What is a VCC?
A Variable Capital Company (VCC) is an alternative form of corporate vehicle that will soon become available for Collective Investment Schemes (CIS). Presently, the organisational structures available to CIS are the company, limited partnerships, and the unit trust structures. The VCC can be used for both open-ended and closed-ended alternative and traditional fund strategies. As a corporate vehicle with flexible capital, shares are created when investments are made, and the shares are readily redeemable by the shareholders. This kind of flexibility was lacking in the existing vehicle of corporations available under The Companies Act that has several restrictions when it comes to capital reduction and dividend distribution. This new vehicle, exclusively designed for the fund management industry, will strengthen Singapore’s position as a fund management hub in the region.
The idea of the new flexible investment fund structure was first floated in 2016 at the Investment Management Association of Singapore’s annual conference. Later in March 2017, the Monetary Authority of Singapore issued a public consultation to seek feedback on the various aspects of this new corporate structure. The Ministry of Finance announced in the 2018 Singapore Budget Statement that a VCC would be treated as a company and a single entity for tax purposes. On 10 September 2018, a draft bill for the VCC was presented for the first reading in the parliament, and the bill was subsequently passed in the parliament on 1 October 2018. The VCC Act will come into effect in 2019, and the date is yet to be notified. The VCC framework incorporates several key features of open-ended/flexible capital vehicles that are already available in jurisdictions such as Luxembourg, Ireland, the UK, and the USA.
Originally named as Open-End Investment Company (OEIC), it came to be known as Singapore Variable Capital Company (“S-VACC”). Now, it has been renamed again, as the Variable Capital Company.
The newly proposed structure has gathered a lot of interest in the fund management industry because of its unique features that will render operational flexibility to fund managers in Singapore. The following are key features of a VCC:
- It will be governed by the Variable Capital Companies Act (the Act). The Accounting and Corporate Regulatory Authority is the regulatory authority for the establishment and administrative purposes, and the Monetary Authority of Singapore (MAS) will oversee its anti-money laundering and countering the financing of terrorism obligations. The Securities and Futures Act will govern the offering of shares in a VCC and all other aspects concerning the VCC as a fund.
- VCC can be used for both traditional funds and alternative funds and can be used for retail investors or for restricted class investors.
- It can be used as a standalone fund, or an umbrella entity with multiple sub-funds that may have different investment objectives, investors as well as assets and liabilities.
Standalone fund: compromise of a single investment portfolio.
- Shares are redeemable without shareholders’ approval, and dividends are payable from the capital thus offering greater flexibility than corporations.
- It must appoint a fund management company (“FMC”) that is licensed or registered by MAS, or is an exempt financial institution in Singapore; this is to ensure substance as well as to prevent the misuse of the vehicle for unlawful purposes.
- Proof of substance must be demonstrated via a Singapore registered office, a Singapore resident company secretary and auditor, and at least one resident director;
- It must maintain an updated register of shareholders and disclose the information to the regulatory and law enforcement authorities upon request.
- VCCs offered to restricted investors (like accredited investors) can adopt various prescribed internationally accepted accounting standards like US GAAP, ASC Standard or IFRS.