The Variable Capital Company (VCC) is a new legal entity structure for investment funds to be domiciled in Singapore. There are several key features of the Variable Capital Company which we explain in this article.
The VCC funds can be either open-ended or close-ended. There is no restriction on the type of fund strategies and it can be used for both traditional and alternative fund strategies.
Previously, one has to set up an investment fund in the forms of a company under the Companies Act or as a unit trust or a limited partnership. These structures faced restrictions and resulted in operational difficulties for investment funds to be domiciled in Singapore. With the VCC structure, these restrictions are removed and, thereby, making it more attractive for funds to set up in Singapore.
The VCC Act is legislated in October 2018 and the VCC corporate structure is targeted to be launched in the fourth quarter of 2019. This is a game-changer legislation for the fund management industry in Singapore as funds now have a corporate structure that is designed specifically for investment funds.
With the VCC, Singapore could compete against popular fund domiciliation hubs such as the Cayman Islands, Dublin, and Luxembourg. These hubs typically exist outside Asia. Thus, Singapore is in a unique position as it will be the only fund hub that exists in Asia.
To further compete against other jurisdiction, the VCC Act also support re-domiciliation. Foreign corporate entities set up as funds could be re-domiciled as VCCs in Singapore
We highlight key features of the Variable Capital Company below:
Stand-alone Entity
VCC can be set up either as a stand-alone entity or an umbrella entity. As a stand-alone entity, the VCC will act as one singular fund holding all the assets and liabilities
Umbrella Entity
VCC can be set up like an umbrella entity with multiple sub-funds. This is a cellular structure with sub-funds operating as separate cells without a legal impact on each other. The assets and liabilities of each sub-funds are segregated i.e. assets of a sub-fund cannot be used for the umbrella VCC or any other sub-fund. Likewise, any liability of a sub-fund can only be discharged against the assets of that sub-fund. Such structure serves to prevent against cross-cell contagion.
This feature offers operational flexibility as it allows multiple sub-funds with different investment strategies. It also reduces the need to set up individual legal entities but instead, one entity can perform multiple investment purposes.
Varying Capital Structure
The VCC has a varying capital structure and allows shares to be redeemed at Net Asset Value (NAV) of the fund. The NAV will always be equivalent to the value of paid-up share capital in the VCC.
Shares can be issued and redeemed without the need for shareholder approval. This is a huge difference to traditional company structure where it is a tedious task to reduce the share capital. Either a court order needs to be filed or the directors have to provide a solvency statement before the share capital of the company can be reduced.
Flexibility in dividend payments
There is flexibility in paying dividends for VCC. Dividends are allowed to be paid out from the capital of the fund, and this can be decided by the investment manager. In contrast, a traditional company structure can only pay dividends out of profits.
Annual General Meeting
VCC need not hold an Annual General Meeting (AGM) provided the directors gives written notice to the shareholders at least 60 days in advance. A shareholder with 10% or more of the total voting rights could request for an AGM provided written notice is given to the VCC at least 14 days before the required date of the AGM.
Register of VCC
The register of members of a VCC is not available to the public. It is only accessible by the fund managers as well as the custodian. Public authorities such as Accounting and Corporate Regulatory Authority (ACRA) or Monetary Authority of Singapore (MAS) could access the register upon request.
Master-Feeder structure
VCCs allows the existence of a single shareholder. This will allow the operation of a Master-Feeder structure where the Master fund automatically subscribes to another Feeder fund.
Shared resources
Sub-funds can share a board of directors and service providers such as the fund manager, custodian, auditor, and administrative agent. This would benefit fund managers who may wish to group different funds under a single VCC umbrella. This makes umbrella VCC a cost-effective platform as resources are shared among the various sub-funds.
For more information, readers can also refer to the requirements of VCC.
