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COLL 5.6 Investment powers and borrowing limits for non-UCITS retail schemes

Application

COLL 5.6.1R
  1. (1)

    This section applies to the authorised fund manager and the depositary of a non-UCITS retail scheme and to an ICVC which is a non-UCITS retail scheme.

  2. (2)

    Where this section contains a reference to a rule in any of COLL 5.1 to COLL 5.5 , these rules and any rules to which they refer or any relevant guidance should be read as if any reference to a UCITS scheme is to a non-UCITS retail scheme.

Explanation of COLL 5.6

COLL 5.6.2G

  1. (1)

    This section contains rules on the types of permitted investments and any relevant limits with which non-UCITS retail schemes must comply. These rules allow for the relaxation of certain investment and borrowing powers from the requirements of the UCITS Directive. Consequently, a scheme authorised as a non-UCITS retail scheme will not qualify for the cross border passporting rights conferred by the UCITS Directive on a UCITS scheme.

  2. (2)

    Some examples of the different investment and borrowing powers under the rules in this section for non-UCITS retail schemes are the power to:

    1. (a)

      invest not more than 10% of the value of scheme property in transferable securities or money-market instruments issued by any single body;

    2. (b)

      invest in up to 20% in aggregate of the value of the scheme property in transferable securities which are not approved securities and unregulated schemes;

    3. (c)

      invest in a wider range of schemes which do not comply with the requirements of the UCITS Directive;

    4. (d)

      include gold in the scheme property (up to a limit of 10% of the value of the scheme property);

    5. (e)

      include immovables in the scheme property; and

    6. (f)

      borrow on a non-temporary basis without any specific time limit as to repayment of the borrowing.

Prudent spread of risk

COLL 5.6.3R

  1. (1)

    An authorised fund manager must ensure that, taking account of the investment objectives and policy of the non-UCITS retail scheme as stated in its most recently published prospectus, the scheme property of the non-UCITS retail scheme aims to provide a prudent spread of risk

  2. (1A)

    For a feeder NURS, (1) applies only to the extent that the feeder NURS invests in assets other than units of its qualifying master scheme.17

  3. (2)

    Subject to (3) and (4), the 10 rules in this section relating to spread of investments, including immovables,10 do not apply until 12 months after the later of:

    1010
    1. (a)

      the date when the authorisation order in respect of the non-UCITS retail scheme takes effect; and

    2. (b)

      the date the initial offer commenced;10

    provided that (1) is complied with during such period.

  4. (3)

    10Subject to (4), the limits in COLL 5.6.19 R do not apply until 24 months after the later of:

    1. (a)

      the date when the authorisation order in respect of the non-UCITS retail scheme takes effect; and

    2. (b)

      the date the initial offer commenced;

    provided that (1) is complied with during such period.

  5. (4)

    The limit in COLL 5.6.19 R (7) relating to immovables which are unoccupied and non-income producing or are in the course of substantial development, redevelopment or refurbishment applies from the later of the date when the authorisation order in respect of the non-UCITS retail scheme takes effect and the date the initial offer period commenced.

Investment powers: general

COLL 5.6.4R

  1. (1)

    The scheme property of a non-UCITS retail scheme may, subject to the rules in this section, comprise any assets or investments to which it is dedicated.

  2. (2)

    For an ICVC, the scheme property may also include movable or immovable property that is necessary for the direct pursuit of the ICVC's business of investing in those assets or investments.

  3. (3)

    The scheme property must be invested only in accordance with the relevant provisions in this section that are applicable to that non-UCITS retail scheme and within any upper limit specified in this section.

  4. (4)

    The instrument constituting the fund20 may restrict the investment powers of a scheme further than the relevant restrictions in this section.

    20
  5. (5)

    The scheme property may only, except where otherwise provided in the rules in this section, consist of any one or more of:

    1. (a)

      transferable securities;

    2. (b)

      money-market instruments;

    3. (c)

      units in collective investment schemes permitted under COLL 5.6.10 R (Investment in collective investment schemes);

    4. (d)

      derivatives and forward transactions permitted under COLL 5.6.13 R (Permitted transactions (derivatives and forwards));

    5. (e)

      deposits permitted under COLL 5.2.26 R (Investment in deposits);

    6. (f)

      immovables permitted under COLL 5.6.18 R (Investment in property) to5 COLL 5.6.19 R (Investment limits for immovables); and

      5
    7. (g)

      gold up to a limit of 10% in value of the scheme property.

