Fund Structures 6 October 2015

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Cameron Walton
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1 Fund Structures 6 October 2015

2 Welcome Paolo Alonzi Head of Real Estate Finance & Operations Standard Life Investments

3 Agenda Moderator Paolo Alonzi, Head of Real Estate Finance & Operations, Speakers Panel Discussion Q&A s Networking Standard Life Investments Pamela Thompson, Head of Investment Funds, Eversheds LLP Cathryn Vanderspar, Head of Tax, London, Eversheds LLP Stuart Donald, Head of Product, Kames Capital Mark Meiklejon, Investment Director, Real Estate, Standard Life Investments

4 Today s topics Who are the investors and what are they looking for? What structures are available? What should you be thinking about? What are the operational and reporting implications? Panel discussion

5 Real Estate Funds: the changing world New structures, new regimes EUUTS, PAIFS, ACS, ELTIFs MiFID II State Aid Transparency AIFMD BEPS REITs FATCA/ DAC, CRS Solvency II Increased Regulation Healthcare Changes to tax on management fees Student Build to Rent/ PRS General Election Pensions changes Private Placement The court of public opinion IHT changes ATED ISAs Dividend rates SDLT LBTT Joint ventures Diverted profits tax Brexit Accessing retail Jurisdictions Seeding reliefs Interest deductions and BtL ATP, PPG, Fiscale Eenheid CRS Non-resident CGT for Resi Attack on tax avoidance Carried interest New forms of finance Source and domicile IHT and nondoms

6 Who are the investors and what are they looking for?

7 Who, and where, are the investors? Institutional Defined Benefit (DB) Pension Schemes Sovereign Wealth Funds Quasi-Institutional Defined Contribution (DC) Pension Schemes Retail Joe Public Advised Platforms

8 Why is investor type important? Investment return income, capital growth, total return Liquidity open ended, closed ended, semi-open ended Risk appetite core, value added, opportunistic Product suitability of structure product features regulatory requirements Marketing Tax RDR, MiFID II, AIFMD, Private Placement neutrality simplicity versus efficiency morality? Investor co-mingling institutional/retail, feeders

9 What are investors looking for? All investors - familiar structure - transparency - no tax drag - strong governance - attractive returns - investment - assets/pipeline Institutional - manager track record - control / representation - voting - advisory boards - fee alignment - management fee - carried interest / performance fee - co-investment rights - key-man protections Retail - fair treatment of all - investors - Liquidity - regulated environment

10 What structures are available?

11 Basic fund structure Fund Manager /Operator Investors Investment Manager Income Capital Property Manager Depositary/ Fees Fund Vehicle Interest Loan Bank Custodian Administrator Income Capital Valuer Assets

12 Typical fund choices Other Authorised contractual scheme ( ACS/ TTF ) Property authorised investment funds (PAIF) Onshore property company Listed offshore property funds (eg Guernsey) Some choices Limited partnerships (LP) Exempt unauthorised unit trusts (EUUT) Offshore unit trusts (eg Jersey) Lux/ Irish funds REITS

13 Key structuring issues Who is the investor? What is the existing infrastructure? retail institutional tax paying tax exempt location liquidity needs Regulation Regulated/ unregulated EU AIFM/ non-eu AIFM EU AIF/ non-eu AIF Marketing and distribution Where and what are the assets? commercial offices build to rent student healthcare other one location international jurisdictions regulation location of people familiarity Taxation the assets the fund the holding structure the investors the managers avoiding the tripwires

14 INSTITUTIONAL Retail and institutional preferences Listed offshore property funds Offshore Authorised contractual scheme unit trusts RETAIL Onshore property company Property authorised investment funds Exempt unauthorised unit trusts (EUUT) REITS Limited partnerships

15 Who likes what? General guide only! Structure UK Pension Fund Offshore Pension Fund UK Co Res, nondom HNWI REIT Offshore co SWF LA PAIF ELP LLP Limited Partnership (different types) Offshore Co (Lux) Offshore co (Haven eg Jersey) Authorised Contractual Scheme (co-ownership) 1 Exempt unauthorised unit trust REIT JPUT 1. Subject to SDLT issue being resolved in 2016

16 Case study 1 (institutional): JPUT/ ELP Trustee Alternative investment fund manager Financial institutions Capital Income Jersey property unit trust Pension Schemes Carried interest LP Asset Manager Depositary Capital Income Carried interest Administrator Limited Partnership Interest Bank Capital Income UK Property

