The Variable Capital Company

The concept of Variable Capital Companies (VCCs) was first introduced by the Minister of Finance in his budget speech of financial year 2020- 2021.

A VCC is a new product being added to the list of products proposed by the Mauritian financial sector. The VCC is an entity incorporated under the Companies Act 2001 and which carries out its activities through a single fund, various sub-funds, and/or Special Purpose Vehicles (“SPVs”), within the same entity, facilitating the segregation and ring-fencing of assets and liabilities of each of the sub-entities. A VCC needs to be authorised by the Financial Services Commission (the “FSC”) as a VCC Fund according to the Variable Capital Companies Act 2022 (“VCC Act”).

The VCC provides greater flexibility and efficiency by streamlining management and operations by way of a single entity. VCCs provide a lot of flexibility for various kinds of investments and can be useful in setting up private equity businesses, open or close-ended investment funds and special funds such as hedge funds and venture capital funds. VCCs may also be used for multi-family offices, which are currently being incorporated as protected cell companies (PCCs), as they provide greater flexibility in that the sub-funds may have a distinct legal personality, and the kind of services being provided by a VCC is not restricted by law.

The FSC can approve the operation of a sub-fund as a Collective Investment Scheme (“CIS”) or a Closed-End Fund (“CEF”). The fund manager of a VCC can thus, under one single entity, manage a collective investment scheme sub-fund and a closed-end sub-fund. There is no restriction on the number of sub-entities that can be created under a VCC structure, although the creation of a sub-entity requires the prior approval of the FSC.

A VCC is governed by the VCC Act but is incorporated under the provisions of the Companies Act 2001 and is required to comply with all the provisions of the Companies Act 2001 that are not expressly excluded under the VCC Act.

A VCC is now added to the definition of ‘financial institution’ under the Financial Intelligence and Anti-Money Laundering Act and a VCC has to fully comply with the AML/CFT laws of Mauritius.

Types of sub-funds that can be operated by a VCC Fund

  • The sub-fund of a VCC fund may operate as a CIS or a CEF of any category, subject to the approval of the FSC.
  • It may elect to have a separate legal personality from that of the VCC fund. For example, the sub-fund can be approved to operate as a CIS and an Expert Fund. It will be required to comply with all the relevant Acts, Rules and Guidelines as applicable (Financial Services Act (the “FSA”), Securities Act, Securities (Collective Investment Schemes and Closed-End Funds) Regulations 2008, relevant FSC Rules and Guidelines applicable to a/an CIS/Expert Fund).
  • The sub-fund of the VCC Fund can also act as a Feeder Fund or a Master Fund. The feeder fund is a fund that pools investment capital and invests it into a master fund. The master fund invests in the market, makes portfolio investments, and trading in securities. An investment advisor, in turn, handles all the investments.

Features of a VCC:

  • Set up: A company already incorporated in Mauritius may be converted into a VCC and a company incorporated in a foreign jurisdiction may be redomiciled to Mauritius as a VCC.
  • Sub-entities: There is no limit to the number of sub-entities that can be created by a VCC under the VCC Act. However, the creation of any sub-entity requires the prior approval of the FSC. An SPV established by a VCC is not permitted to operate as a fund but instead is required to operate as an ancillary vehicle to the VCC or a sub-fund of the VCC.
  • Directors: Unless otherwise stipulated, the directors of the VCC shall be the directors of each of its sub-funds or special purpose vehicles. The VCC can also appoint different directors for each sub-entity, if its constitution permits, providing for a flexible management structure.
  • Record keeping: A VCC is required to maintain additional records in respect of each of its sub-entities by following the VCC Act. The records must sufficiently explain the transactions and financial position of the VCC and its sub-entities.
  • Segregation of assets: Setting up a VCC provides the benefit of segregation of assets and liabilities of each of its sub-entities: The VCC Act provides that the assets of a particular sub-entity cannot be used to discharge the liabilities of another sub-entity. Every asset attributable to a sub-entity can only be made available to the creditors of the VCC who are creditors in respect of that sub-entity, and as such will be protected from other creditors of the VCC, irrespective of whether a creditor is a statutory, regulatory, or government body.
  • Activities to be conducted by a VCC: There is no restriction on the types of activities that can be conducted by a VCC, as compared to, for example, a PCC, which can only conduct such activities as are provided for under the Protected Cell Companies Act 2000 of Mauritius.
  • Where required, a sub-fund may appoint its own CIS Manager, CIS administrator, custodian, or other service provider or a VCC can appoint one CIS Manager, CIS administrator, custodian, or other service providers for all its sub-funds.
  • A VCC can share its board of directors with the boards of its sub-funds.
  • A single money laundering reporting officer or compliance officer can be appointed for all sub-funds.

For more information and advice, please contact us.