Eligibility of transferable securities and money-market instruments for investment by a non-UCITS retail scheme10

COLL 5.6.5R

Transferable securities and money-market instruments held within a non-UCITS retail scheme must:

  1. (1) 2
    1. (a)

      be admitted to or dealt in on an eligible market within COLL 5.2.10 R (Eligible markets: requirements); or9

    2. (b)

      be recently issued transferable securities which satisfy the requirements for investment by a UCITS scheme set out in COLL 5.2.8 R (3)(e); or9

    3. (c)

      be approved money-market instruments not admitted to or dealt in on an eligible market which satisfy the requirements for investment by a UCITS scheme set out in 10COLL 5.2.10A R to COLL 5.2.10C R10; or9

  2. (2)

    subject to a limit of 20% in value of the scheme property be:

    1. (a)

      transferable securities which are not within (1)9; or

      9
    2. (b)

      money-market instruments which are liquid and have a value which can be determined accurately at any time.

COLL 5.6.5AR

10Transferable securities held within a non-UCITS retail scheme must also satisfy the criteria in COLL 5.2.7A R, COLL 5.2.7C R and COLL 5.2.7E R for the purposes of investment by a UCITS scheme.

COLL 5.6.5BG

10COLL 5.2.7A R to COLL 5.2.7E R contain rules and guidance relating to the criteria that need to be satisfied for the purposes of investment in transferable securities.

COLL 5.6.5CR

13Where a scheme is a short-term money market fund or a money market fund, the ability to hold up to 20% of scheme property in ineligible assets under COLL 5.6.5 R (2) is limited to high quality approved money-market instruments as determined under COLL 5.9.6 R (High quality money market instruments).

Money Market funds

COLL 5.6.5DR

13Approved money-market instruments held within a non-UCITS retail scheme which is a short-term money market fund or money market fund must also satisfy the criteria in COLL 5.2.7F R to COLL 5.2.7H R (Approved money-market instruments).

Valuation

COLL 5.6.6R

In this section the value of the scheme property means the value of the scheme property determined in accordance with COLL 5.2.5 R (Valuation).

Spread: general

COLL 5.6.7R

  1. (1)

    This rule does not apply in respect of a transferable security or an approved money-market instrument to which COLL 5.6.8R (Spread: government and public securities) applies21.

  2. (2)

    Not more than 20% in value of the scheme property is to consist of deposits with a single body.

  3. (3)

    Not more than 10% in value of the scheme property is to consist of transferable securities or money-market instruments issued by any single body subject to COLL 5.6.23 R (Schemes replicating an index).

  4. (3A)

    The limit of 10% in (3) is raised to 25% in value of the scheme property in respect of covered bonds.9

  5. (4)

    In applying (3) certificates representing certain securities are to be treated as equivalent to the underlying security.

  6. (5)

    The exposure to any one counterparty in an OTC derivative transaction must not exceed 10% in value of the scheme.

  7. (6)

    Except for 21 a feeder NURS17 or a scheme dedicated to units in a single property authorised investment fund,11 not more than 35% in value of the scheme is to consist of the units of any one scheme.

  8. (6A)

    11Schemes which (in respect of investment in units in collective investment schemes) are dedicated to units in a single property authorised investment fund or qualifying master scheme17 must, in addition to the investment in the property authorised investment fund or qualifying master scheme17, only hold cash or near cash to maintain sufficient liquidity to enable the scheme to meet its commitments, such as redemptions. Schemes may also use techniques and instruments for the purpose of efficient portfolio management, where appropriate, such as forward foreign exchange transactions entered into for the purpose of reducing the effect of fluctuations in the rate of exchange between relevant currencies.

  9. (7)

    For the purpose of calculating the limit in (5), the exposure in respect of an OTC derivative may be reduced to the extent that collateral is held in respect of it if the collateral meets each of the conditions specified in (8).2

  10. (8)

    The conditions referred to in (7) are that the collateral:2

    1. (a)

      is marked-to-market on a daily basis and exceeds the value of the amount at risk;2

    2. (b)

      is exposed only to negligible risks (e.g. government bonds of first credit rating or cash) and is liquid;2

    3. (c)

      is held by a third party custodian not related to the provider or is legally secured from the consequences of a failure of a related party; and2

    4. (d)

      can be fully enforced by the non-UCITS retail scheme at any time.2

  11. (9)

    For the purpose of calculating the limit in (5), OTC derivative positions with the same counterparty may be netted provided that the netting procedures:2

    1. (a)

      comply with the conditions set out in Part Three, Title II, Chapter 6, Section 719(Contractual netting (Contracts for novation and other netting agreements)) of the EU CRR;19 and2

      1919
    2. (b)

      are based on legally binding agreements.2

  12. (10)

    In applying this rule, all derivatives transactions are deemed to be free of counterparty risk if they are performed on an exchange where the clearing house12 meets each of the following conditions:2

    12
    1. (a)

      it is backed by an appropriate performance guarantee; and2

    2. (b)

      it is characterised by a daily mark-to-market valuation of the derivative positions and an at least daily margining.2

  13. (11)

    4For the purposes of this rule a single body is:

    1. (a)

      in relation to transferable securities and money market instruments, the person by whom they are issued; and

    2. (b)

      in relation to deposits, the person with whom they are placed.

