In an exclusive interview with Michael Haynes, Managing Director of Lima Capital, featured in the 30th edition of Investor’s Mag.

Michael Haynes, Managing Director of Lima Capital, leads the company’s operations, overseeing portfolio management, trade execution, risk management, and compliance. In this interview with Investor’s Mag, he discusses the transformative potential of the Variable Capital Company (VCC), introduced in Mauritius in 2022, and its impact on fund management. The VCC offers fund managers a flexible and efficient structure, allowing multiple sub-funds to operate under a single entity while maintaining legal and operational independence. Michael explains how this innovation not only simplifies fund management but also enhances investor confidence through asset segregation and tailored investment strategies.

Could you provide an overview of a Variable Capital Company (VCC) and how it differs from more traditional company structures?

The Variable Capital Company, or VCC, introduced in Mauritius in 2022, is a real game-changer for fund managers. It’s designed to offer flexibility and efficiency, especially for managing diverse investment strategies. A VCC can act as an umbrella structure, allowing multiple sub-funds to sit under one main entity. This setup makes it easy to manage different asset classes or strategies in a streamlined way. Additionally, Mauritius has made the VCC globally attractive with access to double-tax treaties and tax incentives, which are big draws for internationally focused fund managers looking for a cost-effective, compliant structure.

What sets the VCC apart from similar structures like the Protected Cell Company (PCC) is that each VCC sub-fund can have its own legal identity. This unique feature means each sub-fund can hold assets, enter contracts, and manage liabilities independently, adding an extra layer of legal protection and operational autonomy. While both VCCs and PCCs offer flexibility and liability segregation, the VCC’s legal independence for each sub-fund makes it ideal for fund managers needing distinct, independently managed sub-funds within one overarching entity.

What are the key benefits of using a VCC structure for both fund managers and investors?

For both fund managers and investors, VCCs are a real win-win.

For fund managers, the structure offers:

• Operational Efficiency: Managing multiple sub-funds under one entity makes admin tasks easier and lowers costs, freeing up time and resources to focus on what really matters: investment strategies.
• Flexibility: A VCC’s adaptable capital structure helps managers respond to market shifts and investor needs more smoothly. It’s great for capital-raising and distributions.
• Diverse Product Offering: Managers can create various products under one legal umbrella, each tailored to different risk profiles, strategies, and investor goals.
• Enhanced Risk Management: With assets and liabilities separated across sub-funds, there’s no risk of one fund affecting another, which strengthens investor confidence.
• Global Reach: The VCC’s international recognition boosts credibility, making it easier to compete globally.

For investors:

• Asset Protection: Ring-fencing within each sub-fund keeps investments secure from risks in other parts of the VCC.
• Transparency: Clear separation of assets and liabilities lets investors see exactly where their money is and understand related risks.
• Diverse Options: A range of strategies and asset classes within one VCC allows investors to align investments with their goals.
• Ease of Management: Centralised administration and reporting make it simple for investors to track and manage multiple sub-fund investments.

What market trends have you noticed regarding the adoption of VCCs, especially within the Mauritian context?

Since Mauritius launched its VCC framework, there’s been a steady uptake, especially among managers with a regional and global outlook. The flexibility in capital management and asset protection are standout features drawing attention. Fund managers find the umbrella structure very appealing, as it lowers operating costs while still allowing multiple strategies under one entity. This setup fits well with Mauritius’ goal of becoming a leading, cost-effective fund hub, and with tax incentives and access to double-tax agreements, it’s attracting international players too. It’s clear the VCC has momentum here in Mauritius, strengthening its reputation as a responsive, competitive market for funds.

How do VCCs contribute to enhancing client investment strategies at Lima Capital LLC?

At Lima Capital, our focus is on delivering efficient, cost-effective investment infrastructure for fund managers looking to launch both global and Mauritian funds. The VCC structure has been a game-changer for us in offering clients an adaptable framework that supports efficient capital management, so they can respond swiftly to market shifts and opportunities. This flexibility allows managers to operate more efficiently, making the VCC an attractive choice.

