IFM36365 - Disguised fees: Managed Accounts and other parallel structures (from 6 April 2016)
Managed Accounts and other parallel structures (from 6 April 2016)
Finance Act 2016 Amendments
A Managed Account is Part of the Parent Fund
From 6 April 2016, ITA07/S809EZA(7)(a) applies to arrangements which permit an external investor to participate in investments acquired by a collective investment scheme without participating in the scheme itself and would, for example, cover “managed accounts” and similar structures.
The purpose of this amendment was to put beyond doubt that parallel structures such as “managed accounts” are part of the parent fund for the purposes of the disguised investment management fees (DIMF) rules.
Any arrangement which allows an external investor to participate in investments acquired by the parent fund as in the above example are treated as part of that collective investment scheme (IFM36230).
Investments in such a structure are capable of qualifying for the co-investment exclusion (IFM36400).
The DIMF rules may apply to any sums arising from managed accounts and other, similar arrangements.
Investments “around the side”
From 6 April 2016, ITA07/S809EZA(7)(b), was introduced to make it clear that “Collective Investment Scheme”, for the purposes of the DIMF rules, includes arrangements under which sums arise to a fund manager in respect of a collective investment scheme even if the sums do not arise from the collective investment scheme itself.
The wording “in respect of” is intentionally wide and could catch any arrangement (including one seeking to avoid the DIMF rules) where sums are in any sense structured so that they do not arise from a collective investment scheme.
Examples of around the side arrangements
This diagram illustrates an example of an investment manager using a parallel structure to make their co-investment into the fund instead of making the co-investment through the fund vehicle itself. This structure could simply be a nominee that acquires the agreed proportion of any underlying investment made by the fund using the fund managers’ own resources.
Managed Accounts and other parallel structures – Examples of around the side arrangements
This diagram illustrates a similar structure using a direct interest in the underlying investments which replicates the same economic terms.
Managed Accounts and other parallel structures – Examples of around the side arrangements Image 2
