Given their history as regional financial centers, it is no surprise that Hong Kong, as a gateway to China, and Singapore, a commercial nucleus serving the rest of South-East Asia, are the two pre-eminent fund centers in Asia-Pacific. In addition to location, both boast – Hong Kong’s recent political upheavals aside – stability, continuity, convenience and an established ecosystem of fund service providers that support a host of Asian, pan-Asian and international managers, as well as access to an expanding pool of regional capital.
“Hong Kong and Singapore are friendly competitors,” says Gavin Anderson, Hong Kong-based partner at Debevoise & Plimpton. “Singapore has done well at selling itself as a sophisticated and attractive funds center and has put pressure on Hong Kong, which in turn has been encouraged to up its game.”
While useful as bases for management offices and asset holding special purpose vehicles, they are not typical picks for fund domiciliation. Until now, capital raised and/or targeted for investment in Asia has usually been held by funds established either in the historically popular Cayman Islands, or in Delaware or Luxembourg. But that could be about to change.
The race is on
Both the Hong Kong and Singapore governments have moved to introduce new structures to encourage managers to bring their funds onshore. Hong Kong’s brand-new Limited Partnership Fund Bill, published in March, was due to come into force at the end of August. The new structure marks a significant step forward in the race with Singapore – which already offers a limited partnership structure, tax incentives and government grants – to capture fund business.
By itself, the pull of a Hong Kong limited partnership might be weak against the upheaval and cost of switching jurisdiction. But coupled with any potential revision of carried interest taxation mooted by the Hong Kong government earlier in the year, it could tip the scales. “Lack of clarity over tax on carried interest in Hong Kong and Singapore has been a source of discomfort,” says Anderson. “If the Hong Kong government addresses that and, even better, introduces a beneficial tax rate for using a Hong Kong limited partnership, that could drive a lot of people to use it.”
For its part, in January, Singapore, with its longstanding commercial focus on attracting asset management business, implemented a new structure: the variable capital company. Its key appeal is its flexibility. The VCC can be used by both open and closed-ended funds, including private equity and real estate, to establish a standalone vehicle or an umbrella for sub-funds.
While it’s still early days and its corporate structure may not obviously appeal to private equity funds, there is already an example of a high-profile investor using Singapore for its latest vehicle.
The $2.3 billion Allianz Real Estate Asia-Pacific Core I fund, launched in June in partnership with The National Pension Service of Korea, is domiciled there. “In real estate, there’s a massive focus on Asia,” says Stuart Pinnington, group funds and institutional director at IQ-EQ. “A lot of EU or US managers targeting Asia are looking to domicile in Singapore.”