structuring real estate funds - aref.org.uk · (“acs/ ttf”) onshore property company limited...
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Fund Structures6 October 2015
Paolo AlonziHead of Real Estate Finance & Operations
Standard Life Investments
Welcome
• Moderator Paolo Alonzi, Head of Real Estate Finance & Operations,
Standard Life Investments
• Speakers
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
• Panel Discussion
• Q&A’s
• Networking
Agenda
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
Real Estate Funds: the changing world
Source and domicile
Attack on tax
avoidanceThe court of public
opinion
Increased
Regulation
Private Placement
New structures, new regimes
FATCA/ DAC, CRS
Solvency II
Accessing retail
ATP, PPG, FiscaleEenheid
REITs
New forms of finance
EUUTS, PAIFS, ACS,
ELTIFs
Joint ventures
Pensions changes
AIFMD
Non-resident CGT for Resi
BEPS
Brexit
Diverted profits tax
Seeding reliefs
Changes to tax on
management fees
ISAs
Build to Rent/ PRS
State Aid
GeneralElection
Jurisdictions CRS
Student
MiFID II
Dividend rates
LBTT
ATED
Interest deductions and BtL
Healthcare
IHTand non-doms
Transparency
SDLT
Carried interest
IHTchanges
Who are the investors and whatare they looking for?
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
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– RDR, MiFID II, AIFMD, Private Placement
• Tax– neutrality
– simplicity versus efficiency
– morality?
• Investor co-mingling– institutional/retail, feeders
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
What are investors looking for?
What structures are available?
Basic fund structure
Fund
Vehicle
Assets
Investors
Investment
Manager
Property
Manager
Administrator
Bank
Loan
Income
Capital
Fees
Valuer
Interest
Income
Capital
Fund Manager /Operator
Depositary/
Custodian
Authorised contractual
scheme
(“ACS/ TTF”)
Onshore property company
Limited partnerships
(LP)
Offshore unit trusts
(eg Jersey)
REITSLux/ Irish
funds
Exempt
unauthorised unit trusts
(EUUT)
Listed offshore property funds
(eg Guernsey)
Property authorised investment
funds
(PAIF)
Other
Some choices
Typical fund choices
Key structuring issuesWho is the investor?
• retail
• institutional
• tax paying
• tax exempt
• location
• liquidity needs
Taxation
• the assets
• the fund
• the holding structure
• the investors
• the managers
• avoiding the tripwires
Regulation
• Regulated/ unregulated
• EU AIFM/ non-EU AIFM
• EU AIF/ non-EU AIF
• Marketing and distribution
What is the existing infrastructure?
• jurisdictions
• regulation
• location of people
• familiarity
Where and what are the assets?
• commercial
• offices
• build to rent
• student
• healthcare
• other
• one location
• international
Retail and institutional preferences
INSTIT
UTIO
NAL
RETAIL
Exempt
unauthorised
unit trusts
(EUUT)
Listed
offshore
property
funds Offshore
unit
trusts
Property
authorised
investment
funds
Limited
partnerships
Authorised
contractual
scheme
Onshore
property
company
REITS
Who likes what? General guide only!Structure UK
Pension Fund
Offshore Pension
Fund
UK Co Res, non-dom
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
Case study 1 (institutional): JPUT/ ELP
Jersey property
unit trust
Bank
Financial
institutions
Pension
Schemes
Alternative
investment
fund
manager
Asset
Manager
Depositary
Administrator
IncomeCapital
IncomeCapital
Capital
Income
Carried
interest
Limited
Partnership
Carried
interest LP
Trustee
Interest
UK Property
exempt
distribution
gross
income
CGT exempt investors(other than by reason of residence)
EUUT
Trading Investment
No tax (unless
accounting
mismatches (20%)
exempt
gain
Case study 2 (institutional): exempt unauthorised unit trust
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
distribution
gross
tax depends
on investor
Case study 3 (Institutional): European Real Estate Fund
European
Investors
GP/ Manager
Lux
Hold Co
PropcoPropcoHoldco Propco Hold Co
loans
loans/ dividends
Feeder for
US exempts
Carry
LP
Fund
LP for US
taxable
Carry Partners
France Netherland Germany Poland Spain
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 situsrules
Propco Propco
Case study 4 (Retail): Non-UK listed company
Non-UKinvestor
Listed
Offshore Co
Offshore Sub
UK Property
Property
Management
Bank
Fees
Interest
Equity and
loans
Rent
(NRL)
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
Issues
• Offshore management
• Determining the effective rate: allowable interest costs
• cost and management risk
• Some pension funds may not wish to invest ina non-UK structure
• Third country fund for AIFMD purposes
• BEPS: reduction of interest deductions andtreaty availability
• Dividend changes/ credit
Dividends/ interest
Fund
Management
Equity
Case study 5 (Retail): PAIFs
1 Consideration could be given to whether a feeder is necessary2 (“QIS”) or a non-UCITs retail scheme (“NURS”)
Pension
Funds SIPPs Individuals Life Cos CompaniesPlatforms
(ISAs)
PAIF2
AUT feeder1
PID Dividends Other
• UK property
• Non-UK property
• UK REITs
• Non-UK REITs
• JPUTs
• Derivatives (for
hedging)
• Listed Cos
• Unlisted Cos
• AUTs/UK OEICs
• Interest
• Non qualifying property
• Derivatives (not for hedging)
• Gold
• Gilts
• Cash
60%+
Non-UK cos
Platforms
(ISAs)
Benefits
• On shore
• Available to all
• No tax in PAIF or SD
• DTT may be beneficial
Issues
• Streaming
• Platforms: tax at AUT for exempts
Operational considerations – a PAIFcase study
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
• 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
Key choices for a new PAIF – managing operations across a Master - Feeder
Looking forwardChange of the status quo
Shifting sands
Future proofing
New structures to access new markets
Compliance
Documents need updating
Cost and compliance increases
Will personal tax changes affect investor behaviour?
Dividends v PAIF and REIT income
Savings and ISAs
IHT and domicile
Underlying assets are changing
Tripwires increase
Impact on structures/ issues
No one size fits all
The open v closed ended debate
Hybrid structures
Growth in popularity
More mainstream
Innovation to differentiate/ succeed
Build your own
Onshoring: set to continue
Who, what, why?
REIT PAIFs ACS ELTIF?
Impact of fee debate and partnership changes on PERE
Mergers
Impact of AIFMD
Questions and panel discussion
Contact details
Paolo Alonzi
: +44 (0) 131 245 2762
mob: +44 (0) 7764 883 988
Stuart Donald
: +44 (0) 131 549 4537
mob: +44 (0) 7740 897 195
Mark Meiklejon
: +44 (0) 131 245 0962
mob: +44 (0) 771 248 5509
13074986
Pamela Thompson
: 0845 497 0577
mob: +44 (0) 788 0716 105
Cathryn Vanderspar
: 0845 497 4748
mob: +44 (0) 7771 504 627