A key policy objective of the recently introduced corporate collective investment vehicle (CCIV) framework is increasing the competitiveness of Australia’s managed funds industry internationally to attract offshore investment. Most (but not all) of our clients that raise foreign capital have experienced challenges in ‘selling’ the managed investment scheme (MIS) trust structure.
Partner Elliott Stumm says if you do, or may, seek to attract foreign capital, then you should think about using the CCIV which was developed to make raising foreign money easier.
However, ‘international recognisability’ being a key benefit of the CCIV has led to people thinking it is a vehicle only worth considering if you have or are looking to attract offshore investors. We are often asked, ‘Why would I use the CCIV when I only have Australian investors?’.
While recognition internationally may be one benefit, there are many other benefits that make the CCIV an attractive vehicle for domestically focussed fund managers. You should think about why a CCIV is internationally recognisable—and why a corporate vehicle has become dominant in so many jurisdictions. Before dismissing the vehicle, think about all the pro and cons and weigh them up to see if the vehicle is right for you.
While there are several similarities between the CCIV and the MIS, there are some key differences—the biggest being the CCIV is a company and not a trust. But it does not stop there. The CCIV resolves many of the issues which have plagued fund managers for years as a consequence of the use of trusts as a collective investment structure. For example, there are many issues that need to be managed when establishing a ‘multi-class’ trust, a key issue being the risk of contamination across classes. Each sub-fund of a CCIV is a distinct, segregated, protected, and generally separately regulated part of a CCIV. Anything that goes wrong with one sub-fund should not impact any other sub-fund. The CCIV is essentially designed to operate as an ‘umbrella vehicle’ which makes it very attractive for fund managers across all asset classes.
In addition, some of the issues associated with the use of a trust as an investment vehicle have led to complicated structuring. Several structures have been devised to minimise the risks associated with a trust not having its own personality and the trustee (an AFS licensee) being the legal entity that holds assets and enters into contracts. In some instances, the best structure from a liability and risk perspective is the ‘head-trust-sub-trust(s)’ structure (sometimes a ‘head-trust-mid-trust(s)-sub-trust(s)’ structure is the better choice). These structures are sometimes used so a two dollar company is the legal holder of risky assets or is the borrower under debt facilities and the AFS licensed entity is not in the direct line of fire should something go wrong. As a consequence of the built in protection afforded to a licensee by the CCIV having its own legal personality, the structuring of funds will be simpler for various fund types and things will be operationally easier. While having a sub-fund of a CCIV invest via interposed trusts may be appropriate in some instances, it is not likely they will need to be used as widely as they are for MISs. Instead, the CCIV will be the legal holder of assets and will be the borrower under debt facilities.
It is important you receive the right advice at the right time before making any decisions. We have followed the development of the CCIV for years and encourage you to contact us so we can discuss whether and how the vehicle may benefit your business.
Read our CCIV Guide for details about the steps to get started and how to launch a CCIV product in the market. We recently secured the first CCIV licence in Australia and can help you get the authorisations you need and launch your CCIV product.
Get in touch with partners Elliott Stumm and Langton Clarke or a member of our Funds Management team for help understanding the new regime.