2Guidance on spread: general

COLL 5.6.7AG
  1. (1)

    2COLL 5.6.7 R (7) to (10) replicate the provisions of Article 5 of the Commission Recommendation 2004/383/EC of 27 April 2004 on the use of financial derivative instruments for undertakings for collective investment in transferable securities, so as to enable non-UCITS retail schemes to benefit from the same flexibility.

    11
  2. (2)

    The attention of authorised fund managers is specifically drawn to condition (d) in COLL 5.6.7 R (8) under which the collateral has to be legally enforceable at any time. It is the FCA's view that it is advisable for an authorised fund manager to undertake a legal due diligence exercise before entering into any financial collateral arrangement. This is particularly important where the collateral arrangements in question have a cross-border dimension. The depositary will also need to exercise reasonable care to review the collateral arrangements in accordance with its duties under COLL 6.6.4 R (General duties of the depositary).

  3. (3)

    4In applying the spread limit of 20% in value of scheme property which may consist of deposits with a single body, all uninvested cash comprising capital property that the depositary holds should be included in calculating the total sum of the deposits held by it on behalf of the scheme.

Spread: government and public securities

COLL 5.6.8R

  1. (1)

    This rule applies in respect of a transferable security or an approved money-market instrument (“such securities”) that is issued or guaranteed by:21

    1. (a)

      21an EEA State; or

    2. (b)

      21a local authority of an EEA State; or

    3. (c)

      21a non-EEA State; or

    4. (d)

      21a public international body to which one or more EEA States belong.

  2. (2)

    The requirements in COLL 5.2.12 R (Spread: government and public securities) apply to investment in such securities 21by a non-UCITS retail scheme, except for COLL 5.2.12R(3)(d), 21which applies 21to such a scheme only to the extent that it concerns the most recently published prospectus of the scheme1.

Investment in9 nil and partly paid securities

COLL 5.6.9R

A non-UCITS retail scheme must not invest in nil and partly paid securities unless the investment complies with the conditions in COLL 5.2.17 R (Investment in nil and partly paid securities).

99

Investment in collective investment schemes

COLL 5.6.10R

A non-UCITS retail scheme, except for a feeder NURS (which must instead comply with COLL 5.6.26 R),17 must not invest in units in a collective investment scheme (second scheme) unless the second scheme meets each of the requirements at (1) to (5)3:

3
  1. (1)

    the second scheme:

    1. (a)

      satisfies the conditions necessary for it to enjoy the rights conferred by the UCITS Directive; or

    2. (b)

      is a non-UCITS retail scheme; or

    3. (c)

      is a recognised scheme; or

    4. (d)

      is constituted outside the United Kingdom and the investment and borrowing powers of which are the same or more restrictive than those of a non-UCITS retail scheme; or

    5. (e)

      is a scheme not falling within (a) to (d) and in respect of which no more than 20% in value of the scheme property (including any transferable securities which are not approved securities) is invested;

  2. (2)

    the second scheme operates on the principle of the prudent spread of risk;

  3. (3)

    the second scheme is prohibited from having more than 15% in value of the property of that scheme consisting of units in collective investment schemes (unless COLL 5.6.10AR applies)21;

    3
  4. (4)

    the participants in the second scheme must be entitled to have their units redeemed in accordance with the scheme at a price:

    1. (a)

      related to the net value of the property to which the units relate; and

    2. (b)

      determined in accordance with the scheme; and3

      3
  5. (5)

    where the second scheme is an umbrella, the provisions in (2) to (4) and COLL 5.6.7 R (Spread: general) 2apply to each sub-fund as if it were a separate scheme.

Investment in feeder schemes

COLL 5.6.10AR
  1. (1)

    21A non-UCITS retail scheme that is not a feeder NURS may, if the conditions in (2) to (5) are met, invest in units of:

    1. (a)

      a feeder UCITS; or

    2. (b)

      a feeder NURS; or

    3. (c)

      a scheme dedicated to units in a single property authorised investment fund; or

    4. (d)

      a scheme dedicated to units in a recognised scheme.

