VCC or actively managed certificate, explained

Key figures

• S$8,000 ACRA fee to register a variable capital company, with S$400 for each additional sub-fund

• 1 August 2024 Date on which the registered fund management company regime was repealed

• S$5m · S$50m Minimum fund size at application under the 13O and 13U tax schemes for funds that are not single family office funds

• S$200,000 Minimum local business spending from the 2028 year of assessment for a 13O or 13U fund with assets under management below S$250 million

• 15% Singapore withholding tax on interest paid to a non-resident without a Singapore business, unless an exemption such as the Qualifying Debt Securities scheme applies

Contents

1. Two different legal answers to the same commercial question

2. How a variable capital company works

3. How an actively managed certificate works

4. How wealth desks buy each structure

5. Licensing follows the activity, not the wrapper

6. Tax treatment

7. Turnover, valuation and execution

8. From certificate to fund

Sponsors of emerging strategies, including systematic and algorithmic trading strategies, often face a choice between launching a regulated fund vehicle and packaging the strategy into a security. In Singapore the first route generally means a variable capital company, and the second an actively managed certificate issued by a special purpose vehicle or a bank. The two are often compared on cost and speed, but they differ more fundamentally in what investors own, who must be licensed and how the structure is taxed.

1. Two different legal answers to the same commercial question

A variable capital company and an actively managed certificate both give investors exposure to a managed strategy, but they do so through different legal relationships. In a variable capital company investors are shareholders in a fund, whereas in an actively managed certificate investors are creditors of an issuer that has promised to pay an amount linked to the value of a reference portfolio.

2. How a variable capital company works

A variable capital company is a corporate structure created specifically for collective investment, and it brings with it a defined governance framework. The Variable Capital Companies Act 2018 allows it to issue and redeem shares at net asset value without the capital maintenance rules that apply to ordinary companies, and to operate as a single fund or as an umbrella with multiple sub-funds.

The governance requirements are prescribed by statute, and according to ACRA every variable capital company must appoint a permissible fund manager, which may be a licensed fund management company or a financial institution exempt from holding a licence. It must have at least one director who is ordinarily resident in Singapore and at least one director who is a director of the fund manager or a qualified representative, and the same person may fill both roles. It must also appoint a resident company secretary within six months and an auditor within three months of incorporation, and the audit exemptions available to small private companies do not apply.

The assets and liabilities of each sub-fund in an umbrella variable capital company are segregated by statute, so the creditors of one sub-fund cannot have recourse to the assets of another. The register of shareholders is not available to the public, and the financial statements do not have to be made public, which gives investors a degree of privacy that an ordinary company does not offer.

The registration fees payable to ACRA are fixed, and ACRA charges S$8,000 to register a variable capital company, S$400 for each sub-fund and S$1,600 for each annual return. The larger costs lie in the fund manager, the fund administrator, the auditor and legal documentation, which vary with the strategy and the service providers chosen.

3. How an actively managed certificate works

An actively managed certificate is a structured note whose payout is linked, typically on a one-to-one basis, to the value of a portfolio that a strategy manager adjusts over the life of the note. The investor owns a debt claim against the issuer and has no direct interest in the assets of the reference portfolio.

The issuer may be a bank issuing on its own balance sheet, in which case investors take the bank’s credit risk, or a special purpose vehicle that holds the reference assets or a hedge and issues notes with limited recourse to them. Some markets offer collateralisation arrangements to reduce issuer risk, and some jurisdictions allow a single issuer to establish segregated compartments for separate series. Once an issuance programme is in place, further certificates can generally be issued more quickly and with lower set-up costs than a new fund, and each certificate carries an ISIN that can be settled through international clearing systems and held in ordinary brokerage accounts.

The choice of issuer also matters for segregation, because a Singapore private limited company has no statutory compartment regime, so where several certificates are issued by the same Singapore company, the separation between series rests on limited recourse and non-petition provisions in the documents rather than on statute. Servicing a credit-linked note for risk transfer, explained describes a comparable special purpose vehicle issuing notes against a defined pool of assets.

Note

Creditor, not shareholder

An investor in an actively managed certificate is a creditor of the issuer and bears its credit risk in addition to the risk of the strategy.

4. How wealth desks buy each structure

The practical difference that most often decides the choice for external asset managers and private bank clients lies in how each structure reaches the investor’s account. A certificate can be booked into an existing custody portfolio in the same way as any other security, whereas an investment in a variable capital company requires each investor to be onboarded by the fund.

