Charity Authorised Investment Fund (CAIF) – the authorised fund vehicle specific to the charity sector

The Charity Authorised Investment Fund (CAIF) is a relatively new investment fund vehicle designed specifically for the charity sector. The first CAIF was registered with the Charity Commission on 12 December 2017 and since then a number of CAIFs have been established. In this updated briefing Grania Baird seeks to respond to key questions interested parties in the CAIF may have.

1. What is a CAIF?

A CAIF is both an investment fund authorised by the FCA and a registered charity. As a registered charity the CAIF must comply with applicable charity law. In addition, as an FCA authorised fund, the CAIF must comply with applicable financial services law and regulation including the relevant FCA rules.  Subject to registration with HMRC, the CAIF will be treated as a registered charity for tax purposes and benefit from the direct tax exemptions available to charities.

2.Why was the CAIF introduced?

There are other fund structures which can be used as collective investment vehicles when targeting charity investors. These include “traditional” common investment funds (CIFs), other types of FCA authorised funds, and unregulated structures such as offshore funds. However, for a variety of reasons generally none of these existing fund structures are considered ideal.  If an unregulated fund structure is used (in most cases) the charities are vulnerable to suffering irrecoverable VAT on management fees.  With the exception of CIFs these structures are also difficult to market to the wider charities market and are generally only considered appropriate for more sophisticated charity investors.

“Traditional” CIFs were specifically created for charity investors and benefit from certain bespoke features, such as the ability to operate income smoothing and/or to have an independent board representing the interests of unit holders. However, the Charity Commission has in recent years been reluctant – absent a clear need – to authorise new CIFs. For these and other reasons there has been a desire and push for a new bespoke investment vehicle for charities that has led to the creation of the CAIF.

3. Who regulates the CAIF?

The CAIF is dual regulated by the FCA and the Charity Commission.  The Charity Commission is responsible for registration of the CAIF as a charity and regulates the CAIF (and the charity trustees) in respect of compliance with charity law.  The FCA is responsible for authorising the CAIF as an authorised fund and regulates the operation and administration of the CAIF and its compliance with the financial services law and regulation, including the FCA rules and guidance.  The FCA and the Charity Commission have made arrangements to ensure their respective roles are as clear as possible and that the regulation and supervision of CAIFs operates as intended.

4. Is a CAIF also a “common investment fund”?

Interestingly, yes. Whilst processing the first few CAIF applications in late 2017 the Charity Commission introduced an additional aspect to the CAIF registration process. This change means that in connection with any registration of a proposed CAIF (which is approved in principle by the Commission and authorised by the FCA) the Commission will issue an order pursuant to section 96 of the Charities Act 2011.  The effect of this is that CAIFs are brought within the definition of “common investment fund” for the purpose of sections 96 – 99 of the Charities Act 2011.  As a result the CAIF benefits from the deeming provision under section 99(3) of the Charities Act 2011 as regards its charitable status which is helpful, and puts its charitable status beyond doubt.  The Charity Commission has indicated that as a result of the CAIF also being a CIF the Charity Commission will also normally apply certain additional criteria when reviewing an application to establish a CAIF (see How is a CAIF created? below for further information).

5. What are the differences between a “traditional” CIF and the CAIF?

Although both the CAIF and “traditional” CIF are registered charities and are considered common investment funds under the Charities Act 2011, there are some key differences in terms of their structure and regulation.

  • The CAIF must first be established as an FCA authorised fund before the Charity Commission issues its section 96 order (although in practice the FCA order and Charity Commission Order will typically be made on the same day).
  • The CAIF (in comparison to the “traditional” CIF) is also subject to direct regulation and oversight by the FCA. In comparison, the FCA’s role in relation to “traditional” CIFs is indirect, via regulation of the manager and trustee but not the CIF itself.
  • As the CAIF is an FCA authorised fund it is considered a special investment fund and management fees will be exempt from VAT. This is not the case for the “traditional” CIF.
  • The principal governing document for the CAIF will, in the case of an authorised unit trust, be the trust deed rather than, as is the case for the “traditional” CIF, a Charity Commission scheme.
  • Changes to the CAIF structure and documentation will be subject to the standard change process for FCA authorised funds including, as required, FCA approval of such changes, notification to investors and in some cases investor approval. Certain changes may also require Charity Commission approval, for example, increases to the remuneration of the Manager or the Trustee where the CAIF does not have an advisory committee.

6. Which legislation applies to the CAIF?

The CAIF is subject to the relevant FCA rules and requirements applicable to FCA authorised funds. The specific FCA rules applicable to CAIFs are set out in chapter 14 of the FCA’s Collective Investment Schemes Sourcebook (COLL). Other sections of COLL will also apply and, where the CAIF is also an alternative investment fund the FCA’s Investment Funds Sourcebook (FUND) will apply.

The CAIF, as a registered charity is subject to charity law and the manager and trustee, must, as charity trustees comply with their obligations under charity law.

A CAIF (as is the case of the “traditional” CIF) is also subject to the provisions of sections 96-99 of the Charities Act 2011, including the section 98 limitations. The Charity Commission have indicated that the constitutional documents of the CAIF will need to incorporate certain limitations on the powers of the manager and trustee to ensure consistency with section 98, and provisions applicable to common investment funds generally.      The key limitation which we understand that section 98 introduces is a requirement that any borrowing must be on a temporary basis only. Professional advice should be sought as to any wider scope and impact of section 98 in the context of CAIFs.

7. Which FCA fund types and structures can be used?

The FCA has confirmed that a CAIF can be established as a non-UCITS Retail Scheme (NURS), UCITS or Qualified Investor Scheme (QIS) type of FCA authorised fund.  The type of scheme used will depend on the target investors and the investment objective and policy of the proposed scheme.

A UCITS scheme might be appropriate where the CAIF will be marketed to all charities, however, where the CAIF will be marketed to only a sub-sector of charities, those specific circumstances should be discussed with the FCA to determine if the UCITS structure is appropriate. Those discussions should take place in advance of submitting the authorisation application.

In terms of structure, the Charity Commission’s current position is that it is comfortable a CAIF can be established as an authorised unit trust.  An umbrella authorised unit trust CAIF can also be established.

If the alternative FCA structures of an OEIC or using one of the authorised contractual scheme (ACS) structures, is proposed this would involve further dialogue with the Charity Commission and any applicant would have to be able to satisfy the Commission that this vehicle is capable of being a charity.

8. What are the novel features of the CAIF?

In addition to the unique nature of the CAIF (being both an FCA authorised fund and a registered charity), there are a number of optional features available to use within a CAIF which are novel in the authorised funds context. These optional features are:

  • Advisory committee – the idea behind the advisory committee is to seek to replicate the role of the advisory board in a “traditional CIF”, but without the committee having executive powers. An advisory committee which only has a consultative function is provided for in COLL, Chapter 14.  Members of the advisory committee must be independent of the manager of the CAIF (Manager) and trustee of the CAIF (Trustee) and their role will be to represent the interests of unit holders, and to be consulted on various matters regarding the operation of the CAIF.  The advisory committee will have the power to convene a meeting of unit holders and may prepare a statement prepared and approved by the advisory committee which must be included in the CAIF’s annual report on the request of the advisory committee.  If the CAIF has an advisory committee this must be included in the trust deed and prospectus. Although the advisory committee is not mandatory, the Commission sees the advisory committee’s role as salient in the oversight of remuneration to service providers of a CAIF (including the Manager and Trustee). Without such a committee any increases in the rate of remuneration of the Manager or Trustee, or other increases in charges, in our view will need to be pre-approved by the Charity Commission (as well as the FCA). Requests to the Commission should be addressed to with the subject matter ‘Charity Authorised Investment Fund – fee increase approval’.
  • Income reserve account – the ability to hold back income from one accounting period to another and pay out previously held back income is one of the unique features of “traditional” CIFs and allows such funds to maintain a regular level of distributions which can be appealing to charity investors. The FCA rules allow a CAIF to operate an income reserve account provided this is used for the sole purpose of avoiding fluctuations in income for allocation or distribution. In addition, certain other conditions apply, including a limit of 15% of income being transferred to the income reserve account in any one accounting period.  If an income reserve account is to be established this must be included in the trust deed and prospectus.
  • Total return approach – the ability to return capital as well as income in distributions is a concept increasingly familiar to the charities market, particularly to those charities which have permanent endowment funds. Under the FCA Rules, the CAIF will be able to operate a total return approach where this is solely for the purpose of meeting a pre-determined target amount, which is consistent with the investment objective and policy and distribution policy of the CAIF.  Again, if such an approach is to be adopted this must be included in the trust deed and prospectus.

9. Who can invest in a CAIF?

The CAIF is for investment by charity investors. These are defined in the model deed as charities within the meaning of Section 1 of the Charities Act 2011, Schedule 6 to the Finance Act 2010 (thereby including as well as English charities, charities in Scotland, Northern Ireland that also qualify for UK charity tax reliefs).  As a CAIF itself will be a registered charity it can invest in other CAIFs. In addition, it is accepted by the Charity Commission that nominees can hold units in a CAIF provided the underlying investors are charities.

The Manager will also be permitted to hold units in the CAIF for box management purposes, provided that any profits from this activity are paid into the CAIF.

10. What is the CAIF’s charitable object?

All charities must have an exclusively charitable object.  The charitable object for the CAIF was subject to discussion and debate during the consultation stages.  Although the Charity Commission has not prescribed what the charitable object of the CAIF must be, it has agreed that a wide objects clause which expresses the purpose of the CAIF as being to further the charitable purposes of the CAIF’s investors would be acceptable.  Model wording for this form of object is included in the model trust deed (see What industry guidance is available? section below).

11. Who will be the charity trustees?

The charity trustees will be the Manager and the Trustee and will be subject to the obligations of charity trustees under charity law. Members of the advisory committee will not normally be considered charity trustees, nor will delegates of the Manager or Trustee.