With the VCC’s umbrella structure, we can help clients establish multiple, independent sub-funds under a single legal entity. This streamlined setup also consolidates compliance and reporting, enabling cost savings that we pass on to our clients, empowering them to focus on their core investment strategies.

Ultimately, the VCC framework aligns with Lima Capital’s commitment to providing affordable, reliable infrastructure that allows fund managers to pursue diverse investment strategies—from traditional assets to emerging markets—all within a single, well-structured platform. This makes it easier for our clients to manage costs while creating value for their investors.

What are some potential challenges businesses may face when transitioning to a VCC structure?

Switching to a VCC can bring some challenges, mainly around adjusting systems and processes to meet the specific requirements of asset segregation and capital management. Operationally, businesses may need to rework their back-office systems and train staff to handle the new structure, especially if they’re not used to managing multiple sub-funds within one entity. Another consideration is educating investors who might not be familiar with the VCC model’s benefits, which requires clear communication and trust-building.

Cross-border investment can be complex, too. The VCC structure might not be fully recognised in all jurisdictions, which could limit its appeal to investors in those regions. Lastly, there are tax considerations, as businesses will need to work closely with tax advisors to ensure the VCC aligns with their overall tax strategy without leading to unforeseen liabilities.

What is your outlook on the future of VCCs in Mauritius and the broader region?

The VCC structure is well-positioned to become a mainstay in Mauritius, attracting both open and closed-end funds that are looking for a well-regulated, tax-efficient base. The demand for structures that allow easy entry and exit, support diverse strategies, and maintain asset protection is set to keep VCC adoption on the rise.

Regionally, we expect the VCC concept to catch on as neighbouring financial centres take note of Mauritius’ success. Other African and Middle Eastern markets may start to adopt similar frameworks, particularly given the popularity of the VCC in places like Singapore. The global investment landscape is shifting toward more varied and complex portfolios, and the VCC model is ideal for managing these while providing clear controls and transparency. Mauritius has positioned itself to lead this trend, potentially inspiring similar frameworks across the region.

How does the regulatory framework in Mauritius support the growth and appeal of VCCs?

Mauritius has set up a strong regulatory framework that really supports the VCC model, making it an attractive option for fund managers and investors alike. The Financial Services Commission (FSC) provides clear guidelines around compliance, risk management, and reporting specifically for VCCs, which helps managers operate confidently and keeps investor protection front and centre. This transparency and structure are essential for building trust and maintaining high standards in the industry.

As mentioned, Mauritius offers some great tax incentives and a wide network of double-taxation agreements, which adds to the appeal for international fund managers. The country’s open, forward-thinking approach to finance means VCCs can explore a mix of traditional and alternative asset classes, all within a secure framework that’s built to support growth. Altogether, Mauritius’ regulatory setup gives fund managers the flexibility they need while offering investors the protection they expect, making it a standout location for launching and managing VCCs.

How does Lima Capital LLC position itself in the VCC space, and what distinct services do you offer?

At Lima Capital, we’re focused on making the most of Mauritius’ evolving fund landscape. We support fund managers from the start, offering end-to-end services that help clients navigate the VCC’s structure and regulatory framework. With our experience across different asset classes, from equities to alternative investments, we can adapt the VCC structure to meet a wide range of strategies and investor needs.

How do global economic conditions impact the attractiveness and performance of VCCs?

Global economic shifts, especially changing interest rates, tend to enhance the appeal of VCCs due to their flexible structure. VCCs allow fund managers to adapt strategies and capital allocations efficiently, helping them manage risks and meet evolving investor needs, particularly in uncertain or volatile markets.

In times of fluctuating interest rates, investors often seek out diverse asset classes and strategies to optimise returns. The VCC’s umbrella structure makes it easy for fund managers to incorporate multiple sub-funds, each focused on distinct asset types or approaches, within a single cost-effective framework. This adaptability supports fund managers in responding to economic changes while offering investors a stable, diversified platform suited to varying market conditions.