World  Business and Economic Analysis 

Protacio T Tacandong, COO, Reyes Tacandong & Co


Interview: Protacio Tacandong

To what extent will the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill facilitate economic recovery from the Covid-19 pandemic?

PROTACIO T TACANDONG: It originally intended to provide incentives to qualified investors who contribute to job generation; however, subsequent amendments provided businesses relief. Notably, the bill will help micro-, small and medium-sized enterprises, which comprise a substantial portion of the economy. Under the version passed by the Senate in November 2020, corporate income tax (CIT) will be reduced from 30% to 25% effective July 1, 2020. For domestic corporations with total assets not exceeding P100m ($2m) – excluding the land on which the business entity’s office, plant and equipment are situated – and total net taxable income below P5m ($99,400), the CIT will be immediately reduced to 20%. The CREATE bill provides other measures of relief, such as lowering the minimum CIT rate from 2% to 1%, repealing the provision on the improperly accumulated earnings tax and dropping the percentage tax from 3% to 1%. Additionally, medicines, vaccines and medical equipment specifically prescribed for the treatment of Covid-19 will be exempt from value-added tax (VAT).

How do you assess the effectiveness of digital Bureau of Internal Revenue (BIR) platforms in enabling taxpayers to meet regulatory requirements?

TACANDONG: Social-distancing protocols led to an uptick in the use of the Electronic Filing and Payment System, through which taxpayers can file their tax returns online, as well as that of online payment gateways. The BIR also allowed companies to file their audited financial statements through the Electronic Filing of Audited Financial Statements System.

In compliance with the Ease of Doing Business and Efficient Government Service Delivery Act of 2018, the BIR streamlined some of its procedures and processes. It can be expected that additional online platforms will be launched to simplify registration. Online processes not only quicken the turnaround of government approvals, but also meet social-distancing measures.

In what ways will digitalisation pose a challenge to taxation, and what progress has been made in terms of tax regulations for digital transactions?

TACANDONG: The rise of the digital economy and advancements in technology pose a challenge to tax authorities’ ability to consistently apply the situs of income rules. House Bill No. 6765, or the Digital Economy Taxation Act, was filed during the pandemic to address this problem. The law would impose a 12% VAT on digital transactions such as advertising, subscription-based services and those rendered electronically, as well as e-commerce transactions. The bill also requires suppliers of digital services, network orchestrators and e-commerce platforms to establish a resident agent or a representative office in the Philippines. It is similar to laws in other countries and effectively places the tax obligation on the online platform. While this bill was pending before the legislature as of early December 2020, the government released advisories and circulars reminding businesses engaged in digital transactions to register with the BIR.

What are the implications for taxpayers of the government’s decision to finance much of the Covid-19 response and recovery through new debt?

TACANDONG: Provided that the additional debt accrued to finance the pandemic response is managed effectively, taxpayers will directly benefit from social services and infrastructure development, namely health facilities and testing centres. This should encourage consumer spending and kick-start the economy. However, in the medium term, such debt may cause the government to forego projects not directly related to the pandemic, even if they are equally important. In the long term, however, an improved credit rating will be beneficial in securing financing from external sources.




View from Singapore: one year of the VCC structure

At the start of 2020, Singapore introduced a new corporate entity structure, the Variable Capital Company (VCC), and by June the number of incorporated VCCs had grown to over 300. This has now sparked the interest of larger asset managers, and helped to further solidify Singapore’s reputation as a leading financial centre
By Ashmita Chhabra, Managing Director, Business Development, Asia Pacific at Apex Group
August 18, 2021

On January 15, 2020, the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA) launched the Variable Capital Company (VCC) framework, a new corporate structure specifically designed for investment funds, strengthening the foundations for its continued prominence as a global financial services and fund domiciliation hub. We are now over a year on from its introduction and it is time to take stock of its initial impact. In this piece, we examine the early adoption of the structure and consider the areas of focus to build on its early successes.


Background to the VCC

The VCC is a new corporate entity structure that is purpose built for investment funds. It also offers the flexibility of compartmentalisation via umbrella structure, just like a Protected Cell Company or a Segregated Portfolio Company. Umbrella funds can house different strategies/investors in different compartments called sub-funds, with each of the underlying sub-funds ring-fenced from one another providing legal segregation of assets and liabilities. As it’s a corporate fund structure with no regulatory definition of investment strategies that can be housed in it, VCC can be used across alternative fund strategies (both open-ended and close-ended). This new corporate entity structure gives funds an alternative to existing fund structures available in Singapore, such as limited partnerships, unit trusts and private limited companies, as well as plugging some of the gaps and constraints of using these structures.

Along with this, the VCC offers the flexibility of incorporating via re-domiciliation. Re-domiciliation is a feature of incorporation that allows a corporate entity in other compatible jurisdictions to be brought over to home jurisdictions and retain its characteristics from day-one, thereby retaining the track record.


The attraction of VCC for fund managers

For Singapore-based managers, the VCC provides them with an additional option for structuring their funds. In the past, managers here have mainly used offshore structures, and now they have a flexible and versatile framework in the same jurisdiction.