  2. (2)
    1. (a)

      The relevant master UCITS must comply with COLL 5.2.13R(2), (3) and (4) as if it were the second scheme for the purpose of that rule.

    2. (b)

      The relevant qualifying master scheme, property authorised investment fund or recognised scheme must comply with COLL 5.6.10R(2) to (5) as if it were the second scheme for the purpose of that rule.

  3. (3)

    Not more than 35% in value of the scheme property of the non-UCITS retail scheme may consist of units of one or more schemes permitted under (1)(a) to (d).

  4. (4)

    The non-UCITS retail scheme must not invest directly in units of the relevant master UCITS, qualifying master scheme, property authorised investment fund or recognised scheme.

  5. (5)

    The authorised fund manager of the non-UCITS retail scheme must be able to show on reasonable grounds that an investment in one or more schemes permitted under (1)(a) to (d) is:

    1. (a)

      in the interests of investors; and

    2. (b)

      no less advantageous than if the non-UCITS retail scheme had held units directly in the relevant:

      1. (i)

        master UCITS; or

      2. (ii)

        qualifying master scheme; or

      3. (iii)

        property authorised investment fund; or

      4. (iv)

        recognised scheme.

COLL 5.6.10BG

21When determining whether an investment is no less advantageous for COLL 5.6.10AR(5)(b), an authorised fund manager should have regard in particular to:

  1. (1)

    the risk profile of the non-UCITS retail scheme;

  2. (2)

    the total costs borne by the non-UCITS retail scheme; and

  3. (3)

    the benefits to investors of investing in units of one or more schemes permitted under COLL 5.6.10AR (1)(a) to (d).

COLL 5.6.10CG

21A non-UCITS retail scheme that is a feeder NURS is required to comply with COLL 5.6.26R instead of COLL 5.6.10AR.

Investment in associated collective investment schemes

COLL 5.6.11R
  1. (1)

    15Units in a scheme do not fall within COLL 5.6.10 R if that scheme is managed or operated by (or, if it is an ICVC, has as its ACD) the authorised fund manager of the investing non-UCITS retail scheme or by an associate of that authorised fund manager, unless:

    15
    1. (a)

      the prospectus of the investing authorised fund clearly states that the property of that investing fund may include such units; and

    2. (b)

      the conditions in COLL 5.2.16 R (Investment in other group schemes) are complied with.

  2. (2)

    15Where a sub-fund of a non-UCITS retail scheme which is an umbrella invests in or disposes of units in another sub-fund of the same umbrella (the second sub-fund), the requirement in:

    15
    1. (a)

      COLL 5.6.11 R (1)(a) is modified as follows - the prospectus of the umbrella must clearly state that the scheme property attributable to the investing or disposing sub-fund may include units in another sub-fund of the same umbrella; and

    2. (b)

      COLL 5.6.11 R (1)(b) is modified as follows - COLL 5.2.16 R (Investment in other group schemes) must be complied with, modified such that references to the "UCITS scheme" are taken to be references to the investing or disposing sub-fund and references to the "second scheme" are taken to be references to the second sub-fund.

Derivatives: general

COLL 5.6.12R

  1. (1)

    A transaction in derivatives or a forward transaction must not be effected for a non-UCITS retail scheme unless the transaction is:

    1. (a)

      of a kind specified in COLL 5.6.13 R2 (Permitted transactions (derivatives and forwards)); and

      2
    2. (b)

      covered, as required by COLL 5.3.3A R (Cover for investment in derivatives and forward transactions).14

      14
  2. (2)

    Where a scheme invests in derivatives, the exposure to the underlying assets must not exceed the limits in COLL 5.6.7 R (Spread: general) and COLL 5.6.8 R (Spread: government and public securities) except as provided in (4).

  3. (3)

    Where a transferable security or money-market instrument embeds a derivative, this must be taken into account for the purposes of calculating any limit in this section.

  4. (4)

    Where a scheme invests in an index-based derivative, provided the relevant index falls within COLL 5.6.23 R (Schemes replicating an index) the underlying constituents of the index do not have to be taken into account for the purposes of COLL 5.6.7 R and COLL 5.6.8 R.

  5. (5)

    The relaxation in (4) is subject to the authorised fund manager taking account of COLL 5.6.3 R (Prudent spread of risk).

