IFM17320 - Genuine Diversity of Ownership (GDO): Condition B

Regulation 9A(4) & (5) SI2006/964, Regulations 75(3) & 76(1) SI 2009/3001 and paragraph 15(4) & (5) FA03/Sch7A

The purpose of Condition B is to exclude funds which (notwithstanding anything contained within the fund’s documents designed to meet Condition A (see IFM17310)) are in practice only ever intended to be ‘private’ or only available to specific individual or corporate investors or specific groups of connected persons. Such a limitation may be achieved by a specific rule in the fund documentation or by imposing terms and conditions that would deter investors outside the limited group.

Neither the specification of the intended categories nor any of the terms and conditions of the fund should be set in such a way as to limit investment to a select group within the stated categories of investors and they should not deter a reasonable investor within the intended categories of investor from investing in the fund.

Condition B is not intended to prohibit normal commercial variations in charges. It is aimed at situations where the target market is stated to include a particular category of investor but either the charges or the minimum investment are applied in a discriminatory way so as to effectively exclude all but a select few, such as quoting a reasonable market rate annual management charge for favoured persons but a much higher charge for another person within the same category of investor.

Condition B will also not be failed where there are conditions which apply equally to all potential investors. For example, a minimum investment amount which applies to all investors, or requirements to provide certain ‘know your customer’ documentation before an investor can be admitted to the fund.

There is also a specific relaxation of Condition B for the purposes of the QAHC regime (FA22/SCH2/PARA9(3)(b)), REIT regime (CTA2010/S525ZB(3)) and NRCG rules (TCGA92/SCH5AA/PARA46A(2)) which confirms that the fact that the capacity of a fund is limited does not constitute a limiting or deterrent effect. This relaxation does not apply, however, where:

• the capacity of the fund to accept investments is fixed; and
• the fund limits investment to a number of pre-determined specific investors or specific group of connected investors who buy all or substantially all of the interests or units in the fund.