    Service providers in Singapore will play a crucial role in supporting funds looking to adopt the VCC structure

Primarily, the VCC benefits those fund managers with a broad Asian investor base or those who invest in Asia, as they can take advantage of access to Singapore’s 90+ tax treaties.

The structure offers significant flexibility as it can be used to incorporate new funds or re-domicile existing comparable and compatible overseas investment funds. It can also be used for both closed-ended and open-ended funds, unlike some structures offered in other jurisdictions. We see that this flexibility is proving to be one of the key attractions behind the popularity of the VCC and has been central to its early success.


Early successes

The VCC structure proved to be immediately popular: the VCC went live on 15 January 2020 and 20 VCCs were launched on the same day. Data shows that total of over 50 VCCs were incorporated in the first four months, and over 300 VCCs by June 2021. This compares favourably with the initial rate of take-up of similar structures in other geographies such as Europe, especially when taking into account the added complications of Covid.

We have seen many of the early adopters of the last year hold similar characteristics: early stage wealth managers, smaller investment groups and debut funds. In part, this is due to the generous financial incentive which plays a powerful role in the decision-making process for these players: as part of the launch of the VCC, the MAS introduced the VCC Grant Scheme (VCCGS) to encourage adoption and conversions to VCC. This grant covers 70% of eligible expenses (capped at $150,000 per VCC, and up to three VCCs per fund manager) for work done in Singapore in relation to the incorporation/re-domiciliation of the VCC. This includes legal fees, tax advisor fees, regulatory advisory fees towards set up, and consulting fees.

Into late 2020 and certainly in 2021, we have seen the adoption extend to mid and larger asset managers and global players taking up the VCC.

In addition, the speed and simplicity of incorporation is a unique benefit of the VCC which has contributed to this initial success. It takes 14 days (for the most straightforward structure) to 60 days to get approval with the ACRA. The process is accelerated, because, unlike Hong Kong, there is no pre-approval process for at least alternative funds by the regulator. As such, many of the early adopters are those for which speed to market is a key priority.


Areas of future focus

Undeniably, Singapore has seen initial success with the launch of the VCC, with the market welcoming the new structure and we expect it to gain further momentum as the market becomes more familiar and comfortable with the regime. We see international funds looking to re-domicile under the VCC to be a key source of future growth.

To build on the initial success of the VCC in the years ahead, the market and regulator will continue their focus and collaboration to attract a diverse range of asset and wealth management niche sectors, to accommodate complex investment strategies and investor pooling concepts. With the VCC framework in place for over a year and half, enhancements are being proposed based on feedback and experiences from the industry that are being reviewed by the regulator. Included in these proposals are an extension of VCC’s utility ranges from family offices to real estate funds.

    The structure offers significant flexibility as it can be used to incorporate new funds or re-domicile existing comparable and compatible overseas investment funds

At the end of April 2021, MAS also established the Singapore Funds Industry Group, a new public–private sector partnership to strengthen Singapore’s value proposition as a global full-service asset management and fund domiciliation hub. One of the points of focus under SFIG would be working on enhancing and further developing the VCC framework.

Service providers in Singapore will play a crucial role in supporting funds looking to adopt the VCC structure – ensuring managers have access to the right advice, expertise and operational excellence. For example, experienced service providers are required to navigate the structure, help funds come to market swiftly and efficiently, as well as adhering to and understanding the requirements for the umbrella VCC with respect to corporate secretarial, fund administration, custody, directorship, and audit to name a few.


Outlook for the VCC

Singapore has always been an attractive financial hub, with a stable political climate and a proactive regulator which sets a legislative environment to encourage innovation, foster continued growth and provide certainty of its application.

As global investors become more familiar with the VCC, it will emerge as a very strong contender to attract capital flows and further support Singapore’s growing aspirations as a global financial jurisdiction.




Headstart Advisers has been active in the hedge fund industry since 1990 and has witnessed first-hand how it has evolved and adapted to new challenges, be they on the investment front or from a business perspective. Industry progress has been extraordinary over this period, growing from approximately 610 funds managing around $20bn to over 10,000 funds managing around $2.5trn today (see Fig. 1). This growth has come despite some of the most tumultuous markets in history, including the crash of 1998, the bursting of the dotcom bubble and subsequent bear market of 2000-2002, and most recently the 2008 credit crisis, the aftermath of which is still impacting markets. The industry has also had to survive some high profile failures such as Long-Term Capital Management, which nearly collapsed the global financial system, and more recently the downfalls of a number of prominent, well known, multibillion-dollar firms, not to mention its fair share of high profile frauds.

It has been widely reported that hedge funds have been forced to institutionalise. Firms have invested huge sums in building out their infrastructure, back office systems, compliance and improving their transparency to deal with the demands of a more sophisticated investor, as well as a more involved regulatory regime with both SEC registration and the AIFMD. Hedge fund firms are ultimately entrepreneurial, and while the 2008 financial crisis uncovered a number of shortcomings for the hedge fund industry as a whole, there are a wide number of firms that survived the crisis and learnt valuable lessons. While no crisis is ever the same, the ability to survive and learn from past experiences is hugely valuable. The steps that both investors and the hedge funds themselves have implemented place the industry on a firm footing.

