IFM04190 - Property authorised investment funds (PAIFs): introduction and conditions of membership for the regime: the balance of business condition

This Condition sets out the level of property and income arising from it that an existing authorised investment fund must meet in order to elect into the regime (Regulation 69N(2)(b) and (3)(b) SI 2006/964). Namely:

• at least 60% of the fund’s net income in each accounting period should be derived from the Property Investment Business; and
• at the close of the accounting period, at least 60% of the assets of the fund should be assets of the Property Investment Business.

‘Start-up’ funds

In the case of newly authorised investment funds (which excludes conversions from existing authorised investment funds), it is recognised that this level of property holding may be difficult to achieve in the first year. Hence, to allow for this, start-ups must achieve 40% in respect of both income and total value of assets by the end of their first year, with the level then going up to 60% by the end of year two (regulation 69N(2)(a) and (3)(a) SI 2006/964).

Asset valuation

Assets must be valued in accordance with generally accepted accounting practice and if there is a choice of valuation method, then a fair value option must be adopted. Any liabilities secured against or otherwise relating to the assets of the property investment business are not taken into account when determining the net assets for the purpose of this condition.