Permitted transactions (derivatives and forwards)

COLL 5.6.13R

  1. (1)

    A transaction in a derivative must be within COLL 5.2.20 R (1) (Permitted transactions (derivatives and forwards)) and:

    1. (a)

      the underlying must be within COLL 5.6.4 R (5) (Investment powers: general) or COLL 5.2.20R (2)(f) to (i)2; and

      2
    2. (b)

      the exposure to the underlying must not exceed the limits in COLL 5.6.7 R (Spread: general),9 COLL 5.6.8 R (Spread: government and public securities) and COLL 5.6.5 R (2).9

      9
  2. (2)

    A transaction in an approved derivative must be effected on or under the rules of an eligible derivatives market.

  3. (3)

    A transaction in a derivative must not cause a scheme to diverge from its investment objectives as stated in the instrument constituting the fund20 and the most recently published prospectus.

    20
  4. (4)

    transaction in a derivative must not be effected if the intended effect is to create the potential for an uncovered sale of:

    1. (a)

      transferable securities;

    2. (b)

      money-market instruments;

    3. (c)

      units in collective investment schemes; or

    4. (d)

      derivatives.

  5. (5)

    Any forward transaction must be made with an eligible institution or an approved bank.

  6. (6)

    The authorised fund manager must ensure compliance with COLL 5.3.3A R (Cover for investment in derivatives and forward transactions), COLL 5.3.3B R and COLL 5.3.3C R (Daily calculation of global exposure).16

    16

Transactions for the purchase or disposal of property

COLL 5.6.14R

The requirements of COLL 5.2.21 R (Transactions for the purchase of property) and COLL 5.2.22 R (Requirement to cover sales) apply to non-UCITS retail schemes in the same manner as to UCITS schemes.

OTC transactions in derivatives

COLL 5.6.15R

Any transaction in an OTC derivative under COLL 5.6.13 R (Permitted transactions (derivatives and forwards)) must comply with the requirements of COLL 5.2.23 R (OTC transactions in derivatives).

Risk management9

COLL 5.6.16R

An authorised fund manager must use a risk management process enabling it to monitor and measure as frequently as appropriate the risk associated with a non-UCITS retail scheme's positions and their contribution to the overall risk profile of the scheme.

9

Risk management process

COLL 5.6.17G

  1. (1)

    The risk management process should take account of the investment objectives and policy of the non-UCITS retail scheme as stated in its most recent prospectus.

  2. (2)

    The depositary should take reasonable care to review the appropriateness of the risk management process in line with its duties under COLL 6.6.4 R (General duties of the depositary) and COLL 6.6.14 R (Duties of the depositary and authorised fund manager: investment and borrowing powers)2, as appropriate.

    2
  3. (3)

    An authorised fund manager is expected to demonstrate more sophistication in its risk management process for a non-UCITS retail scheme with a complex risk profile than for one with a simple risk profile. In particular, the risk management process should take account of any characteristic of non-linear dependence in the value of a position to its underlying.

  4. (4)

    An authorised fund manager should take reasonable care to establish and maintain such systems and controls as are appropriate to its business as required by SYSC 4.1 (General requirements).7

    7
  5. (5)

    The risk management process should enable the analysis required by COLL 5.6.16 R (Risk management) to be undertaken at least daily or at each valuation point whichever is the more frequent.

    9

Investment in property

COLL 5.6.18R

  1. (1)

    Any investment in land or a building held within the scheme property of a non-UCITS retail scheme must be an immovable within (2) to (5).

  2. (2)

    An immovable must:

    1. (a)

      be situated in a country or territory identified in the prospectus for the purpose of this rule; and

    2. (b)

      if situated in:

      1. (i)

        England and Wales or Northern Ireland, be a freehold or leasehold interest; or

      2. (ii)

        Scotland, be any interest or estate in or over land or heritable right including a long lease; or

    3. (c)

      if not situated in the jurisdictions referred to in (b)(i) or (ii), be equivalent to any of the interests in (b)(i) or (ii) or, if no such equivalent interest is available in the jurisdiction, be an interest that grants beneficial ownership of the immovable to the scheme and provides as good a title as any of the interests in (b)(i) or (ii).5

  3. (3)

    The authorised fund manager must have taken reasonable care to determine that the title to the immovable is a good marketable title.

  4. (4)

    The authorised fund manager of an AUT or ACS18 or the ICVC must:

    18
    1. (a)

      have received a report from an appropriate valuer which:

      1. (i)

        contains a valuation of the immovable (with and without any relevant subsisting mortgage); and

      2. (ii)

        states that in the appropriate valuer's opinion the immovable would, if acquired by the scheme, be capable of being disposed of reasonably quickly at that valuation; or

    2. (b)

      have received a report from an appropriate valuer as required by (4)(a)(i) and stating that:

      1. (i)

        the immovable is adjacent to or in the vicinity of another immovable included in the scheme property or is another legal interest as defined in (2)(b) or (c) in an immovable which is already included in the scheme property; and

      2. (ii)

        in the opinion of the appropriate valuer, the total value of both immovables would at least equal the sum of the price payable for the immovable and the existing value of the other immovable.

