Idiotopedia Lite: Flow of The Money

Some friends have asked me how they might use MAS's VCC framework to put up a fund placement to attract investors. Yes, the Monetary Authority of Singapore's (MAS) Variable Capital Company (VCC) model is attracting investors from around the world who want to profit from Indonesia's developing market. Based on my understanding, this framework is a compelling alternative to the British Virgin Islands (BVI) and the Cayman Islands for investors targeting Southeast Asia, including Indonesia. The BVI and Cayman Islands have long been favored for their tax regimes and confidentiality, but recent trends have shown some flaws (you can check directly from the news or any forum discussions). However, you must also understand the VCC structure and Indonesian investment conditions to avoid any risks that might impact your fund or business.

This article is a simplified version; therefore, I may be mistaken. Be smart with your investment thesis, and ask experts for help with more detail!

OK, then, this is how I understand:

BVI and Cayman Islands: Current Weaknesses        

Regulatory Challenges:

• More regulations and requirements from international groups like the OECD and the EU have made it harder for the BVI and Cayman Islands to follow global tax rules. This has led to stricter regulations and higher costs for following them. Also, new rules about economic substance and openness have made it much harder to remain anonymous in these places, which makes them less appealing to some investors.

Cost Structure:

• Following the stricter BVI and Cayman Islands authorities now cost much more. These regulations include higher fees for keeping your business going and stricter reporting requirements. The administrative work of managing funds in these places has also grown, which has caused running costs to rise.

Reputation Risks:

• The EU and other governing bodies have said that the BVI and Cayman Islands could be put on a "blacklist." This could make investors wary of the islands because of potential reputational risks.

VCC in Singapore: Advantages        

Regulatory Environment:

• Singapore has strict regulations that protect investors and allow flexibility through the VCC system. The Monetary Authority of Singapore (MAS) keeps an eye on things to make sure the environment is stable and clear. Furthermore, Singapore's large collection of double taxation treaties lowers withholding taxes on international trade, which helps investors save money on taxes (but you need to check more details for this part)

Note: Singapore has a large network of tax treaties that can cut withholding taxes on capital gains, earnings, and interest by an average of 15% to 20%. For example, a fund that gets $10 million in earnings from a subsidiary in Indonesia could save up to $2 million in taxes.

Cost Efficiency:

• The VCC structure makes compliance easier by combining the needs of many sub-funds into a single VCC, lowering the total cost of compliance. Centralized governance and sub-fund management also save a lot of money on operational costs.

Note: By managing funds through a single VCC, investors can cut costs by 20% to 30% on average, which means they can get better investment results. For example, a VCC structure could help a fund that manages $100 million spread across several states save $2–3 million annually. Singapore's effective rules and the VCC's unified setup can also cut down on compliance costs by up to 15%, which means more money can be spent on investments instead of administrative costs.

Operational Flexibility:

• The VCC allows for the establishment of multiple sub-funds, each with its own assets and debts and a different investing strategy and level of risk. The ability to issue and redeem shares in various ways meets the needs of different investors and makes fund management easy.

Note: Yes, as noted, VCC can hold many sub-funds, which lets investors use various investment strategies and lowers the total portfolio risk. For example, if a fund had 50% of its assets in a volatile sector, it could lower its risk by putting the other 50% in a stable sector within the same VCC.

Strategic Location:

• This one can be subjective, but I believe Singapore is a great place to spend time in Southeast Asia because it is in a good spot and has strong economic ties with Southeast Asian countries like Indonesia. The VCC framework takes advantage of this benefit, making it easy and quick for capital to be put into these markets.

There is no question that Singapore's VCC is a streamlined way to manage funds, with a pretty easy-to-use interface. It's a good place to start, especially for people new to this market. But let's face it: behind Singapore's smooth exterior are the real action, the big chances, and, of course, the bigger risks. Also, Indonesia's scenery is both difficult and appealing. This market has a lot of promise, but it's not for the faint of heart. Even though the rules and regulations may be tougher, the benefits may also be bigger. It's important to know the details, make strong connections in the area, and be ready for the expected problems that will come up.

Let's be honest: this money game is just a big poker game with much at stake. Your cards are only as good as your bluff. Even though the VCC is a good hand, the person wins the pot, not the deck. Yes, learn the regulations and how to play, but remember that you make real money by going with your gut and knowing the right people because friendship is the only thing that matters in this challenging capital market.

Any other thoughts?

Reference:

• https://www.mas.gov.sg/

• https://www.mooresingapore.com/news/jan-2021/variable-capital-company-why-the-hype