Co-Investment Vehicles: Comparing Club-Deal LLP and VCC Structures for Strategic Wealth Management

Table Of Contents

• Understanding Co-Investment Vehicles

• Club-Deal Limited Liability Partnership (LLP)

• Key Features of Club-Deal LLPs

• Advantages of Club-Deal LLPs

• Limitations of Club-Deal LLPs

• Variable Capital Company (VCC)

• Key Features of VCCs

• Advantages of VCCs

• Limitations of VCCs

• Comparative Analysis: LLP vs VCC

• Governance and Control

• Privacy and Confidentiality

• Tax Efficiency

• Regulatory Considerations

• Cost Structure

• Strategic Considerations for UHNWIs and Family Offices

• Conclusion: Selecting the Optimal Co-Investment Vehicle

Co-Investment Vehicles: Comparing Club-Deal LLP and VCC Structures for Strategic Wealth Management

For ultra-high-net-worth individuals (UHNWIs) and family offices, the selection of appropriate investment structures represents a critical strategic decision with far-reaching implications for wealth preservation, growth, and succession planning. Co-investment vehicles—structures that allow multiple investors to pool capital for specific investment opportunities—have emerged as powerful tools in the sophisticated investor's arsenal.

Two particularly notable structures have gained prominence in Singapore and throughout Asia: the Club-Deal Limited Liability Partnership (LLP) and the Variable Capital Company (VCC). Each offers distinct advantages and considerations that must be carefully evaluated against specific investment objectives, regulatory requirements, and tax planning priorities.

This comprehensive analysis explores the fundamental characteristics, strategic advantages, and potential limitations of both Club-Deal LLPs and VCCs as co-investment vehicles. We'll examine how these structures compare across critical dimensions including governance, privacy, tax efficiency, and regulatory compliance—providing family offices and UHNWIs with the insights needed to make informed structural decisions aligned with their wealth management goals.

Understanding Co-Investment Vehicles

Co-investment vehicles serve as legal and financial frameworks that enable multiple investors to participate collectively in investment opportunities. Unlike traditional fund structures with numerous investors and a standardized investment mandate, co-investment vehicles are typically designed for a smaller group of sophisticated investors collaborating on specific investment opportunities.

These vehicles are particularly valuable for UHNWIs and family offices seeking to:

• Access investment opportunities that may be unattainable individually due to scale requirements

• Share expertise and due diligence responsibilities across a network of trusted co-investors

• Diversify investment exposure while maintaining significant influence over investment decisions

• Create tailored governance frameworks aligned with specific family or investor group needs

• Optimize tax efficiency and regulatory compliance across multiple jurisdictions

The selection between different co-investment structures requires careful consideration of numerous factors including investment timeframes, asset types, investor relationships, and jurisdictional requirements. In the Singapore context, Club-Deal LLPs and VCCs represent two sophisticated yet distinctly different approaches to co-investment structuring.

Club-Deal Limited Liability Partnership (LLP)

The Club-Deal LLP represents a partnership-based approach to co-investment, bringing together a select group of investors under a flexible governance framework with limited liability protection. This structure has become increasingly popular among family offices and UHNWIs seeking collaborative investment opportunities with trusted partners.

Key Features of Club-Deal LLPs

Club-Deal LLPs are characterized by several distinguishing features that shape their utility as co-investment vehicles:

• Partnership Structure: Operates as a legal entity distinct from its individual partners, combining elements of both partnerships and companies

• Limited Liability: Partners enjoy liability protection, with exposure generally limited to their capital contributions

• Governance Flexibility: Allows for highly customizable governance arrangements through comprehensive partnership agreements

• Tax Transparency: Typically treated as tax-transparent entities, with profits and losses flowing through to individual partners

• Selective Membership: Generally limited to a relatively small group of sophisticated investors with aligned investment objectives

• Capital Flexibility: Partners can contribute different capital amounts and may have varying economic and voting rights

Advantages of Club-Deal LLPs

The Club-Deal LLP structure offers several strategic advantages that make it particularly appealing for certain co-investment scenarios:

• Governance Control: Provides investors with direct influence over investment decisions and operational matters through partnership voting rights

• Administrative Simplicity: Generally involves less complex ongoing administration compared to corporate structures

• Confidentiality: In many jurisdictions, offers enhanced privacy regarding ownership details and financial information

• Flexibility in Profit Distribution: Allows for customized distribution waterfalls and carried interest arrangements

• Ease of Formation: Typically simpler and faster to establish than more regulated fund structures

• Exit Flexibility: Partners can generally transfer interests subject to partnership agreement provisions

Limitations of Club-Deal LLPs

Despite their advantages, Club-Deal LLPs present certain limitations that investors must consider:

• Regulatory Scope: May face investment restrictions in certain regulated sectors or jurisdictions

• Investor Restrictions: Not ideal for structures requiring a large number of passive investors

• Cross-Border Complexity: Can face recognition challenges in some international jurisdictions

• Partner Dynamics: Requires careful management of partner relationships and potential conflicts

• Scalability Limitations: Less adaptable to significant scaling of investor numbers over time

• Varying Tax Treatment: Tax transparency benefits vary by jurisdiction and require careful planning

Variable Capital Company (VCC)

The Variable Capital Company represents Singapore's innovative corporate structure specifically designed for investment fund purposes. Introduced in 2020, the VCC framework has rapidly gained traction as a flexible, efficient structure for various investment strategies including co-investment arrangements.

