Contributed By Travers Smith LLP
Investors typically seen investing in private closed-ended funds in the current market include pension funds, sovereign wealth funds, endowments, insurance companies, fund of funds and high net worth individuals. Closed-ended listed funds can be marketed broadly and attract both institutional and individual investors. Similarly, where the fund is a UCITS or NURS there are no restrictions on the types of investor to whom the fund can be marketed.
The legal, regulatory and investment structures chosen by an investor will depend upon a number of factors, such as the tax treatment of the proposed investment, and any income derived therefrom, for the investor and the risk appetite of this investor.
The types of UK domiciled funds available to investors vary greatly, both in legal structure and the level of regulatory oversight. The range of options available allows investor choice and flexibility and is seen as one of the advantages of the UK industry.
As mentioned above, an important concept in the way that the UK deals with UK investment funds from a tax perspective is that investors should, as far as possible, be put in the same position as if they had invested directly in the underlying assets.
Other than general marketing/financial promotion rules in the UK, there are no restrictions under UK legislation on the type of parties which can invest in a fund.
The question of who may invest in funds essentially turns on the rules which determine to whom these funds may be marketed. The two main investor categories in relation to the distribution of funds in the UK are "professional investors" and "retail investors".
For instance, in keeping with the focus of AIFMD generally, the AIFMD marketing provisions are predicated on the marketing of AIFs to "professional investors" within the EEA. Individual member states are granted discretion as to whether to allow AIFMs to market units or shares in AIFs to "retail investors" in their territory, ie investors who are not "professional investors". The UK has exercised its discretion to allow such marketing to certain categories of "retail investors" (eg, high net worth investors, sophisticated investors and employees). Open-ended funds can only be distributed to retail investors.
Certain additional requirements are imposed under the terms of the AIFMD (in respect of closed-ended funds) and the UCITS Directive (in the case of open-ended funds). Marketing can only be undertaken following the manager giving the FCA the required notice of the proposed marketing and filing the relevant documents with the FCA. Certain pre-investment disclosures must also be made to investors.