What property funds need to know about the CCIV structure
Property funds now have an alternative to the Managed Investment Scheme (MIS) structure, after the new Corporate Collective Investment Vehicle (CCIV) regime commenced on 1 July 2022.
The CCIV structure has been a long time coming, first discussed back in 2009. Why is it now relevant for Australia, and for property funds?
A CCIV shares features commonly found in overseas markets including Europe, the UK, and Singapore – for property funds looking to attract foreign investors, the CCIV regime offers a corporate funds vehicle that will be familiar to offshore investors and fund managers. A CCIV can also be used for the purposes of the Asia Region Funds Passport, which facilitates the offering of collective investment products to participating regions.
Before the CCIV, Australian investment funds were limited to the MIS structure, which is typically structured as a trustee-beneficiary relationship governed by a trust deed.
The CCIV regime is complex, but a CCIV essentially is a company limited by shares, that is a new type of collective investment vehicle in Australia. A CCIV is an umbrella investment vehicle, which will have one or more sub-funds, and is operated by a single corporate director.
Members investing via a CCIV structure have access to certain protections and remedies that are available to members of a company, which are not available under an MIS structure. For example, members can pursue a ‘statutory oppression remedy’ if they feel they have been unfairly treated as a shareholder, and they may employ a ‘statutory derivative action’, which allows a member to bring or intervene in legal proceedings on behalf of the CCIV in certain circumstances.
Pros and Cons for property funds
Some potential pros for the CCIV structure include:
Each sub-fund under the CCIV has its own assets and liabilities: this ensures the business of each sub-fund is protected from the business of other sub-funds under the CCIV; it also allows counterparties and creditors to deal specifically with a particular sub-fund for transactions, and in times of insolvency. All sub-funds are registered separately with ASIC, with clear identification and segregation of assets and liabilities.
Greater protection for investors from other sub-funds in the business: the sub-fund structure with segregated assets and liabilities means investors in a particular sub-fund are also quarantined from the business of other sub-funds under the CCIV. This includes potential tax benefits, which are also quarantined for the benefit of investors in each sub-fund.
Potentially attractive for fund managers considering master trust or platform-style investments: cross investments across different sub-funds is generally allowed.
Potentially attractive for funds which are targeting offshore investors: the CCIV structure shares characteristics with investment structures found in markets such as Europe, the UK and Singapore.
Potential cons include:
Complexity: while there are some advantages, there are also complexities including the need to register each sub-fund separately with ASIC, even where the CCIV is being offered to wholesale clients only.
Other complexities include the requirement to conduct a solvency test on dividends/distributions and redemptions, which is not required under an MIS. Also note that wholesale CCIVs are obligated to keep financial records in relation to it and each of its sub-funds, while a wholesale MIS is exempt from the statutory requirements relating to financial records.
The CCIV regime gives property funds another option for developing new investment products. Whether it will be a more appropriate structure when compared to an MIS depends on several factors, such as the type of investment made by the investment vehicle, the target market, and whether it is intended to be offered to wholesale or retail investors. For more information, there is an interesting table on the Hall & Wilcox website which outlines the key differences between the CCIV and MIS structures.