The Mauritius Financial Services Commission (FSC) published, on 12 October, a draft Variable Capital Companies (VCC) Bill on its website for consultation. The Bill aims to provide a legal framework for the incorporation, conversion, structure, operation and termination of VCCs in Mauritius.
The proposed introduction of VCCs was first announced as part of the National Budget Speech 2020–2021 in June and is intended to further enhance the competitiveness of the financial services sector and diversify the product base of the Mauritius International Financial Centre (IFC).
The VCC is a corporate structure that can be used for a wide range of investment funds and provides fund managers with greater operational flexibility and cost savings. It can be set up as a standalone entity (similar to a company) or as an umbrella entity with multiple sub-funds.
In the umbrella structure, each sub-fund of the VCC can have different shareholders and investment objectives and is completely segregated from other sub-funds in respect of its assets and liabilities, thereby preventing any contagion issues. Sub-funds can hold shares in other sub-funds of a VCC, which gives the ability for investors or family members to invest into parts of the structure as they see fit.
This sub-fund structure enables a single VCC to be used in place of multiple companies and trusts typically found in a group structure. The VCC can share a board of directors, a fund manager, auditors and other administrative agents, which provides significant economies of scale. The VCC can begin as a standalone fund with one pool of shareholders and assets, and further sub-funds can be added later.
A VCC offers greater flexibility in respect of share issuance/redemption and the payment of dividends, and cost efficiencies can be achieved where sub-funds share the same service providers and custodians but have segregated assets and liabilities.
Fund managers can constitute investment funds as VCCs across both traditional and alternative strategies, and as open-ended or closed-end funds. Open-ended funds – typically used by hedge funds – allow investors to redeem investments at their discretion, while close-end funds – typically used by private equity funds – restrict an investor’s ability to redeem investments during the life of the fund.
The VCC structure can be used for all types of investments funds – including mutual funds, hedge funds, private funds, private equity and real estate funds – and could prove to be a game changer for the Mauritius IFC. It will further diversify the Mauritius offering in respect of financial products and will help to cement its competitiveness at an international level and its value proposition for cross-border investors.