  5. (5)

    An immovable must:

    1. (a)

      be bought or be agreed by enforceable contract to be bought within six months after receipt of the report of the appropriate valuer under (4);

    2. (b)

      not be bought, if it is apparent to the authorised fund manager that the report in (a) could no longer reasonably be relied upon; and

    3. (c)

      not be bought at more than 105% of the valuation for the relevant immovable in the report in (4).

  6. (6)

    Any furniture, fittings or other contents of any building may be regarded as part of the relevant immovable.

  7. (7)

    An appropriate valuer must be a person who:

    1. (a)

      has knowledge of and experience in the valuation of immovables of the relevant kind in the relevant area;

    2. (b)

      is qualified to be a standing independent valuer of a non-UCITS retail scheme or is considered by the scheme's standing independent valuer to hold an equivalent qualification;

    3. (c)

      is independent of the ICVC, the depositary and each of the directors of the ICVC or of the authorised fund manager18 and depositary18 of the AUT or ACS18; and

      1818
    4. (d)

      has not engaged himself or any of his associates in relation to the finding of the immovable for the scheme or the finding of the scheme for the immovable.

Investment in overseas property through an intermediate holding vehicle

COLL 5.6.18AR
  1. (1)

    5An overseas6 immovable may be held by a scheme through an intermediate holding vehicle whose purpose is to enable the holding of immovables by the scheme or a series of such intermediate holding vehicles, provided that the interests of Unitholders are adequately protected. Any investment in an intermediate holding vehicle for the purpose of holding an overseas6 immovable shall be treated for the purposes of this chapter as if it were a direct investment in that6 immovable.

    6
  2. (2)

    An intermediate holding vehicle must be wholly owned by the scheme or another intermediate holding vehicle or series of intermediate holding vehicles wholly owned by the scheme, unless and to the extent that local legislation or regulation relating to the intermediate holding vehicle holding the immovable requires a proportion of local ownership.

COLL 5.6.18BG
  1. (1)

    5The authorised fund manager may transfer capital and income between an intermediate holding vehicle and the scheme by the use of inter-company debt if the purpose of this is for investment in immovables and repatriation of income generated by such investment. In using inter-company debt, the authorised fund manager should ensure the following:

    1. (a)

      a record of inter-company debt is kept in order to provide an accurate audit trail; and

    2. (b)

      interest paid out on the debt instruments is equivalent to the net rental income earned from the immovables after deduction of the intermediate holding vehicle's reasonable running costs (including tax).

  2. (2)

    An intermediate holding vehicle should undertake the purchase, sale and management of immovables on behalf the scheme in accordance with the scheme's investment objectives and policy.

  3. (3)

    Wherever reasonably practicable, an intermediate holding vehicle should have the same auditor and accounting reference date as the scheme.

  4. (4)

    The accounts of any intermediate holding vehicle should be consolidated into the annual and interim reports of the scheme.

  5. (5)

    The authorised fund manager should provide sufficient information to enable the depositary to fulfil its duties under COLL in relation to the immovables held through an intermediate holding vehicle.

Investment limits for immovables

COLL 5.6.19R

The following limits apply in respect of immovables held as part of scheme property of a scheme:

  1. (1)

    not more than 15% in value of the scheme property is to consist of any one immovable;

  2. (2)

    in (1), immovables within COLL 5.6.18 R (4) (b) (Investment in property) must be regarded as one immovable;

  3. (3)

    the figure of 15% in (1) may be increased to 25% once the immovable has been included in the scheme property in compliance with (1);

  4. (4)

    the income receivable from any one group in any accounting period must not be attributable to immovables comprising;

    1. (a)

      more than 25%; or

    2. (b)

      in the case of a government or public body more than 35%;

    of the value of the scheme property;

  5. (5)

    not more than 20% in value of the scheme property is to consist of immovables that are subject to a mortgage3 and any mortgage must not secure more than 100% of the value in COLL 5.6.18 R (4) (on the assumption the immovable is not mortgaged);

    3
  6. (6)

    the aggregate value of:3

    3
    1. (a)

      mortgages secured on immovables under (5);3

    2. (b)

      borrowing of the scheme under COLL 5.6.22 R (5); and3

    3. (c)

      any transferable securities that are not approved securities;3

    must not at any time exceed 20% of the value of the scheme property;3

  7. (7)

    not more than 50% in value of the scheme property is to consist of immovables which are unoccupied and non-income producing or in the course of substantial development, redevelopment or refurbishment; and

  8. (8)

    no option may be granted to a third party to buy any immovable comprised in the scheme property unless the value of the relevant immovable does not exceed 20% of the value of the scheme property together with, where appropriate, the value of investments in:

    1. (a)

      unregulated collective investment schemes; and

    2. (b)

      any transferable securities which are not approved securities.

