The UK government is to move ahead with legislation to create the reserved investor fund (RIF), a new investment structure that could enable UK-based real estate fund managers to avoid going offshore.
Coinciding with yesterday’s Budget announcement, the UK Treasury published responses to its recent consultation and said it would begin legislating for the RIF through the Spring 2024 Finance Bill.
Melville Rodrigues, head of real assets at Apex Group, who has been the leading proponent of the RIF and initially proposed the idea to the Treasury and UK regulators, said he expected it to be “utilised by UK fund managers of all sizes, from SMEs to larger managers”.
The concept behind the RIF gained momentum within the UK’s real estate funds industry several years ago and in 2020 the government was urged to close “a gap in the UK’s existing funds range” which encouraged fund managers to opt for offshore vehicles.
Independent consultant John Forbes, who specialises in real estate funds, wrote in an update report that the RIF was based on the existing co-ownership contractual scheme “without the regulatory baggage of being fully authorised”. He said: “It has many of the attractive features of an offshore unit trust, but onshore.”
Rodrigues said the announcement was “welcome news for fund managers in the UK, and for me personally after having put a lot of work into getting us here”.
Rodrigues said the introduction of the RIF would mean UK fund managers would “no longer be forced offshore, and can produce better returns for UK pension investors and their members”.
He added that it would level the playing field between smaller and larger fund managers, and would help in “attracting pension funds and other productive capital to invest in regenerating town centres and accelerating net-zero goals”.
Stephen Palmer, director of UK-based DTZ Investors, said: ”I am pleased to hear that the government is committed to the introduction of the RIF. It has been a long road to get to this point and, whilst there have been contributors from across the industry, Melville Rodrigues has championed this initiative for almost five years now, and he deserves credit for the Budget announcement.”
“As I see it, the RIF will bring advantages for both fund managers and investors. Small and medium-sized investment firms operating in the UK will benefit from lower fund structuring and set-up costs, and investors will have access to a highly flexible unauthorised UK domiciled fund structure that is both closed ended and tax transparent.”
Palmer said the RIF would “also fit well with other vehicles aimed at promoting investment in long-term less liquid assets”, citing the recently established long-term asset fund and authorised contractual schemes.
Fund managers can also consider the unlisted real estate investment trust, which came into effect in the UK in 2022, but Forbes said he expected the RIF to be ”the preferred vehicle in many situations”. Forbes added: “We strongly support the introduction of the RIF.”
Paul Richards, managing director of the Association of Real Estate Funds (AREF), said: “We share the government’s confidence that ‘the RIF will be a fund vehicle which serves as a valuable addition to the UK’s fund range’ and look forward to our continuing engagement with government in developing the RIF implementation legislation.
“This fund structure has seen particular support amongst our members and in the real estate sector more generally.”
Richards added: ”Our sector has needed the RIF solution that, while complementing the available open-ended structures, plugs a gap in the UK fund offering and competes with offshore alternatives – a closed-ended or hybrid fund structure that is effectively tax transparent and unit transfers not inhibited by transaction tax.”
Lonneke Löwik, CEO of the European Association for Investors in Non-Listed Real Estate Vehicles (INREV), said: “We were very pleased that the Spring Budget included the proposal on the RIF. We have long advocated the addition of a closed end or hybrid fund vehicle in the UK for pension funds and other institutional investors and the news that the proposal is moving forward is very welcome.”
“The close cooperation between government and industry bodies leading to the development of the RIF has been excellent. We look forward to working with government as the proposal which offers more choice of investment vehicles to investors moves through to the next steps to roll-out to the market and expect quick take-up of the new vehicle.”
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