Contributed By Travers Smith LLP
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.
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.