The Regulator for Charities in England and Wales
(Version December 2007)
This guidance focuses specifically on Common Investment Funds (CIFs) which are one form of investment. For guidance generally on investments by charities and the duties on trustees when making investments, see our guidance "Investment of Charitable Funds" (CC14). In particular, trustees should be familiar with the definition of "investment" (see section B of CC14), trustees’ duties (see section E of CC14), trustees’ general duties on risk management (see paragraph 62-66 of CC14) and the trustees’ approach to diversification and suitability of investments (see paragraph 67-79 of CC14).
Common Investment Funds (CIFs) are collective investment schemes. They are set up by Schemes made by the Charity Commission under section 22 of the Charities Act 1960 or section 24 of the Charities Act 1993. Before the Charities Act 2006 they were open only to charities in England and Wales, but are now also open to “appropriate bodies” (i.e. bodies established as charitable under the law of Scotland or Northern Ireland and eligible for UK tax relief) where the Scheme permits this. They operate as investment vehicles and are deemed by law to be charities themselves. They are therefore eligible for registration as charities in their own right.
CIFs are similar to authorised unit trusts but, unlike unit trusts, they are not authorised by the Financial Services Authority (FSA).
CIFs provide diversification of investment to reduce risk, which is tax efficient, administratively simple and cost efficient. They enjoy the same tax status as other charities.
In establishing CIFs under the provisions of section 22 of the Charities Act 1960 or section 24 of the Charities Act 1993, the Commission is able to provide a legal vehicle which increases the choice of investment facilities available for charities. However, the Commission is not an investment adviser. It cannot offer trustees advice about the merits of a particular investment or investment strategy. The Commission must emphasise that it is not promoting CIFs as a suitable or safe investment vehicle for charities generally, nor is the Commission suggesting that CIFs are risk free. As with all investment matters, trustees of charities must take investment advice from their own suitably qualified professional investment advisers before they invest, irrespective of whether they are investing with CIFs or other types of investment vehicles.
As of December 2007, the last set of annual accounts submitted to us from the 45 commercial CIFs show total assets under management of just under £7.8 billion.
Unit trusts and common investment funds are examples of collective investment schemes. In each case money contributed to the scheme by investors is pooled, and the operator of the scheme typically invests the money in a range of investments, in accordance with the published policy of the scheme.
All the money and investments in a unit trust or common investment fund belong jointly to the contributors. The size of each share is determined by the number of "units" each contributor owns. The number of units which each contributor owns is determined by the proportion which the value of his or her contribution bears to the total value of the assets in the scheme at the time when the contribution is made. Investment returns are allocated to unit-holders in the same proportions. The risk of particular investments falling in value is spread across all the holders of units in the fund, as they each are joint owners of all the investments in the scheme.
In technical terms, collective investment schemes are defined by section 235 of Financial Services and Markets Act 2000. They involve arrangements with respect to property of any description, including money and their purpose or effect is to enable persons taking part in the arrangements to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income. The arrangements must have either or both of the following characteristics:
A Pooling Scheme establishes a particular type of common investment fund whose main characteristic is that the Pooling Scheme and the participating charities must all have exactly the same trustees. A Pooling Scheme allows a body of trustees who administer more than one charity to combine funds from any or all of those charities for investment purposes: this contrasts with the CIFs which are the subject of this guidance and which are open to different trustees of different charities. For further information relating specifically to Pooling Schemes, see OG 49 - Pooling Schemes and Pool Charities
A Scheme is a legal document made by the Charity Commission which establishes, amends, replaces or amplifies the trusts of a charity. It may set out new objects and purposes or changes to them, constitutional arrangements and powers of the charity. Some of these provisions will be mandatory, others simply enabling. It may be:
The Commission does this, broadly, by providing a legal framework in the form of new and amended Schemes, by giving guidance on standards of governance and by investigating allegations of abuse and mismanagement. In regulating CIFs, the Commission promotes and encourages a greater degree of transparency in their administration and management for the benefit of charities that invest in them. In order to achieve this, it:
The Commission also has powers to exchange information with the Financial Services Authority (FSA) which enable it to work closely with that Authority to monitor the activities of Corporate Managers and the Corporate Trustees
On investment matters, the individual charity trustees, the Corporate Managers and the advisory committees or advisory boards of CIFs (if applicable) are responsible for setting the performance objectives that are measurable, and determining the investment policy and strategy and the risks that may arise from such policy and strategy.
