Charity Authorised Investment Funds as an alternative to CIFs
The 2015 March budget contained an announcement on the development of a new Charity Authorised Investment Fund (CAIF) structure. This followed 12 months of discussion, with the Charity Investors’ Group representing the interests of charity investors to the Treasury, the Charity Commission and the FCA, greatly helped by the Charity Law Association and the Investment Association. We are now working on the final details, including a model trust deed and a brief guide which are in the late stages of drafting and will be published in early 2016.
This new CAIF structure will improve the financial regulation of those charity funds choosing to convert from the existing unregulated common investment fund structure. It will also allow new charity specific funds to be launched, encouraging competition and enhancing choice for charity investors. An additional benefit is that authorised investment funds do not pay VAT on investment management fees, unlike common investment funds, providing a reduction in costs for charity investors.
The CAIF structure will be available exclusively to funds established for charitable purposes, enabling participating charities to carry out their purposes more efficiently. Each fund will need to be registered as a charity, and regulated as such by the Charity Commission. As authorised funds, the financial regulation will be carried out by the FCA, offering protection for the investing charities, the majority of whom would be classified as retail investors. It is
intended that CAIFs will replicate the main benefits of the existing Common Investment Fund structure – including the tax benefits of being a registered charity, the ability to smooth income to aid cash flow budgeting for investing charities, and the ability to have an independent advisory committee to represent charity unit holders.
We are enthusiastic about the new CAIF structure and intend to convert our existing Common Investment Funds as soon as the structure is available. We believe that the benefits of more rigorous financial regulation combined with a VAT exemption on fees makes the proposition compelling. It will not change what we currently offer to charity investors and the increased regulation will not translate into higher fees for our clients, indeed the VAT exemption will be a cost reduction. We intend to retain the advisory board, as key representatives of our charity investors. We are also delighted that there will soon be scope for new funds to be launched in a regulatory environment more suited to charity investors.
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