Figure 1. How an actively managed certificate reaches the investor. The certificate settles delivery versus payment along the custody chain, with a partner bank or specialist trust agent acting as paying agent. Auberique acts as calculation agent and corporate service provider to the issuer, while the strategy manager, as Auberique’s client, directs the issuer’s trading account under its own licence or exemption.

A variable capital company is itself subject to anti-money laundering requirements and must carry out due diligence on its investors, a task commonly performed for it by the fund manager or fund administrator. Each investor signs a subscription agreement and provides self-certifications for the Foreign Account Tax Compliance Act and the Common Reporting Standard, because the variable capital company will generally be a reporting financial institution under both regimes. Where investors hold their assets with several private banks, the fund shares can be held through those banks or through fund-processing platforms, but booking an unlisted fund into a private bank portfolio is often slower than booking a security that the bank already supports.

A certificate is a transferable security with an ISIN that settles on a delivery-versus-payment basis through clearing systems such as Euroclear, Clearstream or SIX. A private bank books it into the client’s custody portfolio as a structured product, and the bank’s own know-your-customer and suitability processes apply to its client. Investor-level onboarding therefore shifts largely from the sponsor to the booking bank, although the bank will first subject the issuer and the product to its own product approval process before it allows clients to buy it.

Listing status can matter as much as the clearing route, because some institutional investors, family offices and funds operate under mandates that restrict unlisted holdings, and a UCITS fund may hold no more than 10% of its assets in transferable securities not admitted to an eligible market. A certificate offered only to institutional and accredited investors may be listed under Chapter 3 of the SGX Mainboard Rules, which covers debt securities offered to specified investors under sections 274 and 275 of the Securities and Futures Act 2001, with an offering memorandum in place of a registered prospectus. Listing alone does not make a certificate eligible for every mandate, and SGX will assess whether a particular structured note falls within its debt listing framework.

The ISIN follows the settlement system, because Singapore Exchange Limited, as Singapore’s national numbering agency, allocates SG ISINs to securities deposited with The Central Depository and held through Singapore accounts, while certificates intended for international private bank distribution commonly carry XS ISINs settled delivery versus payment through Euroclear and Clearstream. An SGX listing does not prevent settlement through those international systems.

Note

The listed debt advantage

An SGX listing for debt securities offered to specified investors can help a certificate meet mandates that restrict unlisted holdings, while the offer continues to rely on accredited and institutional investor documentation rather than a registered prospectus.

Note

Product approval remains

A private bank must approve an issuer and its certificate before clients can buy it, so distribution friction moves rather than disappears.

5. Licensing follows the activity, not the wrapper

Choosing a certificate instead of a fund does not, in itself, remove the need for the strategy manager to be licensed. Under the Securities and Futures Act 2001, fund management is defined by reference to managing a portfolio of capital markets products on behalf of a customer, and a sponsor in Singapore that manages the reference portfolio of a certificate on behalf of the issuer is likely to be carrying on that activity unless an exemption applies. A sponsor that only gives recommendations, without discretion, may instead fall within the regime for financial advisers.

The licensing framework for fund managers has also changed, because the regime for registered fund management companies was repealed on 1 August 2024, after existing registered managers were transitioned to licensed status, so a new manager in Singapore now generally requires a capital markets services licence for fund management or an exemption. A licensed manager serving only accredited and institutional investors is subject to lower requirements than one serving retail investors, including a lower base capital requirement, but it remains subject to MAS licensing, capital and conduct rules. When an SPV sponsor needs a MAS licence, explained sets out the test in more detail.

The offer rules also differ between the two structures, since notes are generally offered to institutional and accredited investors under the exemptions in sections 274 and 275 of the Securities and Futures Act, while shares in a variable capital company constituted as a collective investment scheme rely on the separate exemptions for schemes in sections 304 and 305. The characterisation of a certificate as a debt security rather than a collective investment scheme depends on its structure, and regulators in some jurisdictions have considered whether delta-one certificates should be treated as funds, so the analysis should be confirmed for each programme.

Case in point

The advisory label

A sponsor in Singapore develops a trading algorithm and arranges for a special purpose vehicle to issue a certificate tracking a portfolio that the algorithm selects and rebalances daily. The sponsor describes itself as an adviser to the issuer, but the issuer follows its signals without further review. In substance the sponsor is managing the portfolio on a discretionary basis, and the description in the documents is unlikely to change the licensing analysis.

