DC pension schemes will soon be able to access a new fund structure — the Reserved Investor Fund, or RIF — designed to facilitate investment into illiquid assets such as UK property and social infrastructure.
The UK government has laid out secondary legislation in Parliament, confirming the tax treatment of this new fund structure. Managers able to launch this onshore funds from 19 March this year, the date this legislation comes into force.
This RIF structure was devised by lawyer Melville Rodrigues. It will enables a wide range of investors, including UK and other pension schemes, to invest simply and cheaply in illiquid assets, such as UK real estate.
The structure is designed with commercial property, housing, social infrastructure, and other essential assets in mind – and it is flexible (including with quarterly redemptions) enough to enable a wide range of institutional investors to allocate to it.
RIFs offer a speedy, flexible and competitive TER (total expense ratio) compared with existing structures – not least because they have a lighter regulatory regime.
It is also claimed that these will be tax-efficient structures, enabling more real estate funds to be based in the UK rather than domiciled offshore. These RIFs will be transparent for income-tax purposes and should be able to operate as opaque for chargeable gains purposes. Purchases of RIF units are exempt from stamp duty taxes.
Abrdn Global Head of Real Estate, and Chair of the Association of Real Estate Funds Anne Breen, says: “As a nation we have acute social and economic challenges – and what they have in common is a need for meaningful investment. This news will unlock some of that investment, making it easier for organisations like DC pensions to direct their savers’ money into deserving and financially viable opportunities, bringing benefits to all parties.”
Melville Rodrigues, head of real assets advisory at Apex Group and a member of the AREF Public Policy Committee: “The RIF will be a conduit to attract capital and facilitate growth – the number one mission of the UK government.
“This new fund can act as a valuable new economic catalyst by creating jobs, accelerating the development of our nation’s infrastructure, facilitating the regeneration of our town centres and furthering sustainability strategies. I am very grateful for the officials’ constructive engagement with, and widespread industry support for, the RIF proposal. It is exciting to see several fund managers, large and small, warming up for RIF launches.”
The Association of Real Estate funds CEO Paul Richard says: “Fund managers and their underlying clients tell us they want more options to invest in UK property – from hotels to housing – and they’d like to do it without having to go offshore. The RIF gives them that option, and we’re not surprised to see many of our fund manager members planning RIFs in future or eyeing the opportunity closely. This is a big moment for the UK funds industry.”
The Association of British Insurers assistant director, head of taxation Dan Gallon adds: “The launch of the new Reserved Investor Fund structure is a welcome step for the UK, and will help the long-term savings sector as investors. The availability of UK based funds which provide commercial and regulatory flexibility, while being internationally competitive, is crucial for a strong UK Financial Services sector.”
British Property Federation assistant director Rachel Kelly adds: “Long-term capital from large scale investors like funds and pension schemes is a key source of investment into UK commercial property and large-scale residential property. That investment will be crucial in delivering on a number of the Government’s key priorities – notably their commitment to economic growth and delivering 1.5 million homes. “Providing more choice of UK-based funds that can suit a variety of different investors’ needs will be an important part of the solution to channelling this much needed capital into the UK – and to that end, we welcome the Reserved Investor Fund.”
