The UK government is to move ahead with legislation to create the reserved investor fund (RIF), a new investment structure that could enable UK-based real estate fund managers to avoid going offshore.
Coinciding with yesterday鈥檚 Budget announcement, the UK Treasury published responses to its recent consultation and said it would begin legislating for the RIF through the Spring 2024 Finance Bill.
Melville Rodrigues, head of real assets at Apex Group, who has been the leading proponent of the RIF and initially proposed the idea to the Treasury and UK regulators, said he expected it to be 鈥渦tilised by UK fund managers of all sizes, from SMEs to larger managers鈥�.
The concept behind the RIF gained momentum within the UK鈥檚 real estate funds industry several years ago and in 2020 the government was urged to close 鈥渁 gap in the UK鈥檚 existing funds range鈥� which encouraged fund managers to opt for offshore vehicles.
Independent consultant John Forbes, who specialises in real estate funds, wrote in an update report that the RIF was based on the existing co-ownership contractual scheme 鈥渨ithout the regulatory baggage of being fully authorised鈥�. He said: 鈥淚t has many of the attractive features of an offshore unit trust, but onshore.鈥�
Rodrigues said the announcement was 鈥渨elcome news for fund managers in the UK, and for me personally after having put a lot of work into getting us here鈥�.
Rodrigues said the introduction of the RIF would mean UK fund managers would 鈥渘o longer be forced offshore, and can produce better returns for UK pension investors and their members鈥�.
He added that it would level the playing field between smaller and larger fund managers, and would help in 鈥渁ttracting pension funds and other productive capital to invest in regenerating town centres and accelerating net-zero goals鈥�.
Stephen Palmer, director of UK-based , said: 鈥滻 am pleased to hear that the government is committed to the introduction of the RIF. It has been a long road to get to this point and, whilst there have been contributors from across the industry, Melville Rodrigues has championed this initiative for almost five years now, and he deserves credit for the Budget announcement.鈥�
鈥淎s I see it, the RIF will bring advantages for both fund managers and investors. Small and medium-sized investment firms operating in the UK will benefit from lower fund structuring and set-up costs, and investors will have access to a highly flexible unauthorised UK domiciled fund structure that is both closed ended and tax transparent.鈥�
Palmer said the RIF would 鈥渁lso fit well with other vehicles aimed at promoting investment in long-term less liquid assets鈥�, citing the recently established long-term asset fund and authorised contractual schemes.
Fund managers can also consider the unlisted real estate investment trust, which came into effect in the UK in 2022, but Forbes said he expected the RIF to be 鈥漷he preferred vehicle in many situations鈥�. Forbes added: 鈥淲e strongly support the introduction of the RIF.鈥�
Paul Richards, managing director of the Association of Real Estate Funds (AREF), said: 鈥淲e share the government鈥檚 confidence that 鈥榯he RIF will be a fund vehicle which serves as a valuable addition to the UK鈥檚 fund range鈥� and look forward to our continuing engagement with government in developing the RIF implementation legislation.
鈥淭his fund structure has seen particular support amongst our members and in the real estate sector more generally.鈥�
Richards added: 鈥漁ur sector has needed the RIF solution that, while complementing the available open-ended structures, plugs a gap in the UK fund offering and competes with offshore alternatives 鈥� a closed-ended or hybrid fund structure that is effectively tax transparent and unit transfers not inhibited by transaction tax.鈥�
Lonneke L枚wik, CEO of the European Association for Investors in Non-Listed Real Estate Vehicles (INREV), said: 鈥淲e were very pleased that the Spring Budget included the proposal on the RIF. We have long advocated the addition of a closed end or hybrid fund vehicle in the UK for pension funds and other institutional investors and the news that the proposal is moving forward is very welcome.鈥�
鈥淭he close cooperation between government and industry bodies leading to the development of the RIF has been excellent. We look forward to working with government as the proposal which offers more choice of investment vehicles to investors moves through to the next steps to roll-out to the market and expect quick take-up of the new vehicle.鈥�
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