AREF's Paul Richards: A big moment for the UK funds industry.”
Fund managers are set to launch a range of reserved investor fund (RIF) offerings after parliament passed secondary tax legislation to allow the creation of the new vehicles.
RIFs are a structure that enables investors such as pension schemes to invest in illiquid assets.
A number of fund managers are expected to take advantage and convert existing funds into RIFs – or launch new RIFs outright.
The secondary legislation passed by the government yesterday (25 February) confirms details of the tax treatment of these vehicles and the date on which the legislation will come into force (19 March).
Commenting on the legislation, Melville Rodrigues – the Apex Group head of real assets advisory who helped devise the new structure – said: "The RIF will be a conduit to attract capital and facilitate growth – the number one mission of the UK government. This new fund can act as a valuable new economic catalyst by creating jobs, accelerating the development of our nation's infrastructure, facilitating the regeneration of our town centres and furthering sustainability strategies. I am very grateful for the officials' constructive engagement with, and widespread industry support for, the RIF proposal. It is exciting to see several fund managers, large and small, warming up for RIF launches."
Association of Real Estate Funds (AREF) chief executive Paul Richards added: "Fund managers and their underlying clients tell us they want more options to invest in UK property – from hotels to housing – and they'd like to do it without having to go offshore. The RIF gives them that option, and we're not surprised to see many of our fund manager members planning RIFs in future or eyeing the opportunity closely. This is a big moment for the UK funds industry."
British Property Federation assistant director Rachel Kelly added: "Long-term capital from large scale investors like funds and pension schemes is a key source of investment into UK commercial property and large-scale residential property.
"That investment will be crucial in delivering on a number of the government's key priorities – notably their commitment to economic growth and delivering 1.5 million homes. Providing more choice of UK-based funds that can suit a variety of different investors' needs will be an important part of the solution to channelling this much needed capital into the UK – and to that end, we welcome the RIF."
Abrdn global head of real estate and AREF chair Anne Breen said: "As a nation we have acute social and economic challenges – and what they have in common is a need for meaningful investment. This news will unlock some of that investment, making it easier for organisations like defined contribution pensions to direct their savers' money into deserving and financially viable opportunities, bringing benefits to all parties."
Fiera Real Estate chief operating officer Emma Cullen added: "The RIF is a much-anticipated onshore offering. As the UK fund landscape evolves, investor focused developments of this nature which will provide cost effective and tax efficient structuring – particularly for secondary trades – which will be of interest to institutional investors and particularly the Local Government Pension Scheme (LGPS)."
The RIF structure offers three main advantages:
- Tax efficiency: The onshore RIF is transparent for income-tax purposes, should be able to operate as opaque for chargeable gains purposes and purchases of RIF units are exempt from stamp taxes. Moreover. it means real estate funds will no longer be forced offshore.
- Flexibility: The structure is designed with commercial property, housing, social infrastructure, and other essential assets in mind – and it is flexible (including with quarterly redemptions) enough to enable a wide range of institutional investors to allocate to it.
- Cost-effective: RIFs aim offer a speedy, flexible and competitive TER (total expense ratio) compared with existing structures – not least because they have a lighter regulatory regime.