But the Commission does not attempt to duplicate the regulatory functions of the FSA. This means that the Commission does not regulate the efficacy of investment policies or ensure that the investment policies being adopted are necessarily appropriate or meet the expectations of the investing charities, where this is an aspect of FSA regulation.
A CIF is established by a Scheme of the Charity Commission as described above and it is made under section 22 of the Charities Act 1960 or section 24 of the Charities Act 1993. The Scheme is dealt with by the Commission’s Large Charities Unit (see contact details). Because of the complexity of CIFs, it generally can take 6 months to finalise this type of scheme.
When a promoter (who will usually be a fund manager) wishes to establish a CIF, he or she should provide us with as much information as possible about his or her proposals, taking account of this timescale. Based on this and any other information we may need and assuming we agree in principle to make such a Scheme, we will draft the Scheme, the legal instrument creating the CIF. The Scheme Particulars, which are the detailed rules made under powers in the Scheme, will be drafted by the fund manager. We will in due course publish on our website more details of the sort of information we require from promoters.
The making of a Scheme to establish a new CIF requires an application from any two or more charities.
The Commission’s objectives of monitoring CIFs can be summarised as follows:-
In practice, the Commission’s procedures in the monitoring of CIFs would be designed to ensure that:
Even with the monitoring regime in place, it cannot be overemphasised that investors’ protection cannot be guaranteed. With a greater degree of transparency through disclosure of expenses, costs and commission fees, and improved quality of the products on sale, trustees of investing charities themselves should take a closer scrutiny of the performance of their investments.
The following are some examples of achieving the above objectives:-
The Commission’s monitoring of compliance with the Scheme provisions and the law will not identify the degree of inherent risks of the investment strategy and investment decisions. Investment strategy and investment decision are matters of administrative discretion for charity trustees of CIFs and their investment advisers. The Commission is precluded by law from interfering with the administrative discretion of charity trustees of CIFs over matters of investment strategy and investment decisions.
Trustees of investing charities are ultimately responsible for the investment decisions they make and for reviewing their investments periodically. It is good practice to review their investments at least once a year and more frequently, if necessary, when the stock market is volatile and this is so irrespective of whether the investments are with CIFs or some other types of investments.
Trustees of investing charities must continue to seek investment advice from their own professional advisers as to the suitability and diversification of their investment portfolio. Investing charities are reminded of the "buyer beware" principle and they should exercise a greater degree of caution themselves. The price of units in a CIF can go down as well as up.
Trustees of investing charities should take note there is generally no compensation for under-achieving investment performance. It is a matter for the investing charities to consider and decide whether they should withdraw their money from a particular CIF or a particular type of investment because of its recent poor performance.
Trustees of investing charities may also wish to consider asking fund managers whether the particular CIF they are proposing to invest in is eligible under the terms of the Investors Compensation Scheme.
In summary, trustees should consider each investment decision on its merits. The fact that CIFs are established by the Charity Commission does not mean they are better or appropriate investment vehicles for charities generally.
The Financial Services Authority (FSA) is an independent body that regulates the financial services industry in the UK. Persons and firms that engage in specific types of activity (called "regulated activity") must be authorised to do so by the FSA. Establishing and/or operating a CIF, if that is done by way of business, may be a regulated activity and therefore need to be authorised by the FSA. Acting as trustee of an authorised unit trust by way of business is also a regulated activity. In practice, this will often mean that the fund manager and corporate trustee of a CIF will be engaging in regulated activity. A fund manager and/or corporate trustee that is authorised to engage in regulated activity will be monitored and supervised by the FSA.