Standing independent valuer and valuation

COLL 5.6.20R

  1. (1)

    The following requirements apply in relation to the appointment of a valuer:

    1. (a)

      the authorised fund manager must ensure that any immovables in the scheme property are valued by an appropriate valuer (standing independent valuer) appointed by the authorised fund manager; and

    2. (b)

      the appointment must be made with the approval of the depositary at the outset and upon any vacancy.

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  2. (2)

    The standing independent valuer in (1) must be:

    1. (a)

      for an AUT or ACS18, independent of the authorised fund manager and depositary;18 and

      18
    2. (b)

      for an ICVC, independent of the ICVC, the directors and the depositary.

  3. (3)

    The following requirements apply in relation to the functions of the standing independent valuer:

    1. (a)

      the authorised fund manager must ensure that the standing independent valuer values all the immovables held within the scheme property, on the basis of a full valuation with physical inspection (including, where the immovable is or includes a building, internal inspection), at least once a year;

    2. (b)

      for the purposes of (a) any inspection in relation to adjacent properties of a similar nature may be limited to that of only one such representative property;

    3. (c)

      the authorised fund manager must ensure that the standing independent valuer values the immovables, on the basis of a review of the last full valuation, at least once a month;

    4. (d)

      if either the authorised fund manager or the depositary becomes aware of any matters that appear likely to:

      1. (i)

        affect the outcome of a valuation of an immovable; or

      2. (ii)

        cause the valuer to decide to value under (a) instead of under (c);

      it must immediately inform the standing independent valuer of that matter;

    5. (e)

      the authorised fund manager must use its best endeavours to ensure that any other affected person reports to the standing independent valuer immediately upon that person becoming aware of any matter within (d); and

    6. (f)

      any valuation by the standing independent valuer must be undertaken in accordance with UKPS 2.3 of the RICS Valuation Standards (The Red Book) (9th edition published November 2013) or, 21in the case of overseas immovables, 21on an appropriate basis 21 but subject to COLL 6.3 (Valuation and pricing).

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  4. (4)

    In relation to an immovable:

    1. (a)

      any valuation under COLL 6.3 (Valuation and pricing) has effect, until the next valuation under that rule, for the purposes of the value of immovables; and

    2. (b)

      an agreement to transfer an immovable or an interest in an immovable is to be disregarded for the purpose of the valuation of the scheme property unless it reasonably appears to the authorised fund manager to be legally enforceable.

COLL 5.6.20AG

8In considering whether a valuation of overseas immovables by the standing independent valuer is made on an appropriate basis for the purpose of COLL 5.6.20 R (3) (f), the authorised fund manager should consider whether that valuation was made in accordance with internationally accepted valuation principles, procedures and definitions as set out in the International Valuation Standards published by the International Valuation Standards Committee.

Stock lending

COLL 5.6.21R

A non-UCITS retail scheme may undertake stock lending in accordance with COLL 5.4 (Stock lending).

Cash, borrowing, lending and other provisions

COLL 5.6.22R

The following rules in Chapter 5 apply to a non-UCITS retail scheme:

  1. (1)

    COLL 5.2.7 R (Transferable securities);

  2. (2)

    COLL 5.5.1 R(Application) and COLL 5.5.2 R (Table of application)2;

  3. (3)

    COLL 5.5.3 R (Cash and near cash);

  4. (4)

    COLL 5.5.4 R (1), COLL 5.5.4 R (2), COLL 5.5.4 R (3) and COLL 5.5.4R (8) (General power to borrow);

  5. (5)

    COLL 5.5.5 R (1) and3 COLL 5.5.5 R (2) (Borrowing limits);

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  6. (6)

    COLL 5.5.6 R (Restrictions on lending of money) ;

  7. (7)

    COLL 5.5.7 R (1), (2) and (4)2 (Restrictions on lending of property other than money);

    2
  8. (8)

    COLL 5.5.8 R (General power to accept or underwrite placings); and

  9. (9)

    COLL 5.5.9 R (Guarantees and indemnities).

