Since the introduction of legislation by the UK government to allow open-ended investment companies to elect into a tax-efficient regime – Property Authorised Investment Funds or PAIFs – with benefits for both the company and its investors, until 2012 there was relatively little take up for existing funds (or investors) or those establishing new UK property funds to convert into PAIFs. This was driven by three key issues: the prevailing economic climate at the time of launch of the concept; issues with administration of tri-furcated income from PAIFs and finally general lack of understanding as to the process for conversion and the benefits associated with the conversion – which are significant. Since mid-2012 there have been a plethora of conversions across the UK real estate funds spectrum.
So what’s changed and why convert to or set up PAIF now?
The four most significant changes that have impacted appetite for PAIFs are:
Firstly, there has been a tangible change in the economic profile and expectation in the UK where funds are finally seeing renewed capital appetite for UK property (often a wider economic leading indicator) and with that comes keaner consideration of fees, structures, tax efficiency and good governance in an increasingly competitive sector.
Secondly, the pragmatic issues around the ability of fund administrators and platforms to administer the triple income streams of income on distribution to investors has slowly been relieved as service providers have begun the process of system upgrades to tackle the complications arising from tri-furcated income from PAIFs.
Thirdly following the legislative impact of AIFMD in July 2013 (with pragmatic impact by July 2014) AIFMD compliant funds (such as PAIFs) will be more easily promoted across the EU and indeed globally. Those funds that choose not to comply – together with the impact of FCA PS 13/3 – will undoubtedly struggle in the forthcoming cycle.
Finally there is now greater experience and knowledge in the process and key issues for converting to or establishing PAIF funds – legally, regulatory, tax and accounting. Such conversions are complex but the benefits associated are significant for all parties.
North Star Corporate Finance has unique experience in this niche area.
Please contact North Star Corporate Finance for further details and we’d be pleased to outline how we could work with you.