Singapore’s position as Asia-Pacific’s premier asset management hub is backed by official market data. According to the Monetary Authority of Singapore (MAS) Asset Management Survey, total industry Assets Under Management (AUM) expanded to S$6.7 trillion, driven by strong net capital inflows and a network of 1,320 licensed fund managers. Furthermore, over 1,400 Variable Capital Companies (VCCs) representing thousands of sub-funds are now active in the ecosystem, proving that global hedge fund managers are prioritizing Singapore as their strategic operational base.

Setting up a hedge fund in Singapore requires navigating the regulatory requirements enforced by MAS, selecting the right corporate structure, and securing tax exemptions under the Income Tax Act.

What Defines a Hedge Fund Under MAS Criteria?

A hedge fund is an investment vehicle designed to generate positive returns (“absolute return”) across varying market conditions. The Monetary Authority of Singapore (MAS) generally characterizes hedge funds by two main attributes:

• Active Use of Complex Strategies: The employment of arbitrage, leverage, derivatives, short-selling, or market-neutral strategies.
• Non-Mainstream Asset Exposures: Investments extending beyond traditional equities and fixed income into alternative, illiquid, or non-mainstream assets.

Onshore vs. Offshore Hedge Fund Structures

Fund managers can structure their hedge fund as either an onshore or offshore entity:

• Onshore Funds: Incorporated in Singapore (most commonly utilizing the Variable Capital Company or VCC vehicle) and regulated directly under local tax and legal frameworks.
• Offshore Funds: Domiciled in traditional offshore jurisdictions (such as the Cayman Islands or Bermuda) but managed by an MAS-licensed fund management company operating in Singapore.

Licensing Requirements for Singapore Hedge Fund Managers

Under the Securities and Futures Act (SFA), any company conducting fund management activities in Singapore must hold a Capital Markets Services (CMS) Licence for Fund Management issued by MAS, unless specifically exempted.

Key Criteria for an A/I LFMC Licence

To qualify for an A/I LFMC licence to manage hedge fund strategies, the manager must meet strict operational and governance criteria set out under the MAS Securities and Futures Act regulations:

• Target Investor Base: Limited exclusively to Accredited Investors (AIs) and Institutional Investors (IIs).
• Minimum Base Capital: S$250,000, along with ongoing risk-based capital requirements.
• Local Governance: At least two Singapore-resident executive directors with relevant financial markets experience.
• Substance & Compliance: Physical office presence in Singapore, robust risk management frameworks, independent compliance oversight, and annual external audits.

For a deeper analysis of licensing requirements, read our detailed guide on the overview of fund management licenses in Singapore.

Popular Corporate Structures: The Variable Capital Company (VCC)

Introduced by MAS and ACRA, the Variable Capital Company (VCC) framework has become the standard corporate vehicle for Singapore hedge funds. A VCC allows fund managers to structure umbrella funds with multiple sub-funds under a single corporate entity, segregating assets and liabilities between each sub-fund.

Key Advantages of the VCC Structure

• Capital Flexibility: Shares can be issued and redeemed at net asset value (NAV) without shareholder approval, facilitating smooth investor subscriptions and redemptions.
• Privacy: The VCC’s register of shareholders is not accessible to the public (though accessible to regulatory authorities).
• Cost Efficiency: Multiple hedge fund strategies or share classes can be consolidated into sub-funds under a single umbrella VCC structure.

For assistance with structuring your fund management entity or VCC vehicle, explore Alder’s compliance support services.

Singapore Tax Exemption Schemes for Hedge Funds

Singapore offers attractive tax exemption schemes under the Income Tax Act for funds managed by a Singapore-based LFMC. When qualifying criteria are met, “specified income” derived from “designated investments” (such as stocks, bonds, and derivatives) is exempt from Singapore corporate tax in accordance with IRAS tax incentive frameworks.

• Section 13D (Offshore Fund Scheme): Applies to offshore fund structures managed by a Singapore-based manager. Does not require formal approval from MAS, provided the fund meets specific non-residency conditions.
• Section 13O (Onshore Fund Tax Exemption Scheme): Formerly known as Section 13R, this scheme applies to Singapore-incorporated funds (including VCCs). Requires formal application to MAS, a minimum fund size threshold (S$10m at launch, growing to S$20m within two years), and a minimum annual local business expenditure of S$200,000.
• Section 13U (Enhanced-Tier Fund Tax Exemption Scheme): Formerly known as Section 13X, this scheme accommodates both onshore and offshore funds with a minimum fund size of S$50m at the time of application. It offers maximum operational flexibility and accepts a broader range of legal structures.

Step-by-Step Process to Launch a Hedge Fund in Singapore

1. Entity Incorporation: Incorporate the fund management company (FMC) and the fund vehicle (e.g., VCC) via ACRA.
2. MAS Licence Application: Prepare and submit Form 1A via the MAS portal to apply for a CMS Licence (A/I LFMC).
3. Infrastructure & Service Providers: Appoint mandatory service providers, including a Singapore-licensed custodian, independent fund administrator, external auditor, and legal counsel.
4. Tax Incentive Application: File for Section 13O or Section 13U tax exemption status with MAS if applicable.
5. Launch & Capital Raising: Upon receiving In-Principle Approval (IPA) and final licence issuance from MAS, execute fund documents (PPM) and commence capital raising.

Frequently Asked Questions (FAQs)

How Alder Can Help Launch Your Hedge Fund

Alder assists emerging and established fund managers with end-to-end support for launching hedge funds in Singapore. From structuring your FMC and preparing MAS CMS licence applications to drafting internal AML/CFT compliance frameworks and filing for Section 13O/13U tax exemptions, our team ensures a seamless setup process.

Contact Alder’s regulatory advisory team to discuss your hedge fund setup today.

This article is for general information only and does not constitute legal or regulatory advice.