6. Tax treatment

A variable capital company that qualifies under the 13O or 13U scheme is exempt on specified income from designated investments, whereas a Singapore private limited company issuing a certificate is an ordinary corporate taxpayer and its payments to noteholders outside Singapore may attract withholding tax. The two structures therefore start from different tax positions, and neither is neutral without the right design.

The 13O scheme is available to companies incorporated and resident in Singapore, which include variable capital companies, and the 13U scheme is available to funds in a range of legal forms. Both require the fund to be managed or advised directly by a Singapore fund management company that is licensed or exempt, and the exemption applies to specified income derived from designated investments, subject to the conditions of the scheme. Under the MAS circular of 31 July 2026, the minimum fund size at application is S$5 million for 13O and S$50 million for 13U for funds that are not single family office funds, and from the 2028 year of assessment the minimum annual local business spending is S$200,000 where assets under management are below S$250 million, rising with fund size, with transitional rules applying before then. The 13O scheme also requires at least two investment professionals from the 2028 year of assessment, and the 13U scheme requires at least three.

A Singapore private limited company that issues a certificate is not ordinarily structured as a qualifying fund and is taxed on its profits in the usual way. Where it holds the trading account and pays note returns to investors outside Singapore, those payments may be characterised as interest or other payments in connection with indebtedness. Under section 12(6) of the Income Tax Act 1947 such payments are deemed to arise in Singapore where they are borne by a Singapore resident, and section 45 then requires the payer to withhold tax, at 15% for interest paid to a non-resident that does not carry on business in Singapore, unless an exemption or treaty rate applies.

Two routes are commonly considered to avoid that withholding. The first is the Qualifying Debt Securities scheme, which runs until 31 December 2028 and can exempt qualifying payments to non-residents, provided that the securities are substantially arranged in Singapore by a financial institution holding a specified licence and the other conditions of the scheme are met. Whether a particular certificate is a debt security within the scheme, and whether its payouts are qualifying income, should be confirmed for each programme. The second route is to issue from a vehicle outside Singapore, such as a compartmentalised securitisation vehicle in Luxembourg or Ireland or an issuer in Jersey, with the Singapore manager appointed to manage or advise on the reference portfolio. The withholding position of the foreign issuer then depends on the law of its own jurisdiction and the exemptions available there, and the Singapore manager’s licensing analysis is unchanged.

Note

Withholding follows the payer

A Singapore issuer paying note returns to non-resident investors should confirm whether withholding applies before the first payment date, because the obligation falls on the payer.

7. Turnover, valuation and execution

Systematic and algorithmic strategies often trade at high turnover, and the two structures handle that activity at different levels. In a variable capital company the trading happens inside the fund, whereas in a certificate the trading happens in the reference portfolio and investors see only the resulting value of their notes.

A variable capital company values its assets at each dealing point, whether daily, weekly or monthly, and the fund administrator strikes a net asset value at which shares are issued and redeemed. High portfolio turnover does not itself require any action at the shareholder level, but each dealing point requires the administrator to process subscriptions and redemptions, and the dealing frequency the administrator can support may limit how often investors can enter and exit.

In a certificate, the reference portfolio is held in a custody or brokerage account of the issuer or its hedge counterparty, and the strategy manager directs the trading under the authority the documents give it. A calculation agent determines the value of the certificate from the value of the reference portfolio less the fees set out in the terms, which may include a management fee, a performance fee subject to a high-water mark and transaction costs. Investors enter and exit by buying and selling the certificate, often through a market maker or the issuer, so frequent trading in the portfolio does not require any issue or redemption of shares.

Formula

Certificate value

Certificate value per unit at time t = (Reference portfolio value at t − Accrued fees and costs at t) ÷ Certificates outstanding at t. The reference portfolio value already includes realised and unrealised gains and losses, so they are not added separately, and accrued fees typically comprise the management fee, any performance fee above the high-water mark and transaction costs, as defined in the terms of the certificate.

8. From certificate to fund

For many emerging managers the two structures are better understood as stages in a sequence than as alternatives, with a certificate used to build a track record and a variable capital company used once the strategy is large enough to attract institutional capital. The sequence is a commercial choice rather than a legal requirement, and the licensing of the manager applies at both stages.

