Some Key Features of VCCs

A key feature of the VCC is that it may be incorporated either as a standalone fund that consists of a single investment portfolio, or an umbrella fund with multiple sub-funds, each with their own investment portfolio.

Illustration of a Standalone VCC

Illustration of an Umbrella VCC

In an umbrella VCC, the VCC is a single legal entity with its sub-funds operating as separate cells with no legal personality. Only the VCC has to be incorporated - each sub-fund may be constituted by registration with the Accounting and Corporate Regulatory Authority (“ACRA”).

Each sub-fund of the umbrella VCC may have different investment objectives and different investors. However, an investor may invest in more than one sub-fund of the VCC (as seen in the illustration). The assets and liabilities of each sub-fund are to be segregated and the assets of a sub-fund cannot be used to discharge the liabilities of the VCC or another sub-fund of the VCC.

To mitigate against the risk of cross-cell contagion, under the Variable Capital Companies Act 2018 (“VCC Act”), any provision of the constitution of an umbrella VCC, or any agreements and/or contracts entered into by the VCC, is void to the extent that it is inconsistent with the principle of segregation of assets and liabilities. Further, an umbrella VCC is required to disclose the fact that the assets and liabilities of its sub-funds are segregated before entering into any agreements.

Other Key Features of a VCC

Flexibility in issue and redemption of shares

There is no requirement for shareholder approval to be obtained, solvency tests, or other cumbersome capital reduction procedures before shares may be issued or redeemed
This is done by imposing a requirement that shares may only be issued and redeemed at net asset value (other than during the initial offer period of the shares). Since net asset valuation is based on assets less liabilities, liabilities will always be accounted for in the price of redemption and this helps to safeguard the interests of creditors
VCCs will still retain the flexibility to adjust fees and charges (to account for transaction costs, default remedies, liquidity risk management etc)

Dividends may be paid out of capital

No requirement for dividends to be paid out of profits only

Privacy

Register of members of a VCC need not be disclosed to the public, and it is maintained by the VCC
Financial statements need not be disclosed to the public

Availability of tax incentives

Tax incentives available to current investment structures domiciled in Singapore are extended to VCCs (13O and 13U tax incentives).
The tax incentives apply at the umbrella level, so each sub-fund does not have to individually satisfy the pre-requisites of the tax incentives
The financial sector initiative – fund management award, which allows a Singapore fund manager to enjoy a concessionary tax rate, also applies to fund managers of VCCs

Separate winding up of sub-funds

A sub-fund may be wound up as if it were a separate legal person
This is to ensure ring-fencing of each sub-fund’s assets and liabilities, and to ensure that claims of creditors will only be discharged out of assets of that sub-fund and the assets of another sub-fund will not be used to discharge any liabilities of that sub-fund

Consolidation of service providers

Only one director is required for the VCC
By appointing the same set of service providers across sub-funds (e.g auditor, administrator, custodian), the VCC can reap economies of scale and save costs

Inward re-domiciliation as a VCC is allowed

A fund domiciled in another jurisdiction that is similarly structed as a VCC may be re-domiciled in Singapore

Can be used for both open-ended and close-ended strategies

The VCC and its sub-funds may be opened-ended or close-end funds, as long as the rights of and limits to redemption of shares of the VCCs and the sub-funds are set out in the VCC’s constitution