A new structure is now operating in Singapore: Variable Capital Companies. This article briefly delves into the detail of how they work and what they are used for.
The Variable Capital Company is a new corporate structure for investment funds, constituted under the Variable Capital Companies Act, which took effect recently. The legislation is administered by the Accounting and Corporate Regulatory Authority but the Monetary Authority of Singapore will administer VCCs for anti-money-laundering purposes.
Every VCC must be managed by a Permissible Fund Manager. Generally speaking, a VCC has to be managed by a fund manager which is a licensed fund management company (i.e. a holder of a capital markets services licence for fund management under section 86 Securities and Futures Act (Cap. 289)), a registered fund management company (i.e. a corporation exempted from holding a capital markets services licence under paragraph 5(1)(i) Schedule 2 Securities and Futures (Licensing and Conduct of Business) Regulations) or a person exempted under ss99(1)(a-d) Securities and Futures Act (Cap. 289) from the requirement to hold a capital markets services licence to do business in fund management (i.e. a bank licensed under the Banking Act (Cap. 19), a merchant bank approved under the Monetary Authority of Singapore Act (Cap. 186), a finance company licensed under the Finance Companies Act (Cap. 108), or a company or co-operative society licensed under the Insurance Act (Cap. 142)).
A VCC has a variable capital structure that provides flexibility in the issuance and redemption of its shares. It can also pay dividends out of capital, which gives fund managers plenty of leeway when they are trying to meet their obligations to pay dividends.
A VCC can be set up as a single stand-alone fund or an umbrella fund with two or more sub-funds, each holding a portfolio of segregated assets and liabilities. For fund managers that structure their funds as umbrella VCCs, there may be cost efficiencies from using common service providers across the umbrella and its sub-funds.
A VCC can be used for both open-ended and closed-end fund strategies. An open-ended fund allows investors to redeem their investments at their discretion, while a closed-end fund does not permit investors to do so. Closed-end funds also have a fixed number of shares and do not allow new subscriptions after the offering period is over, while open-ended funds are open to new subscriptions by new investors at any time.
Fund managers may incorporate new VCCs or re-domicile their existing overseas investment funds with comparable structures by transferring their registration to Singapore as VCCs.
Every VCC must keep up a register of shareholders, which it need not make public. The authorities must be able to see it whenever they like.