12. How is a CAIF created?

As regards the Charity Commission – a special procedure has been developed for CAIFs in respect of the registration process.  At the pre-application stage the Charity Commission application form together with the draft documents for the CAIF will need to be prepared (including the trust deed and prospectus) and submitted to the Charity Commission using the Commission’s online application portal for charity registration, via the Commission’s website (the pre-application stage). Where the draft trust deed is based on the Investment Association’s model trust deed, the Commission expects to see a mark-up as against the model trust deed and an explanation of the changes. We understand that the Charity Commission may take into consideration the following criteria (which apply to the creation of a CIF) when reviewing any pre-application to establish a CAIF:

  • whether the creation of the fund is in the interests of charity;
  • the viability of the proposed fund;
  • the appropriateness of the fund as a charity and as an investment vehicle specifically for charities.

In order to meet these conditions, new CAIF applications may (as was the case in relation to “traditional” CIFs) need to demonstrate how the new CAIF will provide an investment opportunity to charities that is sufficiently different to investment options already available to charities.  It is worth noting that the FCA will also require information on the viability of the fund and the rationale for its establishment, so there will be some overlap with the criteria above. Although the criteria focussing on (i) whether the creation of the fund is in the interests of charity and (ii) the appropriateness of the fund as a charity and as an investment vehicle specifically for charities, will require analysis and professional advice.  However, where existing “traditional” CIFs are being converted to CAIFs, these conditions arguably should not arise as the “traditional” CIF would have already met such criteria upon its establishment.

In addition, the Commission will normally expect to see evidence that a shared approach between the manager and trustee regarding the management of conflicts of interest has been agreed.

The support of two charities (which could include “traditional” CIFs) will need to be referenced in relation to the application and formal letters of application from the two charities will be needed at final registration, however, in practice the Commission likes to see this earlier. Once a “minded to approve” letter is received from the Charity Commission, the FCA application for authorisation process can commence. The Commission aims to issue a decision on the pre-application within three months of the initial submission date, but this is dependent on the details and circumstances of the application, and the Commission being provided with a complete application.

As regards the FCA – the normal fund application for authorisation process will need to be followed but only once the “minded to approve” letter has been received from the Charity Commission.  For an authorised unit trust the FCA process involves the normal Form 242 and supporting documents, including draft trust deed and prospectus.  The Manager will need to have the necessary FCA permission to manage the particular type of CAIF envisaged (e.g. permission to manage a UCITS or an alternative investment fund (AIF) as applicable). The FCA normal guidelines on naming of authorised funds will apply.

When the FCA indicates that it is content that it can authorise the CAIF, the applicant will need to arrange for the trust deed (in the case of a CAIF established as an authorised unit trust) to be executed, and for the FCA and the Commission to issue their orders. The CAIF application will then be returned to the Charity Commission for final registration.  This will involve submission of the executed trust deed (with at least £5,000 in an account for the CAIF or pledged to charity). The Charity Commission should then complete the process by issuing an order under section 96 of the Charities Act 2011 confirming the charity registered number for the CAIF.  The manager should notify the FCA without undue delay when it receives the confirmation from the Charity Commission that the CAIF is registered,

The normal FCA fees for fund applications will apply. Currently there is no fee applicable for the registration with the Charity Commission.

13. What industry guidance is available?

The Investment Association, with input from the Charity Law Association, have produced a model trust deed based on its existing Investment Association model authorised unit trust deed in conjunction with members of the CAIF working group.  This has been shared with the FCA and Charity Commission, both of which have reviewed and provided comments on it, although they have not “approved” the model deed as a binding precedent.

The model trust deed also contains wording suggested by the Commission which ensures the powers of the manager and trustee are no wider than they lawfully can be, and the terms of the trust deed are compatible with the CIF framework.  The model trust deed may be updated from time to time with input from the Charity Commission and other members of the CAF working group.

In addition, the CAIF working party has provided guidance which can be accessed from the Investment Association website at

14. Conclusion

A number of CAIFs have now been established, and it is hoped the process for new applications will now run a little smoother,  Many of the first CAIFs have been established in order to receive the assets of traditional CIFs converting to CAIFs with only limited new entrants to the market looking to launch a CAIF vehicle. However, with the CAIF now available it does allow new charity pooled investment funds to be established, as well as the conversion of existing “traditional” CIFs to the new model.  The CAIF will be regulated by the FCA and the Charity Commission in a manner which is appropriate to the competencies and statutory roles of each regulator, as well as having a tax efficient structure and bespoke features that address the needs of the relevant target charity investors.

Grania Baird is a Partner at Farrer & Co and was a participant on the CAIF working group. This article was originally published here but this is an updated vesion. 

If you require further information on anything covered in this briefing please contact Grania Baird (; 020 3375 7443) 


  1. Michael Ryan says:

    Are their any tax liabilities with a CAIF ie capital gains tax?

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