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Fund management activity: Variable Capital Company structure recommended in IFSCs

Our Bureau. New Delhi | Updated on June 01, 2021

K.P.Krishnan-led committee submits report to IFSCA Chairman Injeti Srinivas

Fund management activity in India’s GIFT City — the only international financial services centre (IFSC) in India — may soon get a fillip with an IFSCA appointed panel recommending the adoption of Variable Capital Company (VCC)-like legal structure for the fund industry in such IFSCs.

A VCC is basically an alternative form of corporate vehicle that dispenses with some of the key limitations of companies and LLPs and provides for higher regulatory standards than those applicable to trusts. A VCC can be used for both open-ended and closed ended alternative and traditional fund strategies.

It maybe recalled that the Gift City regulator, International Financial Services Centres Authority (IFSCA), had constituted a Committee of Experts headed by K.P. Krishnan, a retired IAS officer, to examine the feasibility of VCC in India and its suitability as a vehicle for fund management in the International Financial Services Centre (IFSCs) in India.

This Krishnan-led Committee has now submitted its report to the IFSCA Chairperson Injeti Srinivas.

Fund management activities are an important pillar of the overall financial services ecosystem. In line with the mandate given to the Committee, it examined the relevance and adaptability of the VCC for the IFSC in India or alternative structures to attract fund business in the IFSC. Conventionally, pooling of funds in India is undertaken through three types of entities, namely, limited liability companies governed under the Companies Act, 2013; limited liability partnerships under the Limited Liability Partnership Act; and trusts governed under the Indian Trusts Act, 1882.

The Committee assessed the features of a VCC or its equivalent, in other jurisdictions such as the UK, Singapore, Ireland and Luxembourg, an official release said.

The Committee recognised that the legal framework governing entities that undertake fund management should provide for certainty and clarity to investors, effective segregation and ring fencing of different pools of asset, the ability to issue different classes of shares, alterations to the funds’ capital structure without regulatory approvals and the freedom to choose the appropriate accounting standards applicable to funds with different characteristics, and the ability to wind up quickly, the release added.

Published on June 01, 2021

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