The 19th of March isn’t a big anniversary. No great people born, no nations founded, no scientific breakthroughs.
You’ll perhaps forgive me for suggesting that this time it’s different.
From 19 March 2025, fund managers can now launch Reserved Investor Funds in the UK. It is a birth, a founding and a breakthrough in its own modest way.
And hindsight might just show this was the point from which billions in investments started flowing towards essential social and economic infrastructure – fulfilling long-sought policy objectives.
Low-cost design
The RIF, as it’s known for short, is a new UK onshore fund structure specifically designed for private assets like housing, commercial real estate, infrastructure and crucial economic projects.
It is also able to keep costs – often assessed in the market as a ‘total expense ratio’ (TER) – much lower than investors in these asset classes are used to. That’s how I designed it.
A low fee option will be attractive to the UK pensions master trust sector, for example. Such DC funds already have some £200 billion in aggregated assets and are growing fast. The funds are committed to keeping fees low for their savers and are yet to embrace private assets. The RIF will be a valuable tool.
RIF light-touch regulatory regime
The RIF largely models co-ownership authorised contractual schemes. Regulators classify it as a UK alternative investment fund and require it to have a UK alternative investment fund manager (AIFM). This AIFM will make decisions on behalf of the RIF investors about the acquisition, management and disposal of assets. RIF must also have a depositary.
Fund managers who use the structure can market it to professional investors (and, under some circumstances, high net worth individuals) and investors with the scale to allocate more than £1 million.
You can have a closed-ended RIF or a hybrid one with, say, quarterly redemptions. It has a light-touch regulatory regime. You can launch a RIF quickly.
In the main the RIF is more flexible than some other funds. Fund managers, pension schemes and other guardians of large capital pools have endorsed the RIF. The RIF will be useful for holding underlying real estate in the UK, or (combining with a Qualified Asset Holding Company) in mainland Europe and elsewhere.
Under UK tax law, the RIF is transparent for income tax purposes, should not be subject to capital gains tax (albeit investors are subject to tax on the realisation of their RIF units), nor stamp tax on purchases of units in a scheme that meets the conditions of a RIF. This lack of stamp duty is likely to be a gamechanger – the tax is why so much of the UK real estate funds industry was forced offshore all those years ago. The RIF changes things back because it’s an onshore vehicle.
After years spent working on this, the moment when the UK government legislated for the RIF in late February was one to savour.
Comparisons with the LTAF
Throughout this period – and I expect in future – I have been asked about the RIF and the UK’s relatively new Long-Term Asset Fund. How do they compare and how might they fit together?
For UK regulatory purposes the LTAF is authorised – meaning it must be open-ended – whereas the RIF is unauthorised, and hence operates within a lighter-touch regime as well as flexible on redemptions. There is a “horses for courses” dynamic: the LTAF and RIF with different structuring solutions striving towards the same goal.
As we’ve seen, several large asset managers – with an eye on DC clients – have taken the plunge with LTAFs. LTAFs (including multi-asset LTAFs) can implement real estate strategies via the RIFs.
Alternatively DC master trusts – with their understandable TER focus – may prefer indirect real estate commitments via RIFs: no need for an LTAF conduit.
If early soundings from the market about RIFs are anything to go by, it would be reasonable to expect a crescendo of launches in the coming years.
Melville Rodrigues is architect behind the Reserved Investor Fund and also head of real estate advisory at Apex Group
