Family offices set up under the 13R and 13X scheme can also utilise the Variable Capital Company (VCC) structure which was introduced on 14 January 2020. This new corporate structure is constituted under the “VCC Act”, administered by Accounting and Corporate Regulatory Authority (ACRA), while coming under the purview of MAS. Just as the Undertakings for Collective Investments in Transferable Securities (UCITS) transformed the investment fund landscape in Europe, the VCC is touted as a “game-changer” for Singapore’s fund industry, as it pits itself against those of other well-known international fund domiciles.
This new corporate entity allows great flexibility; can be used as vehicles for both open-ended and close-ended strategies across traditional and alternative strategies. One of VCC’s most interesting features is encapsulated by its name “variable capital” which means that assets and liabilities of the investment fund is measured at fair value, which equates to its net asset value (NAV), thereby providing flexibility in distribution which can be made out of capital or income. It also bypasses the need to conduct a solvency test prior to the repayment of capital, which had been the case with corporates.
Unlike a corporate structure, where financial statements and shareholder lists can be easily retrieved from the ACRA website, there is no obligation for a VCC to make such information publicly available, thus confidentiality is preserved, and it could be valuable as a wealth management vehicle for family offices. The VCC requires an engagement of local service providers to maintain substance in the local structure, including a Singapore based licensed/regulated fund manager, this means that a single family office which is exempted from licensing from MAS will not be able to solely manage a VCC, however, they would be able to work with qualified fund managers. Instead of going through the lengthy process of acquiring such regulatory requirements, and substantial resources to employ investment expertise and to establish infrastructure, single family offices may outsource the asset management activities to a qualified fund manager who can help set up a VCC on their behalf.
For the sake of transparency, a family member can be appointed to be a director of the VCC. The VCC can be set up as a standalone or umbrella entity with multiple subfunds, serving as a pooling and investing vehicle, thereby dispensing with multi-tiered fund structures. Provisions stipulate that underlying assets and liabilities are ringfenced such that cross-contagion risk may be mitigated. Single family offices managing extended family’s assets would be able to set up various sub- funds which each has a customized asset allocation based on the individual risk profiles. This way, the single family office would be able to cut down costs as each VCC entity would only need to fulfil one set of requirements (one business plan, three investment professionals, one set of accounting, corporate secretary, tax filing fees).
To encourage the development of VCCs, the Singapore government has announced that it will be co-funding 70% of qualifying launch expenses (up to SGD150k and 3 VCCs per fund manager), until 14th January 2023. Since its introduction just five months ago, the fund industry has embraced this development, with 72 VCCs launched, as of 30 June 2020.