Setting up a fund in Singapore? You’ve probably come across the Variable Capital Company or VCC in Singapore. It’s not just a buzzword tossed around in finance circles. The VCC is a flexible legal structure designed for funds of all shapes and sizes. But here’s where things can get a bit knotty: should your fund be open-ended or closed-ended? Let’s iron that out.
What Is a VCC, Really?
Before diving into fund types, let’s get the basics straight. A Variable Capital Company is a corporate structure that lets fund managers incorporate either a single fund or multiple sub-funds under one umbrella. This structure is designed specifically for investment funds and offers benefits like capital flexibility, operational efficiency, and the ability to maintain investor confidentiality.
Singapore introduced the VCC framework to attract global fund managers and give them a homegrown option for structuring funds. A VCC in Singapore can be used for traditional funds, hedge funds, private equity, and even ESG-focused investments.
But all VCCs are not created equal. You have two flavours to pick from: open-ended and closed-ended. And the choice isn’t just cosmetic.
Open-Ended VCCs: Open to Action
An open-ended Variable Capital Company is like a revolving door; investors can jump in and out, and the capital changes with them. The company can issue new shares or redeem existing ones as needed, based on investor demand.
This is perfect for funds that offer regular liquidity, like unit trusts or mutual funds. If your strategy is to provide continuous access to your fund, the open-ended route fits like a glove.
Open-ended VCCs allow investors to redeem their shares anytime, provided the fund’s terms allow it. Fund managers don’t have to call for an extraordinary general meeting just to change the capital; it adjusts automatically. It’s fast, it’s flexible, and it makes investor onboarding less of a bureaucratic maze.
But it’s not all smooth sailing. Managing liquidity can be tricky, especially when multiple investors want out at the same time. You’ll need robust policies, proper forecasting, and some nerves of steel.
Closed-Ended VCCs: Closed for Calm
Now, for the other side of the coin. A closed-ended Variable Capital Company doesn’t allow investors to redeem shares on demand. Instead, redemptions happen at set intervals or after a fixed investment period. It’s more of a long-haul commitment.
This setup is a natural fit for private equity, venture capital, or real estate funds, essentially, investments that need time to grow and aren’t easily liquidated. A closed-ended VCC gives fund managers breathing room to deploy capital without constantly worrying about redemptions.
Investors know they’re locked in for a set period, so everyone’s playing the long game. It’s less about daily fluctuations and more about steady, strategic returns.
There’s also more predictability. Managers can plan exits, acquisitions, and asset sales without sudden changes in capital. That said, you do lose the appeal of immediate liquidity, which might not sit well with investors who prefer a quicker escape route.
Same Umbrella, Different Forecasts
Here’s where the VCC model shines, whether open or closed, both types can sit under one VCC umbrella if you’re running multiple sub-funds. So if you want an open-ended growth fund and a closed-ended real estate play, you can park both under one entity. That saves on costs, simplifies compliance, and makes life a bit easier when juggling different strategies.
Also, the VCC in Singapore enjoys access to tax exemption schemes under Sections 13O and 13U of the Income Tax Act. These perks apply whether your fund is open or closed. Just make sure your fund is managed by a licensed fund manager, and you’ll be set for compliance.
What About Governance?
Both open-ended and closed-ended VCCs must follow the same compliance standards laid out by the Monetary Authority of Singapore. That includes AML requirements, local fund management oversight, and the appointment of a Singapore-based company secretary. You’ll also need a custodian for safekeeping of assets and a fund administrator if you’re running a large operation.
The difference lies mainly in how the capital behaves, how investor exits are handled, and what kind of assets you’re looking to invest in.
Which One Should You Pick?
Here’s the golden question: which type should you go for?
If you’re dealing in public markets and want to allow investors to enter and exit freely, then open-ended makes sense. It gives you flexibility and keeps things liquid.
If you’re managing long-term strategies like infrastructure or early-stage startups, a closed-ended VCC will be your best mate. It helps avoid forced sales of illiquid assets and gives your team the time to work toward your investment thesis.
It’s not about which is better. It’s about which fits your strategy, your investor base, and your comfort with liquidity.
Pick Your Path: Open-Ended or Closed-Ended?
Choosing between an open-ended and a closed-ended Variable Capital Company comes down to the nature of your fund and the needs of your investors. Each structure offers its own perks and pitfalls. Open-ended VCCs provide flexibility and ease of access, ideal for funds that value liquidity. Closed-ended VCCs allow for long-term planning and strategic investment, better suited for assets that need time to mature.
Understanding the differences can help fund managers in Singapore structure their operations more efficiently and make use of the advantages that a VCC in Singapore brings to the table. It is not about which one is superior, but which one is appropriate.
Not sure which direction to take? Contact VCC HUB to explore tailored VCC solutions that align with your investment strategy, operational needs, and compliance obligations.