Key Features of VCCs

The VCC structure incorporates several distinctive features that differentiate it from traditional corporate entities and other investment vehicles:

• Variable Capital Structure: Allows for easy subscription and redemption of shares without formal capital reduction procedures

• Segregated Sub-Fund Capability: Can establish multiple sub-funds with legally segregated assets and liabilities

• Corporate Form: Operates as a corporate entity with separate legal personality from its shareholders

• Regulatory Framework: Specifically regulated under the VCC Act and supervised by the Monetary Authority of Singapore (MAS)

• Fund Management Requirement: Must be managed by a licensed or registered fund manager

• Shareholder Structure: Can be established as either an open-end or closed-end fund structure

Advantages of VCCs

The VCC structure provides several compelling advantages for co-investment arrangements:

• Asset Protection: Segregated cell structure prevents cross-contamination of liabilities between sub-funds

• Operational Efficiency: Single corporate entity can house multiple investment strategies through sub-funds

• Tax Advantages: Eligible for Singapore's various fund tax exemption schemes under "13R" and "13X" regimes

• International Recognition: Growing global recognition of the VCC structure facilitates cross-border investments

• Redomiciliation Provisions: Foreign investment entities can redomicile to Singapore as VCCs

• Flexibility in Share Issuance: Accommodates various share classes with different rights and features

Limitations of VCCs

Investors should also be aware of potential limitations associated with the VCC structure:

• Management Requirements: Requires appointment of a regulated fund manager

• Regulatory Oversight: Subject to higher regulatory supervision than certain alternative structures

• Operational Costs: May involve higher establishment and ongoing compliance costs

• Usage Restrictions: Limited to collective investment schemes (cannot be used for operating businesses)

• Relatively New Structure: Continues to evolve with developing case law and regulatory guidance

• Director Requirements: Must maintain at least one Singapore resident director

Comparative Analysis: LLP vs VCC

Governance and Control

The governance frameworks of Club-Deal LLPs and VCCs differ substantially, influencing the dynamics of investor control and decision-making processes:

• Club-Deal LLP: Governance is determined by the partnership agreement, typically providing partners with direct voting rights on key decisions. This structure allows for highly customized governance arrangements including appointment of managing partners, specialized committees, and tailored voting thresholds for different categories of decisions. Industry trends suggest LLPs tend to foster more collaborative decision-making environments among investors.

• VCC: Follows a more traditional corporate governance model with a board of directors overseeing operations and representing shareholder interests. While shareholders maintain certain voting rights, day-to-day governance responsibility rests primarily with the board and the appointed fund manager. Market data indicates VCCs typically create clearer separation between investors and management compared to LLPs.

Privacy and Confidentiality

Privacy considerations often play a significant role in structure selection for UHNWIs and family offices:

• Club-Deal LLP: Generally offers enhanced confidentiality regarding ownership information and financial details. Partnership information is typically not publicly accessible beyond basic registration details. This characteristic makes LLPs particularly attractive for investors prioritizing discretion in their investment activities.

• VCC: While offering reasonable privacy protections, VCCs must maintain various regulatory disclosures and filings with MAS. The shareholder register is not publicly accessible, but greater regulatory oversight results in more information being available to authorities. However, Singapore's strong financial secrecy laws provide substantial protection compared to many other jurisdictions.

Tax Efficiency

Tax considerations represent a critical factor in structure selection, with significant implications for investment returns:

• Club-Deal LLP: Typically operates as a tax-transparent entity, with profits and losses flowing directly to partners who are taxed according to their individual circumstances. This can be advantageous for tax planning but requires partners to consider their specific tax positions. For international investors, careful planning is essential to address potential tax implications in multiple jurisdictions.

• VCC: Eligible for Singapore's attractive fund tax exemption schemes under Sections 13R and 13X, potentially allowing for 0% tax rates on specified income streams. These incentives make VCCs particularly attractive for income-generating investments and provide clarity regarding tax treatment. The tax benefits generally outperform many competing international fund structures.

Regulatory Considerations

The regulatory frameworks governing these structures create different compliance environments:

• Club-Deal LLP: Subject to less intensive regulatory oversight, providing greater operational flexibility but potentially less structural certainty in complex scenarios. LLPs registered in Singapore must comply with the Limited Liability Partnerships Act but face fewer investment-specific regulations compared to VCCs.

