Last Updated February 27, 2019

Law and Practice

Contributed By Travers Smith LLP

Authors



Travers Smith LLP investment funds group comprises four partners and 15 other dedicated fee earners, based in London. The group focuses on funds, investors and intermediaries in the private equity, infrastructure, debt, real estate and listed equities sectors. It has constantly been at the forefront of developing market practice and thought on relevant changes for the investment funds industry, including the European Alternative Investment Funds Managers Directive and, more recently, the potential impact of Brexit. The funds tax group advises on the structuring of investment funds to maximise their tax efficiency for investors and managers. The investment funds group sits alongside the firm’s market-leading private equity M&A practice, one of the largest transactional teams of private equity lawyers in the City. The funds finance practice combines expertise from the firm’s fund formation and finance practices to advise lenders that provide subscription line and other facilities to real estate funds. Travers Smith also advises real estate funds on the borrower side. The investment funds group is best known for private funds and closed-end listed funds.

Private and Listed closed-ended Funds

The UK does not directly regulate closed-ended funds themselves. Instead, regulation falls on the manager. Each closed-ended fund vehicle is likely to be an alternative investment fund (AIF). An AIF is defined by the AIFMD as a collective investment undertaking that raises capital from a number of investors, with a view to investing that capital in accordance with a defined investment policy for the benefit of those investors. (ESMA expands on these concepts in its Guidelines on Key Concepts of the AIFMD). Accordingly, the fund manager is likely to require authorisation and permission from the FCA to carry out AIF management in respect of that vehicle.

Some vehicles used in private closed-ended structures may not fall within the definition of an AIF. Examples include staff carried interest vehicles structured as limited partnerships (which are unlikely to be AIFs because of the AIFMD employee participation schemes exclusion) and certain deal-specific co-investment vehicles. These vehicles, if not AIFs, are nonetheless likely to be collective investment schemes (CIS) under FSMA. A CIS is similar to the EU concept of a collective investment undertaking, but is broader. Establishing, operating or winding-up a CIS is a separate regulated activity, requiring authorisation by the FCA.

Historically, ITCs were not regulated entities. Following the adoption of the AIFMD, some investment trust companies may regard themselves as AIF managers (because they are internally managed AIFs) and become authorised under the AIFMD. However, most ITCs have an external manager that is acting as the AIF manager and will not, therefore, be regulated directly.

Open-ended Funds

Both UCITS and NURS funds are regulated funds that require prior authorisation from the FCA. The FCA has a statutory two-month period to review and consider an application for a UCITS and a six month period for a NURS applications. Once authorised, the funds must comply with detailed FCA rules as these vehicles are heavily regulated (in comparison to closed-ended vehicles). In particular, these funds are subject to stringent investment and borrowing restrictions.

Travers Smith LLP

10 Snow Hill
London
EC1A 2AL

+44 20 7295 3000

+44 20 7295 3500

david.patient@traverssmith.com www.traverssmith.com
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Authors



Travers Smith LLP investment funds group comprises four partners and 15 other dedicated fee earners, based in London. The group focuses on funds, investors and intermediaries in the private equity, infrastructure, debt, real estate and listed equities sectors. It has constantly been at the forefront of developing market practice and thought on relevant changes for the investment funds industry, including the European Alternative Investment Funds Managers Directive and, more recently, the potential impact of Brexit. The funds tax group advises on the structuring of investment funds to maximise their tax efficiency for investors and managers. The investment funds group sits alongside the firm’s market-leading private equity M&A practice, one of the largest transactional teams of private equity lawyers in the City. The funds finance practice combines expertise from the firm’s fund formation and finance practices to advise lenders that provide subscription line and other facilities to real estate funds. Travers Smith also advises real estate funds on the borrower side. The investment funds group is best known for private funds and closed-end listed funds.

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