VENTURE CAPITAL

The Appeal of Singapore Variable Capital Companies

The Variable Capital Company (VCC) is a relatively new corporate structure introduced in Singapore in 2020, designed specifically for investment funds.

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The Variable Capital Company (VCC) is a relatively new corporate structure introduced in Singapore in 2020, designed specifically for investment funds. Singapore has become one of the world’s leading locations for investment fund vehicles due to the relative ease of doing business, clear regulatory environment and attractive tax incentives for investment funds and fund managers.

This guide aims to provide you with a brief overview of VCCs, some of their benefits, and how they may be utilised effectively. You can view a more detailed guide to VCC’s here.

What is a VCC?

A Variable Capital Company (VCC) is a unique corporate structure that’s used to set up investment funds for families or investors. The funds can be used for a wide range of investment strategies, including mutual funds, hedge funds, private equity and real estate funds.

A VCC can be set up as a standalone entity or an umbrella entity with two or more sub-funds under it.

What are the Key Features of a VCC?

Flexibility

One of the most significant advantages of VCCs is their flexibility. They allow for a wide range of investment strategies and asset classes within a single legal entity and sub-funds can be faster and cheaper to set up than creating a new stand alone investment vehicle. The structure requires the assets and liabilities of each sub-fund to be segregated from other sub-funds, ensuring transparency for investors that assets and liabilities are not mixed between sub-funds.

Tax efficiency

A VCC can provide the benefit of access to Singapore's tax incentive schemes, such as the Enhanced-Tier Fund and Singapore Resident Fund Schemes. Assets aren't subject to capital gains or income tax, subject to qualifications. What's more, dividends paid to investors in Singapore are tax-free according to Singapore tax law, assuming the investor is tax resident in Singapore. If the investor is tax resident elsewhere, the dividends may be subject to tax in that jurisdiction.

You can read more about Singapore's tax incentive schemes here.

Ease of capital management

VCCs allow for the redemption of shares and payment of dividends from share capital without the need for shareholder approval. This provides investors with easier entry and exit from their investments, enhancing liquidity and flexibility, assuming the underlying assets in the fund are liquid.

Setting Up a VCC

Legal and regulatory requirements

VCCs must

  • be registered with the Accounting and Corporate Regulatory Authority (ACRA) in Singapore;
  • have its registered office in Singapore and appoint a Singapore-based company secretary;
  • have between one to three Singapore resident directors;
  • have all directors and investors pass AML/CFT checks;
  • Have their assets managed by a licensed or registered fund manager, approved by the Monetary Authority of Singapore (MAS);
  • be administered by a Singapore based fund administrator. This ensures the VCC is managed by professionals with strong credentials and adherence to regulatory standards.

Structuring options

VCCs can be structured in various ways to meet the specific needs of investors. They can be set up as:

Standalone VCCs: Suitable for single investment strategies or smaller funds.

Umbrella VCCs: Ideal for larger funds or those with multiple investment strategies. Each sub-fund within the umbrella VCC operates independently, with its own investment objectives and strategies.

How Can a VCC be Utilised?

Family offices

Family offices can leverage the VCC structure to manage and segregate the assets of high-net-worth families. The flexibility of the VCC allows for the creation of individual sub-funds for each family member or unit, tailored to their specific investment preferences and objectives. Centralisation of family governance and decision-making can occur at the Master Fund level, potentially enhancing the overall management of family wealth.

Institutional investors

Institutional investors, such as pension funds and insurance companies, can use VCCs to pool investments and diversify their portfolios. The ability to create multiple sub-funds within a single VCC allows for the implementation of various investment strategies, ranging from conservative to aggressive, within a single legal entity.

Private equity and venture capital

Private equity and venture capital funds can benefit from the VCC structure by creating sub-funds for different investment stages or sectors. This allows for targeted investment strategies and better risk management. The tax efficiencies and regulatory flexibility of the VCC also make it an attractive option for these types of funds.

Real estate funds

Real estate funds can use VCCs to hold and manage different property assets within separate sub-funds. This segregation of assets and liabilities provides transparency for investors and ensures an investors exposure is only to the particular sub-fund they invested in, and allows for more efficient management of the fund’s portfolio.

How Does Aura Group Singapore Set Up and Manage VCCs?

Aura Group is a Singapore-licensed fund manager, which makes us eligible to set up and administer funds for family offices and fund managers in Singapore. We use our existing umbrella VCC to create multiple sub-funds that are segregated from our other VCC sub-funds.

Aura Group Singapore can act as the fund manager for the VCC sub-fund and will work with the investors to implement their preferred investment strategy.

We have strong established relationships with administration providers, lawyers, accountants, auditors and banks that we can leverage to offer a smooth process to establish either a standalone VCC or create a sub-fund under our existing VCC structure.

Aura Group Singapore can also help families establish a family office to house their assets and manage their family wealth.

Speak to the team to discuss how a VCC may be able to help you manage your family wealth or set up and scale your fund management business.

Best regards,

Calvin Ng

Managing Director

This information is correct as at 01 July 2024 and may be subject to change. Read the latest information regarding VCCs here.

 


Important information

This information is for accredited, qualified, institutional, wholesale or sophisticated investors only and is provided by Aura Group and related entities and is only for information and general news purposes.  It does not constitute an offer or invitation of any sort in any jurisdiction. Moreover, the information in this document will not affect Aura Group’s investment strategy for any funds in any way. The information and opinions in this document have been derived from or reached from sources believed in good faith to be reliable but have not been independently verified. Aura Group makes no guarantee, representation or warranty, express or implied, and accepts no responsibility or liability for the accuracy or completeness of this information. No reliance should be placed on any assumptions, forecasts, projections, estimates or prospects contained within this document. You should not construe any such information or any material, as legal, tax, investment, financial, or other advice. This information is intended for distribution only in those jurisdictions and to those persons where and to whom it may be lawfully distributed. All information is of a general nature and does not address the personal circumstances of any particular individual or entity. The views and opinions expressed in this material are those of the author as of the date indicated and any such views are subject to change at any time based upon market or other conditions. The information may contain certain statements deemed to be forward-looking statements, including statements that address results or developments that Aura expects or anticipates may occur in the future. Any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected in the forward-looking statements. This information is for the use of only those persons to whom it is given. If you are not the intended recipient, you must not disclose, redistribute or use the information in any way.

Aura Group subsidiaries issuing this information include Aura Group (Singapore) Pte Ltd (Registration No. 201537140R) which is regulated by the Monetary Authority of Singapore as a holder of a Capital Markets Services Licence, and Aura Capital Pty Ltd (ACN 143 700 887) Australian Financial Services Licence 366230 holder in Australia.

 

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