• VCC: Operates within a comprehensive regulatory framework under MAS supervision, creating greater compliance requirements but also enhanced structural certainty and market credibility. The regulatory framework includes various safeguards designed to protect investor interests and ensure proper fund management.

Cost Structure

Establishment and ongoing operational costs differ significantly between the two structures:

• Club-Deal LLP: Generally involves lower establishment and maintenance costs, with streamlined reporting requirements and less complex compliance procedures. This cost efficiency makes LLPs particularly attractive for smaller co-investment arrangements or situations where administrative simplicity is prioritized.

• VCC: Typically requires greater investment in establishment, compliance, and ongoing administration, including expenses related to the required fund manager, corporate secretarial services, and regulatory filings. However, these costs can be partially offset by the potential tax advantages and the ability to house multiple sub-funds within a single structure.

Strategic Considerations for UHNWIs and Family Offices

When evaluating these co-investment vehicles, UHNWIs and family offices should consider several strategic factors aligned with their wealth management objectives:

1. Investment Time Horizon: LLPs may offer advantages for shorter-term, project-specific investments, while VCCs often provide superior structures for longer-term, multi-asset investment strategies.

2. Investor Composition: The relationship dynamics among co-investors significantly influence structure selection. LLPs generally work best with smaller groups of actively engaged investors, while VCCs can more easily accommodate larger groups with varying levels of involvement.

3. Asset Class Focus: Certain asset classes align better with specific structures. Real estate and private equity investments often function efficiently within LLP structures, while diversified securities portfolios may benefit from the VCC framework.

4. Succession Planning: For family offices focusing on intergenerational wealth transfer, the VCC structure often provides superior mechanisms for ownership transition and governance continuity compared to partnership arrangements.

5. International Considerations: Investors with significant cross-border holdings should evaluate how each structure facilitates international investments and interacts with foreign regulatory regimes.

6. Future Flexibility: Consider how investment objectives might evolve over time. VCCs generally offer greater structural flexibility for evolving investment strategies, while LLPs excel in situations requiring consistency in investor relationships.

At IWC Management, we work closely with clients to evaluate these considerations against their specific circumstances, creating bespoke structural recommendations aligned with both immediate investment objectives and long-term wealth management goals.

Conclusion: Selecting the Optimal Co-Investment Vehicle

The choice between a Club-Deal LLP and VCC structure requires thoughtful analysis of numerous factors including governance preferences, privacy requirements, tax considerations, regulatory appetite, and cost sensitivity. There is no universally superior structure—each offers distinct advantages aligned with different investment scenarios and investor priorities.

For many UHNWIs and family offices, the optimal approach involves strategically utilizing both structures across their investment portfolio. Club-Deal LLPs may be deployed for focused investment collaborations with trusted partners where governance flexibility and administrative simplicity are prioritized. Meanwhile, VCCs might serve as cornerstone structures for more diversified investment strategies benefiting from Singapore's tax incentives and robust regulatory framework.

As Singapore continues to strengthen its position as Asia's premier wealth management hub, both Club-Deal LLPs and VCCs represent sophisticated tools that enable UHNWIs and family offices to implement nuanced investment strategies while capitalizing on Singapore's strategic advantages in governance, regulation, and tax efficiency.

The most successful wealth management approaches typically involve careful structure selection guided by professional advisors with deep expertise in both technical considerations and practical implementation. This strategic alignment of investment structures with specific objectives forms the foundation for effective wealth preservation, growth, and succession planning across generations.

The choice between Club-Deal LLP and VCC structures represents a strategic decision with significant implications for investment outcomes, governance, and tax efficiency. While LLPs offer greater governance flexibility and typically lower administrative burdens, VCCs provide superior asset segregation capabilities and access to Singapore's attractive tax incentive programs.

For UHNWIs and family offices, the optimal approach involves selecting co-investment structures aligned with specific investment objectives, investor relationships, and time horizons. In many cases, a diversified structural approach—utilizing different vehicles for different investment strategies—provides the greatest flexibility and efficiency across a comprehensive wealth management program.

As Singapore's regulatory landscape continues to evolve, both structures will remain powerful tools for sophisticated investors seeking to balance governance control, tax efficiency, and operational simplicity in their co-investment activities.

Contact Us

For personalized guidance on structuring co-investment vehicles optimized for your specific wealth management objectives, contact us at info@iwcmgmt.com for more information. As an Accredited/Institutional Licensed Fund Management Company under the Monetary Authority of Singapore, IWC Management provides comprehensive expertise in designing and implementing sophisticated investment structures for ultra-high-net-worth individuals and family offices.

---

Note that views and figures as subject to change without notice. IWC Management shall not be held liable for any losses or damages to any parties that may arise due to views, figures and inaccuracies that may arise in the articles. Perusing or reading this article means understanding and acceptance of this condition.