Case Study: VCC Advisory Services Supporting Fund Structuring and Launch in Singapore

Background on Case Study VCC Advisory Services

To address several investment strategies, a group of investment management was planning to start a flexible platform of funds in Singapore that would target institutional and accredited investors. As a growth strategy in the long-term, the group considered the Variable Capital Company (VCC) structure as the most appropriate vehicle because of the flexibility, tax efficiency, and the possibility to have several sub-funds under one legal entity.

Although members of the management team were experienced in the management of investment funds, they were not exposed to the VCC framework that was being introduced as per the Singapore law. The VCC regime brings on new structural, regulatory, and governance issues especially regarding segregation of funds, shareholdings, and continued compliance requirements.

In order to have the VCC organized properly at its inception and aligned to the regulatory and commercial goals, the group has hired our VCC Advisory Services in Singapore to offer end-to-end services on structuring to operational-readiness.

Issues and Challenges

The creation of VCC did not go without certain technical and functional challenges, which needed to be put into focus.

The difficulty in deciding on the best VCC structure was one of them. The group had to choose whether to start a VCC on its own or an umbrella VCC which has several sub-funds that may have different investment plans. This choice also affected the aspects of governance, cost-efficiency, and scalability in the future.

One more issue was regulatory alignments. MAS-regulated fund managers have to manage VCCs and meet certain statutory requirements according to the VCC Act. The group required an understanding on how these requirements were implemented in practice, especially concerning the responsibilities of directors, rights of shareholders and disclosure rights.

There was also concern on fund segregation and protection of assets. The VCC structure allows isolation of assets and liabilities among sub-funds, and this must be well written, operational controls and accounting procedures must be properly laid out.

Another problem that the group encountered was documentation preparedness. The process of the incorporation of VCC possesses a number of documentation tiers comprising constitutional documents, sub-fund provisions, service provider agreements, and operational policies. It was very important to be consistent in these documents.

Last but not least there was the risk of coordination. The VCC setup process has several parties such as fund managers, fund administrators, fund custodians, fund auditors and legal consultants. Lack of congruence between parties may result in time wastage or inefficiency of structures.

Objectives

The main aim of the engagement was to promote a successful initiation of a Variable Capital Company in Singapore complying with the group investment strategy, governance requirements, and regulatory standards.

Particularly, the group intended to:

• Build a VCC to fund the present and future.
• Make sure that the VCC Act and MAS requirements are met.
• Provide proper governance and control structures.
• Post effective asset and liability segregation mechanisms.
• Copy comprehensive and consistent VCC documentation.

The advisory service was to be realistic, scalable, and appropriate in the development of a long-term fund platform.

How We Helped

Our formal and regulatory-compliant advisory strategy to VCC was based on the investment goals and operating model of the client.

We started by arranging an assessment of VCC structuring. We collaborated with the management to consider the appropriateness of a standalone or umbrella VCC structure bearing in mind the investor profiles, diversification of the strategy, efficiency of costs as well as the introduction of future funds.

According to this analysis, we have created a comprehensive VCC set up roadmap, which includes important incorporation stages, regulatory obligations, documentary milestones, and responsibilities of stakeholders. This roadmap gave the management a clear picture of the process as a whole and timelines.

We assisted in the formulation of governance and supervision plans. This involved direction on composition of directors, role of boards, conflict management and decision making frameworks that were in line with the statutory requirements and best practices of VCC.

Much of the involvement paid attention to the development and coordination of documentation. We helped prepare and review the core VCC documents, such as VCC constitution, sub-fund provisions and internal governance policies. The focus was put on the confirmation of the compliance of legal, operational and regulatory requirements.

We also recommended fund segregation mechanisms, whereby we co-operated with the client and service providers to ensure that the accounting systems, operations and reporting structures were correspondingly sensitive to sub-fund level segregation of assets and liabilities.

Simultaneously, we assisted with bringing on board and coordinating the essential service providers, including fund administrators, custodians, and auditors. This assisted in making sure that operational arrangements were in line with the VCC set up at the very beginning.

During the engagement, we collaborated with the management a lot in clarifying the regulatory expectations, in real terms, allowing informed decision-making and minimizing the execution risk in the setup phase.

Value Delivered

This case study explains how investment managers can be assisted by professional VCC Advisory Services in Singapore to create flexible and scalable fund structures.

The involvement assisted the client in clarifying strategic structuring choices, enhancing governance frameworks, and regulatory segmentation under the VCC regime through systematic and consistent advisory method. The process of establishing the VCC also helped in promoting discipline in operations and internal knowledge of current statutory obligations.

The advisory model created as a result of this connection gave a solid base to initiate, run and grow investment funds in the Singapore VCC ecosystem.