Investment fund insights: Professional investor funds
by Shoosmiths LLP
The Professional Investor Fund (PIF) supports the Government’s goal as it targets professional investors. The UK Government and the Financial Conduct Authority have engaged with proposals regarding PIFs.
In 2020 the UK government announced a review of the UK funds regime and published a call for input. On the back of this, the UK Government published a summary of responses this year which, amongst other things, stated that one of the top priority proposals was the creation of a more ‘attractive onshore professional investor regime of unauthorised fund structures’.
The Professional Investor Fund (PIF) supports the Government’s goal as it targets professional investors. The UK Government and the Financial Conduct Authority (FCA) have engaged with proposals regarding PIFs.
Why might a PIF be attractive? A PIF is an onshore fund and therefore more convenient for a UK fund manager to manage than an overseas fund. It also benefits from advantageous tax treatment.
What is the tax treatment? Eligible UK investors will pay income tax on income attributable to them. Capital gains will be taxed on each investor selling its PIF units but is not applicable to gains realised at the portfolio level.
No transaction tax including Stamp Duty Land Tax (SDLT) applies on the transfer of units to a PIF. SDLT seeding relief (on the initial transfer of properties into the fund) will apply to the PIF.
What is a PIF? A PIF is proposed as an unauthorised contractual scheme. It is a closed-ended/hybrid alternative investment fund operating under the UK AIFMD regime and will need a full scope alternative investment fund manager and a depositary.
Marketing the PIF to potential investors. Any marketing would need to be done under the unregulated collective investment scheme (UCIS) and AIF regime, in a similar manner to limited partnerships and unauthorised unit trusts.
Who can invest in a PIF? Professional institutional investors* or those that commit at least £1m. Other investors can access PIFs through feeder funds*, provided that the feeder funds satisfy the professional institutional investor status*.
What can a PIF invest in? It is anticipated that PIFs will be used for investment in real assets* such as property and infrastructure.
How are assets held by the PIF? Given that the PIF doesn’t have separate legal personality, assets would be held on trust*. For instance where the PIF holds real estate (in England and Wales) the assets will be held on trust for investors by nominee companies.
How is a PIF formed? A PIF is formed by contract and finalised as a deed, which is initially made between the fund manager and depositary. Investors would then become party to the deed upon admission to the PIF.
Does a PIF need approval from the UK regulator? As PIFs will be unauthorised they will not require prior approval from the FCA. Instead PIFs will be established and registered in a similar way to English limited partnerships, via registration at Companies House.
According to the Investment Association (IA), UK primary legislation need not be amended for the PIF to be adopted; more rapid secondary legislation will suffice.
The IA and others in the industry are urging the UK government to prioritise legislative implementation of the PIF contractual scheme structure.
*Definitions asterisked above are subject to further interpretation and clarification from the UK government and/or the FCA upon issuance of final rules, guidance or legislation.