The Singapore Variable Capital Company – What is a VCC?

Variable Capital Company (VCC) is a new legal entity form/structure for all types of investment funds in Singapore. It is the latest corporate innovation in the city state that allows for separate and distinct from the legislation that governs existing Singapore Companies. This prevents the VCC from any unintended consequence arising from changes in Company Act.

Traditionally, from our experience, fund managers have domiciled their investment vehicles offshore in jurisdictions such as the Cayman Islands. These jurisdictions were a tax haven for many investors as they sought relief from hefty capital gains tax. However, the Cayman Islands suffers from somewhat negative publicity. Launched in 2020, the Singapore VCC provides a much needed alternative jurisdiction for fund domiciliation.

VCCs can hold a single asset and as such, is not required to diversify its investments unless required under the Securities and Futures Act. A VCC can be used as a vehicle for both traditional funds and alternative funds, such as hedge funds, private equity funds, real estate funds and infrastructure funds. 

What are the requirements of a VCC?

  1. The share capital of a VCC will always be equal to the net asset value of the VCC. Thereby providing flexibility in the distribution and reduction of capital
  2. A VCC cannot be self-managed. It must be managed by a Singapore-based fund management company duly registered or licenced by the MAS under the SFA (unless exempted under regulations)
  3. Existing Securities and Futures Act (SFA) requirements for investment funds will apply to VCCs
  4. It must have at least one Singapore resident director for non-authorised schemes and at least three directors for authorised schemes
  5. It must have its registered office in Singapore and must appoint a Singapore-based company secretary
  6. It must be subjected to audit by a Singapore-based auditor and must present its financial statements as per IFRS, Singapore FRS, or US GAAP

Sub-funds and VCCs

VCC can be formed as a single standalone fund, or as an umbrella fund with two or more sub-funds, each holding different assets.

The features of the sub-funds are as follows:

  1. Allows for multiple sub-funds and share classes 
  2. Provisions for segregation of assets and liabilities between sub-funds – such that the asset of one sub-fund may not be used to satisfy liabilities of another sub-fund 
  3. VCCs with multiple sub-funds must have the same fund manager for all sub-funds 
  4. Winding up of an individual sub-funds does not mean umbrella fund is wound up 
  5. A VCC will be required to disclose in contractual documents with third parties which sub-fund referred to 
  6. A sub-fund of a VCC may invest in other sub-funds of the same VCC

Sub-funds provide fund managers with a cost-effective way of managing multiple funds under a single umbrella. While these sub-funds operate under 1 legal entity that is the VCC, the different funds have their own assets and liabilities. This provides an efficient way for fund managers to manage multiple funds.

What are the benefits of the VCC?

  1. By consolidating various assets under the fund structure, there will be economies of scale in terms of operational and tax efficiencies 
  2. Investor privacy as financial statements and investor details are not required to be made public 
  3. A VCC may issue shares of varying amounts and at times for payment of calls as agreed between its shareholders. VCC is allowed to freely redeem shares and pay dividends using its capital. 
  4. VCC allows for re-domiciliation of funds from other jurisdictions such as Cayman to onshore Singapore

Our Take

While we feel that the VCC is a much needed corporate structure, one that was previously lacking in Singapore’s sophisticated financial and legal landscape. However, the key for Singapore’s successful execution and introduction of the VCC to leading fund managers lies in the ability for the VCC to explicitly articulate its benefits over the Cayman entity. The Cayman entity has been adopted by fund managers for years. Even though there are tax benefits and incentives, relying on this merely places the Singapore VCC on par with the Cayman entity. Instead, Singapore should focus the explicit benefits that come with consolidating fund management activities and the fund in the same jurisdiction. Quantifying the benefits of both the fund manager and the fund being in the same jurisdiction would help with marketing the VCC.