Fund managers are limited to alternative fund choices, which have drawbacks:
- Open-ended authorised fund structures — these must comply with regulatory operational requirements that erode returns and maybe inappropriate for holding less liquid assets.
- Offshore alternatives — these face the challenges of (and costs associated with) multiple legal, tax and regulatory regimes, including maintenance of sufficient offshore substance
Review of UK funds regime
February 2022 saw the publication of HM Treasury's policy paper on the review of the UK funds regime, in which it set out responses and a series of next steps.
Publication follows a January 2021 call for input on the UK funds regime, which aimed to identify options that will make the UK a more attractive location to set up, manage and administer funds, and which will support a wider range of more efficient investments better suited to investors' needs.
The policy paper confirms that the government is proposing to take forward further work to explore options for the introduction of a new unauthorised contractual scheme fund structure (known as the professional investor fund (PIF)). The policy paper also explains:
- The government has already taken forward as part of the review:
- a new tax regime for qualifying asset holding companies (QAHCs) in certain fund structures
- facilitating the introduction of the long-term asset fund (LTAF) structure.
- It is not, however, proceeding with proposals relating to unauthorised limited partnerships and unauthorised corporate structures in the short term. These are unlikely to be commercially attractive.
- The responses to the call for input are persuasive that the PIF will strengthen the UK's fund offering. It has the potential to lower the barriers for SME asset managers to launch new products, to increase the number of unauthorised closed-ended investment vehicles domiciled in the UK and to support the government's work to promote investment in longer-term, less liquid assets. The government also notes that professional investors have highlighted the value of the option for an onshore structure.
- The government recognises that reference to the "UK" and "professional" would provide clarity on the fund offering.
- The government and the Financial Conduct Authority (FCA) are not of the view that there is a good case for introducing a light-touch form of authorisation for new unauthorised fund structures.
- It is expected that the tax rules for a PIF will largely replicate the tax rules for co-ownership authorised contractual schemes (CoACS).