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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)
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.
BUSTING THE MYTH- INTERNATIONAL RECOGNISABILITY
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.
WHAT ARE THE PROS AND CONS?
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
GET IN TOUCH WITH US
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
Get in touch with partners Elliott Stumm and Langton Clarke or a
member of our Funds Management team for help understanding the new
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.SETLIVE
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