The charity sector has given a mixed response to the charity authorised investment fund - a new model of investment funding for charity - since its introduction last year.
In this month’s Charity Finance magazine, charity fund managers at investment management companies report differing views among their clients to the new funds, known as CAIFs, which are designed to replace common investment funds (CIFs).
Plans for the new CAIF model were initially announced in the 2015 budget and it was formally launched in October 2016. CAIFs, like CIFs, will be registered charities, allowing them to take advantage of the tax benefits offered to charities. But unlike CIFs, CAIFs are regulated by the Financial Conduct Authority as well as the Charity Commission.
Additional features of CAIFs include the ability to smooth income returns to charity investors to create a steady income, and the presence of an independent advisory committee to represent charity unitholders.
The structure will also be able to take advantage of a VAT exemption for FCA-authorised funds, meaning that VAT will not be payable on investment management fees. It is hoped that this will lead to significant savings for charities over time.
The investment manager State Street estimates that savings on investment management fees will be in the region of £12m per annum.
Giles Neville, head of charities at Cazenove, says he has seen differing views among investment management peers.
“Some, ourselves included, submitted the paperwork as quickly as we could, with a view to converting existing CIFs into the new structure. Some have also applied to launch new funds; for example, we are launching a new responsible multi-asset fund that includes an ethical overlay. However, other investment managers have been less keen to embrace the new CAIF structure.
“There may be a number of reasons for their hesitation. Firstly, the application process, and indeed CAIFs as a whole, are untested. We expect the new structure to gain in popularity once its success is proven. Secondly, some of our peers have cited legal issues in converting from their existing structures.”
Neville remains convinced that the new structure is preferable to the old world of CIFs, but concedes that it could be made more straightforward.
“The process of moving from a CIF to a CAIF is proving relatively onerous, involving much correspondence and multiple application forms. A mechanism to streamline the transition of assets would very likely increase the uptake of the new structure.”
Alexander True, investment manager at Sarasin and Partners, says his firm’s belief in the new structure has not wavered.
“All of our existing CIFs will be converting to CAIFs. To not make this change would result in higher and unnecessary ongoing costs for charity investors.”
He adds that Sarasin is also in the process of launching the Climate Active Fund for Endowments, which will conform to the CAIF structure.
As the Charity Commission will not be authorising new CIFs, any new charity-specific funds are likely to be CAIFs, but Heather Lamont, director, client investments at CCLA, agrees about the complexity of conversion.
“Converting from a CIF to a CAIF is a complex, time consuming and relatively expensive process, and for this reason alone we think that the transition to CAIFs will be relatively slow. In addition, CIFs have greater investment flexibility and stronger governance than a CAIF, bringing into question whether conversion would be in the interests of unitholders in any case.”
Related articles
