The eagerly anticipated Variable Capital Company ("VCC") structure went 'live' on 14 January 2020 with the commencement of the Variable Capital Companies Act ("VCC Act"). Its introduction heralds a new fund vehicle into Singapore's jurisprudence, in addition to the existing Singapore private limited company, limited partnership and unit trust structures.
Much has been written about the VCC which aims, primarily, to overcome cumbersome rules in returning capital and income to investors from a corporate entity whilst, at the same time, offering not just limited liability protection but the much-vaulted segregation of assets and liabilities between sub-funds (or cells) of a VCC .
In our numerous discussions with clients and the regulator leading up to the VCC's launch, we've observed certain key features which underpin the attractiveness of the VCC.
a) Principal tenets of the VCC structure (such as the 'segregation' principle) are statutorily protected and cannot be derogated from. This will invariably reduce negotiations with counterparties to secure the same treatment in your contracts.
b) Dividends can be distributed and capital can be redeemed/ repurchased out of a cell's net asset value (as opposed to profit).
c) The VCC can be utilised for a variety of purposes to suit each manager's requirement, be it as a standalone fund vehicle or an umbrella fund structure, or indeed to house closed-ended or open-ended strategies . The pilot batch of VCCs includes venture capital, private equity, hedge and Environmental, Social and Corporate Governance ("ESG") strategies.
d) As a corporate entity, the VCC has access to Singapore's extensive double-tax treaty network, simplifying a fund's downstream investment holding structure which regularly employs the use of Singapore special purpose vehicles ("SPVs"). This results in both monetary cost-savings and reduces administrative workloads from, for example, setting up and maintaining seven SPVs with a separate board of directors, calling of meeting and preparation of financial statements requirements.
e) As the VCC's constitution and register of members are not publicly accessible, investor confidentiality is preserved.
f) Sub-funds of a VCC can be created with minimal fuss, requiring only the approval of the VCC's Directors without the need for members' approval.
g) Sub-funds are wound up independently of each other, ensuring the ring-fencing of assets and liabilities between sub-funds.
h) The fund tax incentives, commonly referred to as the Sections 13R and X incentives, may be applied for and, more importantly, the incentive conditions relating to annual spend and personnel recruitment will apply at the VCC and not the sub-fund level.
i) The VCC regime promotes not just the establishing of new funds but also the re-domiciliation of similar foreign umbrella fund structures (such as the Cayman segregated portfolio cell company) into Singapore.
j) The Monetary Authority of Singapore recently announced that it would co-fund up to 70% of 'eligible expenses' paid to Singapore-based service providers, up to a cap of S$150,000. This certainly helps to defray establishment costs and underscores Singapore's commitment to making the VCC a success.
Watch this space as we continue to publish more insights on the VCC, as we continue working with fund sponsors, investors and family offices to structure their VCCs from an optimal legal, regulatory and tax perspective.
