Contributed By Travers Smith LLP
The UK is regarded as one of the leading global asset management centres, with an investment funds industry covering both traditional and alternative asset classes. Due to having considerable experience and infrastructure, the UK is one of the most prominent jurisdictions for fund formations and has developed a sophisticated market, offering a range of both closed-ended and open-ended types of funds. Within the UK market, alternative investment funds can be, broadly, divided between closed-ended funds that focus on illiquid asset strategies (eg, private equity, real estate and infrastructure funds) and open-ended funds that focus on liquid asset strategies (eg, hedge funds). The common structures will be different between these two categorisations.
Private closed-ended funds, often structured as English limited partnerships, are commonly used for funds that focus on illiquid asset strategies (eg, private equity, venture capital, real estate and infrastructure funds).
Listed closed-ended funds available for sale to the general public are also common and used for both liquid and illiquid asset strategies. The vehicle most often used is an investment trust (ITC). For funds which intend to invest in UK real estate, authorisation as a real estate investment trust (REIT) may be possible provided the relevant conditions are met.
Open-ended vehicles can be either an undertaking for collective investment in transferable securities (UCITS) fund or a non UCITS retail scheme (NURS). One of the key advantages of a UCITS fund is that it can be marketed to investors throughout the EU without the need for additional, local authorisation in each country, known as the UCITS marketing passport. A NURS provides a similar level of investor protection to that of a UCITS and allows the manager more flexibility in terms of the investments the fund can make. However, a NURS does not benefit from the UCITS marketing passport.
The UK provides for a large number of open-ended vehicles which fall within these two categories. These include authorised unit trusts (AUTs), open-ended investment companies (OEICs) and authorised contractual schemes (ACSs). The regulatory regime is substantially the same regardless of the legal form of the fund. Different authorisations apply, depending upon the investments to be made by the OEIC. For example, OEICs which invest in real estate may, provided the relevant conditions are met, be structured as property authorised investment funds (PAIFs), and OEICs which invest in unauthorised funds need authorisations as “FAIFs”, funds of alternative investment funds.