After a long period of industry pressure, the Treasury and the Financial Conduct Authority (“FCA”) have announced that a new type of authorised fund designed exclusively for charity clients will be made available.


For many years, a popular form of investment vehicle for charities have been common investment funds. There are currently 45 existing common investment funds with total assets under management of some £13bn. The principal common investment funds are managed by large institutional charity fund managers.

Common investment funds which are charities in their own right are regulated by the Charity Commission. Although the model schemes under which common investment funds are established reflect some of the operating features of funds authorised by the FCA, they are not authorised or regulated by the FCA.

In recent years the Charity Commission has expressed the view that common investment funds (many of which have substantial assets under management) would be more appropriately regulated by the FCA.

The FCA is responsible for authorising and regulating investment funds promoted to the retail market.

FCA authorised funds are subject to detailed governance and operational procedures set out principally in the FCA’s Collective Investment Scheme Sourcebook.

There are a number of different types of FCA authorised fund, principally UCITS schemes which can be promoted under passporting rights across the EU; and non UCITS retail schemes which in general terms are promoted only to UK retail clients.


Under the proposals there will be a new variant of FCA authorised funds – Charity Authorised Investment Funds (“CAIFs”). The new CAIFs will be charities in their own right but unlike common investment funds will be subject to the full rigour of FCA regulation (with some modifications). The Charity Commission will retain a low level supervisory role regulating CAIFs to the extent that they raise issues of charity law.

CAIFs will therefore benefit from the status of the fund as a charity (with the tax reliefs available) but be subject to FCA regulation. Only charities will be able to invest in CAIFs.

One advantage of a CAIF as opposed to a common investment fund is that CAIFs will not be charged VAT on investment management fees.

The FCA is considering rule modifications to allow income smoothing (not currently available to FCA authorised funds which normally distribute all income periodically) and also to allow for advisory boards representing the interests of unit holders.


The Charity Commission has indicated that they will not establish any new common investment funds unless there is a compelling reason to do so.

Existing common investment funds may convert into CAIFs and many may do so to benefit from the exemption on VAT levied on management fees. Others may remain as they are.

As an investment structure for charities, common investment funds are likely to fade away over time.