Variable Capital Company

A Variable Capital Company (VCC) enables Mauritius funds to carry out business through one or more sub-funds and special purpose vehicles, all housed within the same structure. A sub-fund of a VCC may elect to have separate legal personality from that of the VCC itself.

The VCC can comprise of both Collective Investment Schemes and Closed-End Funds. A sub-fund of a VCC can also act as a feeder fund or a master fund.

Some of the benefits of a VCC include ring-fencing of the assets and liabilities of each sub-fund or SPV, cost efficiency, streamlining management and operations in one entity comprising separate units, flexibility regarding the distribution and payment of dividend out of capital rather than profits.

Navigating Your Investment Journey: A Comparative Analysis of CIS/CES Funds and the Variable Capital Company (VCC) in Mauritius

Introduction to Fund Structures in Mauritius

The Republic of Mauritius has long established itself as a reputable International Financial Centre (IFC), offering a diverse range of sophisticated financial products and services. For investors seeking to pool capital for collective investment, two primary structures have traditionally been prevalent: Collective Investment Schemes (CIS) and Closed-End Funds (CEF). However, the Financial Services Commission (FSC) of Mauritius has introduced an innovative and highly flexible alternative: the Variable Capital Company (VCC).

At Osidan Management Services, we understand that selecting the optimal fund structure is paramount for the success and efficiency of your investment vehicle. This brochure aims to provide a non-technical comparative analysis from an investor’s perspective, highlighting the compelling reasons why the VCC may be the superior choice for your next fund.

Understanding Collective Investment Schemes (CIS) and Closed-End Funds (CEF)

CIS and CES Funds (often referred to as Closed-End Funds) are conventional investment vehicles. A CIS typically pools money from multiple investors to invest in a diversified portfolio of securities, managed by a CIS Manager.

Key characteristics include:

Structure: Often established as companies, trusts, or partnerships.
Regulation: Governed by the Securities Act 2005 and regulated by the FSC. CIS Managers have strict requirements for licensing, including professional indemnity insurance, regular financial reporting (quarterly interim statements and annual audited reports), minimum capital, and qualified staff.
Capital: For traditional CIS (open-ended funds), shares are redeemable at Net Asset Value (NAV). CES (closed-ended funds) typically have a fixed number of shares that are not redeemable by the fund but are traded on an exchange.
Operational Aspects: Require dedicated administrative services, registrar and transfer facilities, accounting records, and portfolio management.

While CIS/CEF structures have served investors well, their traditional setup often involves separate legal entities for each fund or sub-fund, potentially leading to increased administrative burdens and operational costs when managing multiple strategies.

Introducing the Variable Capital Company (VCC): A Game Changer

The Variable Capital Company (VCC), incorporated under the Companies Act and authorized by the FSC, represents a modern approach to fund structuring. It’s designed to offer enhanced flexibility, operational efficiency, and cost-effectiveness.

Key Features of the VCC:

Umbrella Structure with Sub-Funds and SPVs:
A VCC can function as a single fund or, more advantageously, as an umbrella structure comprising one or more sub-funds and Special Purpose Vehicles (SPVs).
Crucially, each sub-fund or SPV under the VCC umbrella can opt to have a legal personality distinct from the VCC itself, providing immense structural flexibility. This differs from traditional setups where each fund often requires its own standalone legal entity.
Variable Capital Basis:
The “variable capital” nature of a VCC means that its share capital is directly linked to its Net Asset Value (NAV).
Shares can be issued, redeemed, or repurchased at NAV (with exceptions for initial public offerings and closed-end funds listed on a securities exchange), allowing for seamless investor subscriptions and redemptions. This flexibility is particularly attractive for open-ended fund strategies.
Economies of Scale and Cost Efficiency:
The consolidated nature of the VCC umbrella structure enables significant cost savings. Fund promoters can benefit from:
Common Service Providers: Engaging a single set of service providers (e.g., fund administrator, auditor) for all sub-funds under one VCC.
Shared Board of Directors: A single board can oversee the entire VCC and its sub-funds, reducing directorship fees and administrative overhead.
Centralized Compliance: A single Money Laundering Reporting Officer (MLRO) or Compliance Officer can oversee all sub-funds, streamlining regulatory adherence.
This integrated approach often leads to lower overall operational costs compared to managing multiple, separately incorporated CIS/CEF entities.
Statutory Segregation of Assets and Liabilities:
A cornerstone benefit of the VCC is the statutory ring-fencing of assets and liabilities. The law explicitly states that the assets and liabilities of one sub-fund or SPV within a VCC cannot be used to discharge the liabilities of the VCC itself, or any other sub-fund or SPV.
This provides robust protection for investors, ensuring that the financial performance or distress of one sub-fund does not impact others within the same VCC structure. This offers a level of asset protection comparable to, and in some aspects more streamlined than, Protected Cell Companies (PCCs).
Permissible Cross-Investments:
The VCC framework allows for cross-investment between sub-funds or SPVs within the same VCC structure. This provides greater internal capital mobility and strategic flexibility for fund managers, enabling complex and efficient portfolio strategies. (Note: A sub-fund/SPV cannot invest in another sub-fund/SPV that has already invested in it).

Comparative Analysis: VCC vs. CIS/CES Funds (Investor’s Perspective)

| Structure Flexibility | Typically separate legal entities for each fund or sub-fund. | Umbrella structure with multiple sub-funds/SPVs under one legal entity, capable of distinct legal personalities. | Simplified Management & Scalability: Easier to launch and manage diverse investment strategies under one umbrella, reducing complexity as you grow. |

| Cost Efficiency | Higher operational costs due to separate compliance, governance, and service provider engagements for each fund. | Significant economies of scale from shared service providers, board, and compliance functions across sub-funds. | Lower Fees, Higher Returns: Reduced administrative and operational costs can translate to lower fees for investors, potentially boosting net returns. |

| Capital Management | Fixed capital for Closed-End Funds; redeemable shares for Open-End CIS. Redemption often tied to specific intervals. | Flexible capital, allowing issuance/redemption/repurchase of shares at NAV (subject to type of fund). | Liquidity & Responsiveness: More fluid entry and exit points for investors, particularly beneficial for open-ended strategies and adapting to market changes. |

| Asset Segregation | Protected Cell Companies (PCCs) offer segregation, but often as a separate structure. Assets of a non-PCC fund may be vulnerable to liabilities of the management company or other funds if not structured carefully. | Statutory segregation of assets and liabilities between VCC and its sub-funds/SPVs. | Enhanced Security: Robust legal protection ensures your investment in one sub-fund is insulated from issues in another, minimizing risk. |

| Inter-Fund Investment | Generally not easily facilitated or may require complex legal arrangements between distinct entities. | Permissible cross-investments between sub-funds/SPVs within the same VCC. | Strategic Portfolio Management: Allows for dynamic and integrated investment strategies across different sub-funds, optimizing overall portfolio performance. |

| Modernity & Appeal | Established and proven, but can be perceived as less agile. | A modern, innovative structure designed to enhance Mauritius’s competitiveness as a fund jurisdiction. | Attractiveness & Innovation: Investing in a cutting-edge structure can appeal to sophisticated investors and demonstrates forward-thinking management. |

Why Choose Osidan Management Services for Your VCC Structure?

At Osidan Management Services, we pride ourselves on our comprehensive understanding of the Mauritian financial regulatory landscape and our proactive approach to assisting clients with the latest fund structures. Our team of experts is well-versed in the Variable Capital Company Act 2022 and its practical implications.

We offer bespoke services to guide you through:

Understanding the suitability of the VCC for your specific investment strategy.
Assisting with the incorporation and authorization process of your VCC with the FSC.
Providing ongoing administration and compliance services for your VCC and its sub-funds.
Ensuring your structure remains efficient, compliant, and optimized for investor benefit.

By partnering with Osidan Management Services, you gain a knowledgeable and reliable ally committed to maximizing your fund’s potential and demonstrating our expertise in modern fund solutions.

https://osidanservices.com/