Schemes replicating an index

COLL 5.6.23R
  1. (1)

    A non-UCITS retail scheme may invest up to 20% in value of the scheme property in shares and debentures which are issued by the same body where the aim of the investment policy of that scheme as stated in its most recently published prospectus is to replicate the performance or composition of an index within (2).

  2. (2)

    The index must:

    1. (a)

      have a sufficiently diversified composition;

    2. (b)

      be a representative benchmark for the market to which it refers; and

    3. (c)

      be published in an appropriate manner.

  3. (3)

    The limit in (1) may be raised for a particular scheme up to 35% in value of the scheme property, but only in respect of one body and where justified by exceptional market conditions.

COLL 5.6.23AG
  1. (1)

    9Replication of the composition of an index shall be understood to be a reference to replication of the composition of the underlying assets of that index, including the use of techniques and instruments for the purpose of efficient portfolio management.

  2. (2)

    The composition of an index is sufficiently diversified if its components adhere to the spread requirements in this section.

  3. (3)

    An index is a representative benchmark if its provider uses a recognised methodology which generally does not result in the exclusion of a major issuer of the market to which it refers.

  4. (4)

    An index is published in an appropriate manner if:

    1. (a)

      it is accessible to the public;

    2. (b)

      the index provider is independent from the index-replicating scheme; this does not preclude index providers and the scheme from forming part of the same group, provided that effective arrangements for the management of conflicts of interest are in place.

Non-UCITS retail schemes that are umbrellas

COLL 5.6.24R

  1. (1)

    In relation to a scheme which is an umbrella, the provisions in this section apply to each sub-fund as they would for a non-UCITS retail scheme.

  2. (2)

    A sub-fund may invest in or dispose of units of15 another sub-fund of the same umbrella (the second sub-fund) only if the following conditions are satisfied:15

    15
    1. (a)

      the second sub-fund does not hold units in any other sub-fund of the same umbrella;15

    2. (b)

      the conditions in COLL 5.2.16 R (Investment in other group schemes) and COLL 5.6.11 R (Investment in associated collective investment schemes) are complied with (for the purposes of this rule, COLL 5.2.16 R and COLL 5.6.11 R are to be read as modified by COLL 5.6.11 R (2));15

      17
    3. (c)

      not more than 35% in value of the investing or disposing sub-fund is to consist of units of the second sub-fund; and1715

      17
    4. (d)

      the investing or disposing sub-fund must not be a feeder NURS to the second sub-fund.17

Guidance on syndicated loans

COLL 5.6.25G
  1. (1)

    16COLL 5.2.35 G (Guidance on syndicated loans) is equally applicable to investment by a non-UCITS retail scheme in a syndicated loan.

  2. (2)

    Where a loan falls within the Glossary definition of a transferable security, investment in such a loan in the case of a non-UCITS retail scheme is subject to the spread requirements in COLL 5.6.7 R (Spread: general). AFMs also need to bear in mind that where such a transferable security does not meet the requirements of COLL 5.6.5 R (1) (Eligibility of transferable securities and money-market instruments for investment by a non-UCITS retail scheme), the scheme's overall exposure to such loans will count towards the limit in COLL 5.6.5 R (2).

Qualifying collective investment schemes for feeder NURS17

COLL 5.6.26R

17The authorised fund manager of a feeder NURS must ensure that the feeder NURS does not invest in the qualifying master scheme, unless the qualifying master scheme meets meets the requirements in (1) to (3)21:

  1. (1)

    the qualifying master scheme:

    1. (a)

      satisfies the conditions necessary for it to enjoy the rights conferred by the UCITS Directive; or

    2. (b)

      is a recognised scheme; or

    3. (c)

      is a non-UCITS retail scheme; 21

  2. (2)

    where the qualifying master scheme is an umbrella, the provisions in COLL 5.6.7 R (Spread: general) apply to each sub-fund as if it were a separate scheme; and21

  3. (3)

    21the qualifying master scheme:

    1. (a)

      21is not:

      1. (i)

        21a feeder UCITS; or

      2. (ii)

        21a feeder NURS; or

      3. (iii)

        21otherwise dedicated to units in a single collective investment scheme; and

    2. (b)

      21does not hold units in:

      1. (i)

        21a feeder UCITS; or

      2. (ii)

        21a feeder NURS; or

      3. (iii)

        21a scheme otherwise dedicated to units in a single collective investment scheme.

COLL 5.6.27R

21An EEA UCITS scheme that is not a recognised scheme under section 264 of the Act is not a qualifying master scheme for COLL 5.6.26R(3) for a pension feeder fund that is a feeder NURS.