Selecting the right service providers is crucial to the success of your fund. Our team offers insights into the merits and potential pitfalls of various fund administrators, auditors, and custodians. We help you make informed decisions based on more than just service fees, ensuring that your chosen providers align with your fund’s unique needs.

3. Seamless Fund Setup Coordination

Setting up a fund can be a complex and time-consuming process. At Ternary, we take charge of the entire setup, from registration to document drafting, ensuring that everything is done within the appropriate timeframe. Our coordination with lawyers, corporate secretaries, and service providers ensures a smooth and efficient setup process, allowing you to focus on your fund’s strategy.

4. Account and Wallet Setup Assistance

Opening bank accounts and setting up wallets for your fund can be challenging. We handle these tasks on your behalf, coordinating with various banking and financial entities to ensure everything is in place. This service not only saves you time but also ensures that all financial aspects of your fund are managed effectively.

5. Supporting Ongoing Fund Operations

Once your fund is up and running, ongoing management is key to its success. Ternary provides comprehensive fund management services, including:

• Investor onboarding: Ensuring compliance with KYC/AML regulations and accredited investor checks.

• Trade reconciliation: Keeping track of all fund transactions.

• Regulatory record-keeping: Maintaining accurate records for regulators.

• Financial audit coordination: Working with auditors to ensure financial transparency.

• NAV calculation: Confirming the periodic Net Asset Value calculations, whether monthly, quarterly, bi-annual, or annual.

6. Ensuring Compliance with Regulatory Reporting

Compliance is a critical aspect of fund management. Ternary takes responsibility for reporting your fund’s Assets Under Management and other regulatory surveys to the Monetary Authority of Singapore.

We ensure that your fund meets all local regulatory requirements, giving you peace of mind.

7. Transparent Performance Reporting

Transparency is essential for building trust with your investors. We offer periodic performance reporting to leading public performance tracking companies such as Bloomberg, EurekaHedge, and HF Review. By making your fund’s performance data accessible, we help you build credibility and attract more investors.

The process of setting up a fund with Ternary takes approximately 3 months from the moment you engage with us. The first 1-2 months are dedicated to design the fund structure, establish the entity and draft all the required documentation.

During this period, we work closely with you to navigate the intricacies of creating a fund tailored to your requirements.

In the third month, we focus on establishing connections with service providers, ensuring that your fund is fully equipped for smooth and efficient operations.

Fund Setup Costs:

Includes legal fees and fund registration expenses, covering ACRA registration, sub-fund registration, and corporate secretary services.

Fund Maintenance Costs:

Encompasses administrator and auditor fees, along with annual filing and corporate secretary fees for maintaining the fund structure.

At Ternary Fund Management, we’re dedicated to making fund management as straightforward as possible. Whether you’re setting up a new fund or managing an existing one, our comprehensive services are designed to support your success at every step.

Let us help you navigate the complexities of fund management so you can focus on what matters most – growing your fund.