17 Case study 2 (institutional): exempt unauthorised unit trust tax depends on investor income distribution gross No tax (unless accounting mismatches (20%) CGT exempt investors (other than by reason of residence) EUUT exempt exempt distribution gross gain Benefits Onshore Simple Flexible and well known No SD/ SDLT on transfers of units Effectively no tax on income, including if trading Exempt from gains No withholding tax Issues Limited investor base Approval and annual certification required to retain exempt status Risk of tax on accounting mismatches Breaches Trading Investment

18 Case study 3 (Institutional): European Real Estate Fund Carry Partners European Investors Feeder for US exempts Carry LP GP/ Manager Fund Lux Hold Co loans loans/ dividends Holdco Propco Propco Propco Hold Co LP for US taxable Benefits Familiar Available to all Regulated or unregulated No direct tax at fund level No SD/ SDLT on transfers DTT/ PE exemptions beneficial Issues Changing status quo Changing treatment of manager fees Treaty changes Local practices BEPs Transfer pricing IHT and domicile situs rules Propco Propco France Netherland Germany Poland Spain

19 Case study 4 (Retail): Non-UK listed company Fund Management Equity Non-UK investor Listed Offshore Co Dividends Benefits Flexible Well known in UK No SD/ SDLT on share transfers No tax on gains in fund Effective rate of income tax below 20% through deductions on internal loan Dividend returns for investors: no wht Potential portfolio exit without SDLT Liquidity through listing Property Management Bank Fees Interest Equity and loans Offshore Sub Dividends/ interest Rent (NRL) Issues Offshore management Determining the effective rate: allowable interest costs cost and management risk Some pension funds may not wish to invest in a non-uk structure Third country fund for AIFMD purposes BEPS: reduction of interest deductions and treaty availability Dividend changes/ credit UK Property

20 Case study 5 (Retail): PAIFs Platforms (ISAs) Pension Funds SIPPs Individuals Life Cos Companies Platforms (ISAs) Non-UK cos 60%+ PAIF 2 AUT feeder 1 Benefits On shore Available to all No tax in PAIF or SD DTT may be beneficial PID Dividends Other Issues Streaming Platforms: tax at AUT for exempts UK property Non-UK property UK REITs Non-UK REITs JPUTs Derivatives (for hedging) 1 Consideration could be given to whether a feeder is necessary 2 ( QIS ) or a non-ucits retail scheme ( NURS ) Listed Cos Unlisted Cos AUTs/UK OEICs Interest Non qualifying property Derivatives (not for hedging) Gold Gilts Cash

21 Operational considerations a PAIF case study

22 Key choices for a new PAIF - design How did we design our PAIF? Starting from scratch Research Focus group What were the key operational challenges in designing the product? New Master Feeder, meant 2 new investment companies: 2 new umbrella NURSes OEIC for Master + UT for Feeder Dual pricing v single swinging price? Charging income or capital? Liquidity provisions Liquidity modelling in post crisis world Q share class

23 Key choices for a new PAIF managing operations across a Master - Feeder Outsource or insource? What are the options? Group strategy Implications of Master Feeder interface needs Economics of Feeder Managing the additional cost of the Feeder Managing complexity Synchronisation of operations Pricing Conversions / switches

24 Looking forward Change of the status quo Shifting sands Future proofing New structures to access new markets Onshoring: set to continue Who, what, why? REIT PAIFs ACS ELTIF? Growth in popularity More mainstream Innovation to differentiate/ succeed Build your own Will personal tax changes affect investor behaviour? Dividends v PAIF and REIT income Savings and ISAs IHT and domicile The open v closed ended debate Hybrid structures Compliance Documents need updating Cost and compliance increases Impact of fee debate and partnership changes on PERE Mergers Impact of AIFMD Underlying assets are changing Tripwires increase Impact on structures/ issues No one size fits all

25 Questions and panel discussion

26 Contact details Paolo Alonzi : +44 (0) mob: +44 (0) Pamela Thompson : mob: +44 (0) pamelathompson@eversheds.com Stuart Donald : +44 (0) mob: +44 (0) stuart.donald@kamescapital.com Cathryn Vanderspar : mob: +44 (0) cathrynvanderspar@eversheds.com Mark Meiklejon : +44 (0) mob: +44 (0) Mark_Meiklejon@standlardlife.com

Capital Gains Tax. Discussion Forum Monday 22 nd January 2018

Capital Gains Tax. Discussion Forum Monday 22 nd January 2018 Capital Gains Tax Discussion Forum Monday 22 nd January 2018 Chair & Introduction John Cartwright Chief Executive, AREF Chair & Speakers Cathryn Vanderspar Partner, Head of London Tax Eversheds Sutherland