Honorary Treasurers Forum Charity Authorised Investment Funds - - PowerPoint PPT Presentation

Honorary Treasurers Forum Charity Authorised Investment Funds (CAIFs)

Julian Smith 21/11/2019

History

• Common Investment Funds – deemed to be charities
• To overcome breach of trust on inter-mingling trust property for investment purposes
• To overcome 1961 Act (or other) limited investment powers
• Governed by Charity Commission scheme
• Anxiety of Charity Commission as regulator of ‘unauthorized’ investment funds
• Go slow on new registrations
• VAT considerations
• Statutory restrictions
• BUT CIFs still exist, and do not have to convert

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• r if you’d like a slide

What is a CAIF?

• An FCA authorised fund and a registered charity
• Taxed as a charity
• ‘Special investment fund’ hence no VAT on management fees
• Dual regulation by the FCA and the Charity Commission
• FCA authorisation
• FCA rules and oversight
• Charity Commission registration
• Charities Act 2011 and Charity law
• Full range of FCA vehicles available (in theory)
• AUT, OEIC and Authorised Contractual Scheme
• NURS, UCITS or QIS
• The Charity Commission has currently accepted an authorised unit

trust can be a CAIF

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Particular optional features of the CAIF

• Advisory Committee
• Consultative function
• Not approved persons or charity trustees
• Independent of the Manager and Trustee
• Principal function is to represent the interest of unitholders and consult with the Manager and

Trustee in carrying out that function

• Role to be set out in constitutional documents and may include
• Right to be consulted on certain matters including

‒ investment objective and policy, distribution policy, and fees and charges ‒ other matters as specified in the Trust Deed

• Preparation of a statement to be included in the annual report
• Right to call a unitholder meeting, which must be called by the Manager or Trustee on receipt of

notice

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Particular optional features of the CAIF

• Advisory Committee
• Additional provisions be set out in constitutional documents
• The Manager to provide the relevant information to the Advisory Committee
• Advisory Committee can be paid out of the scheme property an annual fee plus

reasonable costs and expenses

• The Manager to provide a report once a year to the Advisory Committee on matters

which the Committee is mandated to consider

• The Manager to attend at meetings with the Advisory Committee
• Indemnity from the Manager

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Particular optional features of the CAIF

• Income Reserve Account
• FCA rules allow for this for the CAIF
• Conditions are that
• The purpose is to avoid fluctuations in income for allocation or distribution
• Limit of 15% can be transferred to the income reserve account in any one

accounting period

• Total Return Approach
• Allows a CAIF to return capital as well as income as distributions
• Permitted if used for the purpose of meeting a pre determined target return

which is consistent with the investment objective and policy of the CAIF

• Umbrella Structure

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More recent developments

• Charity Commission decision that all CAIFs must also be established as a common investment fund by a

Charity Commission Order

• This has the effect that CAIFs are subject to the provisions of sections 96-99 of the Charities Act 2011
• No property can be held by a CAIF under the model trust deed until the making of the Charity Commission

Order

• CAIF Trust Deed will need to refer to the relevant provisions of the Charities Act 2011
• Section 98(1) of the Charities Act 2011 sets out certain provisions which may be included in the governing

documents

• In our view these are enabling provisions
• On interpretation where express provision is included then section 98(1) then a narrow interpretation

should be followed

• Example is Section 98(1)(d) which allows temporary borrowing
• Two charities in support will be needed on final registration of the CAIF
• Scottish and NI charities are eligible investors (drafting updated) (but not ‘foreign’ charities)
• First CAIF registered on 12 December 2007

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Creation of a new CAIF

• https://www.theia.org/industry-policy/guidelines/industry-guidance
• Charity Commission Pre Application
• Draft CAIF documents, including Trust Deed and Prospectus
• Charity Commission application form
• Evidence of joint approach on conflicts management as between the Trustee and the Manager
• Minded to approve letter
• FCA normal fund application process
• Form 242
• Supporting documents
• FCA fee
• Date Trust Deed
• FCA authorisation order and FCA registration number issued
• Charity Commission order and charity registration number issued
• Apply to HMRC for recognition as a charity

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Conversion of traditional CIFs to CAIFs

• Additional issues to consider
• Name – fund manager can be included in the name of a CAIF but

does not have to be

• Conversion process likely to require changes to the Scheme and

Scheme Particulars of the CIF

• Scheme of arrangement requires a 75% majority
• https://www.farrer.co.uk/news-and-insights/the-charity-

authorised-investment-fund-caif---the-authorised-fund-vehicle- specific-to-the-charity-sector/

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Contacts

10 Grania Baird, partner 020 3373 7443 grania.baird@farrer.co.uk Julian Smith, partner 020 3373 7432 julian.smith@farrer.co.uk

Farrer & Co LLP 66 Lincoln’s Inn Fields London WC2A 3LH +44(0)20 3375 7000 enquiries@farrer.co.uk www.farrer.co.uk

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