Performance on an industry-wide basis, as reported by the various fund of hedge funds indices, remains anaemic. However, many funds have bucked this trend, taking advantage of an increased opportunity to produce attractive returns. No hedge fund or fund of hedge funds is the same and investing in them requires detailed understanding. The significant gulf between the performance of the top-performing managers and the fund of funds index can be highlighted by comparing the return of the Headstart Fund of Funds and the HFRI FOF Index since January 1 2009. Through October 31 2013, based on almost five years of data, the Headstart Fund of Funds has returned 71 percent with a Sharpe Ratio of 1.81; meanwhile, the HFRI FOF Index returned an estimated 25 percent with a Sharpe Ratio of approximately one.

Navigating markets
After a 30-year bull market for bonds, interest rates are at historic lows. Meanwhile, global equity markets are at or approaching all-time highs. This is at a time when governments continue to intervene in markets and capital allocators are faced with the significant issue of having to re-allocate vast amounts of capital away from what was previously considered a risk-free fixed income market which is producing a negative real yield. In this environment a well-managed portfolio of hedge funds can offer a truly diversifying return stream uncorrelated to traditional assets, having proven itself capable of navigating across market cycles.

While the case for investment in hedge funds is particularly compelling given the investment landscape, history has shown that you should not invest in a hedge fund on the basis of size or brand name (a misconceived safety), a ‘star manager’ or past track record alone, and that in-depth due diligence, transparency, experience and a portfolio approach is required. In addition, many of the most established, successful and well-known hedge fund firms have seen their assets under management rise to all-time highs, both reaching capacity and closing to new investment or in some cases returning outside capital in part or entirely, and transitioning to a family office. The vast majority of these funds continue to have draconian investment terms with typically poor liquidity and high fees, as well as there being a direct correlation between a significant growth in assets and the degradation of returns. Simply, very large hedge funds can often find themselves paralysed by their size and find it significantly more difficult to create attractive risk adjusted returns. There are, however, a number of high quality managers who have remained closed to new investment for many years. These managers have typically controlled the growth of their assets under management and maintain significant investments in their funds, aligning their interests with investors. In addition, since 2008, a number of these managers have also improved the liquidity terms of their funds. Fund of hedge funds can offer their investors exposure to these managers that they would not otherwise have access to.

[M]any of the most established, successful and well-known hedge fund firms have seen their assets under management rise to all-time highs, both reaching capacity and closing to new investment

Investing directly in hedge funds requires more than just capital. Many fund of hedge fund portfolios, such as the Headstart Fund of Funds, are effectively not replicable. Hedge funds should be considered long-term investments. It is vitally important for the hedge fund investor to build a relationship with the hedge funds and their management in order to best understand their trading strategies, positioning and how that fund fits within the investor’s portfolio.

Managing a portfolio of hedge funds is just as much art as it is science and comes down to experience and a strong understanding of the strategies of the underlying managers and how they correlate to one another. It is important that within a portfolio you have true diversification. Managers should not all be making money at the same time otherwise the likelihood is that they are all correlated to one underlying risk factor. The skill is in identifying managers who, when there is a lack of opportunity in their strategy, do not chase returns and thus increase risk. This enhances the stability of returns within the overall portfolio, limiting drawdowns and allowing for the compounding of returns at the portfolio level. One of the most important aspects of managing a portfolio of hedge funds is understanding the right time to redeem. While hedge fund investments are ideally long-term in nature, changes in the investment landscape or at the asset manager can happen quickly, and the management of the portfolio requires an active approach.

The hedge fund cycle
The ability to offer exposure to a seasoned balanced portfolio of funds is a key benefit that a fund of funds can continue to offer to an underlying investor who does not possess the capital, experience and infrastructure to manage a portfolio directly. Importantly, however, a fund of hedge funds can offer an investor the ability to invest into the next generation of hedge fund managers. One of the major developments that we are witnessing is the ability to access a new array of talent leaving existing prominent firms and starting new hedge funds.

Having the necessary contacts and importantly experience allows a fund of funds a first mover advantage, where the prize is the ability to gain capacity as well as attractive fee breaks in talented managers when they are at their most nimble, asset wise. However, correctly identifying the right early stage manager requires experience.

Typically, a hedge fund requires a strong business model and a repeatable investment process. Having managed a successful hedge fund strategy, Headstart is in a position to better assess the trading hurdles, of which there are many that managers will inevitably encounter. Managing a hedge fund is as much managing a business as a trading strategy and requires a significant investment from the principals in both capital and time.

کتاب عملیات بانکی در عرصه بین الملل -سرفصل ها،ضمائم ،توصیه صاحب‏نظران ارزی و مدیران ارشد بانکی

Investment Consulting &Project Finance


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