In the first stage, a licensed manager may launch the strategy as a certificate on an existing issuance platform and raise initial capital, for example in the range of US$5 million to US$15 million, from professional investors who hold it through their private banks. Where the platform and documentation are already in place, issuance can be completed considerably faster than establishing a fund, and the certificate produces a published price history. The local business spending and investment professional conditions of the 13O and 13U schemes do not arise at this stage, because they are conditions of the tax schemes rather than of any particular vehicle, and a variable capital company that does not claim the schemes is not subject to them either.

In the second stage, once the strategy has reached a size at which institutional allocators such as endowments, pension funds and sovereign investors take an interest, those investors often expect a fund vehicle in which they hold equity, with statutory segregation, independent directors and audited accounts. The manager may then establish an umbrella variable capital company and, where the fund meets the conditions, apply for the 13U scheme, whose minimum fund size at application is S$50 million.

Case in point

From certificate to fund

A licensed manager launches three systematic strategies as certificates on an existing issuance platform, each sold to a small number of accredited investors through their private banks. After two years one strategy has grown and attracts an institutional allocator, which asks for a fund vehicle with independent directors and audited accounts. The manager establishes an umbrella variable capital company, launches the strategy as a sub-fund and evaluates whether the fund meets the conditions of the 13O or 13U scheme. The other two strategies remain in certificate form until they reach a comparable size.

Moving from a certificate to a fund is not a conversion in law. The certificate is redeemed or the investors subscribe into the new fund, so the transition needs planning for investor consent, valuation, costs and any tax consequences for investors, and the presentation of the certificate’s price history as the fund’s track record should follow the performance reporting standards the target investors expect.

Common questions

What is the difference between a VCC and an AMC?

A variable capital company is a Singapore corporate fund vehicle in which investors hold shares and the assets of each sub-fund are segregated by statute. An actively managed certificate is a debt security whose payout tracks a managed portfolio, so investors are creditors of the issuer and bear its credit risk in addition to the strategy’s performance.

Does a VCC need a licensed fund manager?

Yes. Every variable capital company must appoint a permissible fund manager, which may be a fund management company holding a capital markets services licence or a financial institution exempt from holding one, so a variable capital company cannot be self-managed.

Does the manager of an AMC need a MAS licence?

Often it does. A sponsor in Singapore that manages the reference portfolio of a certificate on a discretionary basis is likely to be carrying on fund management under the Securities and Futures Act 2001, unless an exemption applies. Describing the sponsor as an adviser does not change the analysis if it exercises discretion in substance.

Can an AMC benefit from the 13O or 13U tax schemes?

An actively managed certificate issuer is not ordinarily structured as a qualifying fund under those schemes. The 13O scheme is available to Singapore-incorporated and resident companies, including variable capital companies, and 13U to funds in a range of forms, each subject to conditions on management, fund size, local business spending and investment professionals.

Why do private banks and external asset managers often prefer AMCs?

An actively managed certificate is a security with an ISIN that settles delivery versus payment through clearing systems and can be booked into a client’s existing custody portfolio, with the bank performing its own client due diligence. A fund requires each investor to be onboarded separately. The bank will still apply its product approval process to the certificate and its issuer.

Is withholding tax payable on AMC payments to non-resident investors?

It may be. Where a Singapore issuer makes payments that are characterised as interest or other payments in connection with indebtedness, section 12(6) of the Income Tax Act 1947 deems them to arise in Singapore and withholding at 15% applies to non-residents without a Singapore business, unless an exemption such as the Qualifying Debt Securities scheme or a treaty rate applies.

Is the RFMC regime still available in Singapore?

No. The regime for registered fund management companies was repealed on 1 August 2024, after existing registered managers transitioned to licensed status. A new fund manager in Singapore generally requires a capital markets services licence for fund management or an exemption.

How much does it cost to register a VCC?

ACRA charges S$8,000 to register a variable capital company, S$400 for each sub-fund and S$1,600 for each annual return. The larger costs are the fund manager, fund administration, the mandatory audit and legal documentation, which vary with the strategy and service providers.

For sponsors evaluating vehicle selection, issuance platform onboarding or sub-fund governance in Singapore, Auberique provides end-to-end entity management and administration across both fund and structured note architectures through its special purpose vehicles service. Regulated activities, where required, are carried out by appropriately licensed partners.

About the author

Gavin McDaid is a practising solicitor (England and Wales) and former venture capitalist, with an LLM in Law and Technology from Queen’s University Belfast. He writes on company law, fundraising and governance in Singapore.