The UK government is being urged to fill a gap in its domestic investment management industry by creating a new onshore fund structure for real estate and infrastructure investors.
The Investment Association (IA) and the Association of Real Estate Funds (AREF) are pushing for the establishment of a professional investor fund (PIF) that would remove the need for managers of closed-ended funds to go offshore.
The IA said this 鈥渨ould allow pension funds and professional investors to invest in real estate and infrastructure through an unlisted, tax-transparent fund structure鈥� with tradeable units, which currently does not exist in the UK.
Were the UK government to take up the recommendation, it could lead to future closed-ended real assets funds being structured in the UK rather than offshore jurisdictions like Jersey, Guernsey and Luxembourg.
Chris Cooper, CEO of UK real estate fund manager DTZ Investors, told 91传媒在线: 鈥淲e support the establishment of such a fund vehicle and consider it a simple and highly suitable structure for our future fund launches.鈥�
Melville Rodrigues, partner at law firm Charles Russell Speechlys, who has taken the lead role in structuring the PIF, working with AREF and IA others in the industry, said 鈥渕any UK fund management houses鈥� were in support.
Lonneke L枚wik, CEO of European real estate fund association INREV, said: 鈥淭he introduction of such a fund would fill an important gap for pension funds, insurance companies and other institutional investors who invest collectively in real estate. It would offer a UK fund vehicle comparable to vehicles that have been available to investors in other European jurisdictions for some time.鈥�
鈥淲e support the establishment of such a fund vehicle and consider it a simple and highly suitable structure for our future fund launches鈥�
Chris Cooper, DTZ Investors
Rodrigues proposed the PIF concept last year. Writing in 91传媒在线, he said the real estate industry should lobby the government to enhance the UK鈥檚 competitiveness in a post-Brexit environment.
Since then, the IA and AREF have submitted to the Treasury a request-for-consultation document has been submitted to the Treasury, setting out how a PIF could support the UK 鈥渁s a global hub for fund management houses鈥�.
Rodrigues said the 鈥淯K government and regulator representatives have constructively engaged with this initiative鈥� and he is hopeful it will progress to the consultation stage.
The document says it is 鈥渦nfortunate when the underlying real estate, managers and investors are all UK-located 鈥� but the funds have to be operated outside the UK鈥�.
鈥淭he PIF will also enable UK fund management houses to facilitate the UK government鈥檚 infrastructure revolution and goal to 鈥榣evel up鈥� the nation, as well as to respond to the opportunities presented by Brexit鈥�
Melville Rodrigues
John Forbes, a real estate funds consultant, who has been arguing in favour of such a vehicle for several years, said: 鈥淚t has always been an oddity that UK institutions investing in UK property have had to pool their investments through offshore vehicles due to the lack of a suitable onshore vehicle.
鈥淗opefully, this and other changes currently under consideration will allow this gap to be filled鈥�.
Andrew Baum, professor of practice at Sa茂d Business School and chairman of Property Funds Research, said the time had come 鈥渢o modernise, standardise and regulate a form of tax-transparent, closed-ended fund鈥�.
He said identical 鈥減roducts are commonplace and established鈥� in offshore jurisdictions. 鈥淚t would be better to bring these onshore.鈥�
Baum also said technical innovations had 鈥渕ade possible the development of highly efficient secondary markets鈥� and a standardised closed-ended property fund would 鈥渜uickly develop鈥� its own secondary market.
鈥淭he world is awash with talk of tokenisation 鈥� in effect, informal, unregulated secondary markets for single assets and closed-ended funds,鈥� he said. 鈥淚t would be preferable by far to create a regulated framework for a superior and standardised form of such offerings.鈥�
Rodrigues said the PIF would be applicable to assets classes other than real estate. 鈥淭he PIF will also enable UK fund management houses to facilitate the UK government鈥檚 infrastructure revolution and goal to 鈥榣evel up鈥� the nation, as well as to respond to the opportunities presented by Brexit,鈥� he said.
The IA is recommending the PIF as part of its Budget submission to the UK Treasury, which sets out a number of ways to 鈥渂oost the competitiveness of the UK economy and global standing of the UK investment management industry鈥�.
It is also recommending a series of measures that it argues 鈥渨ill ensure pension savings can be used to level up investment in infrastructure across the UK鈥�.
The IA has also been pushing for the creation of a new Long-Term Asset Fund, an open-ended vehicle designed to help defined-contribution (DC) pension scheme invest in illiquid assets.
The LTAF is intended to address concerns around liquidity in open-ended funds, which was highlighted recently by the suspension of M&G Investments鈥� 拢2.5bn open-ended UK property fund, as well as the closure of the Woodford Equity Income Fund and a series of UK property fund suspensions in 2016.
The IA is arguing for flexibility around redemptions, allowing them 鈥渢o be structured to reflect the time it takes to sell鈥� assets.
Today, the association reiterated its call for the LTAF for 鈥渙pening up investment opportunities to more pensioners, and a new source of long-term funding for infrastructure projects, such as hospitals, roads and new homes鈥�.
Last week, the Financial Conduct Authority published feedback on its consultation on 鈥減atient capital and authorised funds鈥�, directly addressing the IA鈥檚 LTAF proposals, stating that 鈥淢ore work is required before we consider consulting on changes to our rules鈥�.
It said: 鈥淭he proposal is unclear on which types of assets would be eligible for inclusion in an LTAF鈥檚 portfolio and what contractual commitments an LTAF could make鈥� We will consider further as the IA continues its own work on the proposals.鈥�
