New Charity Investment Vehicle
Currently many charities invest in common investment funds. These are collective investment funds that may only make their investments available to charities.
CIFs provide a means for charities to diversify their investments in order to spread investment risk. They are registered as charities with the Charity Commission but are not authorised or directly regulated by the Financial Conduct Authority (FCA). The lack of regulatory oversight by the FCA has been seen by many as a weakness, given that the Charity Commission has made it clear that it is not a financial regulator.
Budget Proposals
The Government announced in the Budget, in March 2015, that a new investment vehicle for charities would be introduced, to be known as a Charity Authorised Investment Fund (CAIF). This follows discussions between the Government, the Charity Commission, the FCA and the Charity Investors' Group.
Unlike CIFs, CAIFs will be authorised and regulated by the FCA and will thereby benefit from the same regulatory oversight as funds for retail investors. They will also benefit from a VAT exemption on investment fees. This should make CAIFs a more attractive investment vehicle for charities than CIFs.
CAIFs will be established for the charitable purpose of 'promoting the efficiency and effectiveness of charities' and will need to register as charities with the Charity Commission in their own right. Existing CIFs will be able to convert to CAIFs.
Next Steps
Work still needs to be done on the authorisation process that will be adopted by the FCA and further announcements will then be made.