In order to be authorised by the FSA, a person or firm must satisfy the threshold conditions set out in Schedule 6 to the Financial Services and Markets Act 2000 (the Act which establishes the regulatory remit of the FSA). Areas covered by the threshold conditions include:
(i) the legal status of the firm;
(ii) the place in which the firm and/or its head office is located;
(iii) the ownership of the firm and/or any relevant group structure;
(iv) the firm's resources;
(v) whether the firm is fit and proper (i.e. meets criteria as to honesty, competency and financial soundness).
Generally speaking, the FSA monitors and supervises regulated activity by:
The objectives of the FSA are set out in the Financial Services and Markets Act 2000 and are:
As at 31 March 2004, the FSA regulated some 10,712 firms. These ranged from global fund management operations, investment banks, large UK stockbrokers and major networks of independent financial advisers, to the smallest corporate finance boutique operations and one-person financial advisers.
For further information about the Financial Services Authority and their work, please visit their website www.fsa.gov.uk
| Names of Common Investment Funds |
Registration number with the Commission |
| COIF Charities Investment Fund |
218873 |
| Charinco Common Investment Fund |
270540 |
| Charishare Common Investment Fund |
295634 |
| COIF Charities Fixed Interest Fund |
803610 |
| The Charity Fixed Interest Fund |
1038561 |
| The Charity Equity Fund |
1038563 |
| The Bond Fund for Charities |
1014756 |
| The UK Equity Fund for Charities |
1014758 |
| Targeted Return Fund |
1015446 |
| The Alpha Common Investment Fund for Endowments |
1025527 |
| The Common Fund for Income |
1038265 |
| The Common Fund for Growth |
1038267 |
| Chariguard Fixed Interest Fund |
1039352 |
| Chariguard UK Equity Fund |
1039354 |
| Chariguard Overseas Equity Fund |
1045682 |
| Charishare Tobacco Restricted Common Investment Fund |
1062581 |
| The Diversified Charity Fund |
1066827 |
| The Income Trust for Charities |
1065732 |
| The Growth Trust for Charities |
1065734 |
| ChariTrak Common Investment Fund |
1077125 |
| The Charities Property Fund |
1080290 |
| The Affirmative Fixed Interest Fund for Charities |
1087227 |
| The Affirmative Equity Fund for Charities |
1087228 |
| Global Growth and Income Fund for Charities |
1089229 |
| Armed Forces Common Investment Fund |
1093529 |
| COIF Charities Property Fund |
1093084 |
| Absolute Return Trust for Charities |
1094498 |
| The Equity Income Trust for Charities |
1094572 |
| Charities Aid Foundation UK Equitrack Fund |
1108291 |
| The Alpha Fund for Income and Reserves |
1110710 |
| Charity Select Global (ex UK) Equity Fund |
1114640 |
| Charity Select UK Bond Fund |
1114641 |
| Charity Select UK Equity Fund |
1114643 |
| Accommodation Investment Fund for Charities |
1115363 |
| Charifaith Common Investment Fund |
1116156
|
| The Multi-Strategy Property Trust for Charities |
1116505 |
| Charity Value and Income Fund |
1119289 |
| The Charity Multi-Asset Fund |
1119649 |
| COIF Charities Global Equity Income Fund |
1121433 |
|
Registration number with Commission | |
| National Association of Almshouses Common Investment Fund |
223887 |
| Charibond Charities Fixed Interest Common Investment Fund |
271815 |
| CAF UK Equity Growth Fund |
803287 |
| CAF Bond Income Fund. |
803288 |
| The Combined Charitable Income Fund |
1059272 |
| The Combined Charitable Capital Fund |
1059275 |
Common Investment Funds are dealt with by the Charity Commission’s Large Charities Unit, Harmsworth House, 13-15 Bouverie Street, London EC4Y 8DP. All enquiries and correspondence relating to Common Investment Funds should be addressed to this Unit.
For further information about these webpages generally, call 0845 300 0218. The number for hearing and speech impaired callers using a minicom is 0845 300 0219.