Corporate Collective Investment Vehicle (CCIV)

Australia's investment management industry hopes the roll-out of the Corporate Collective Investment Vehicle (CCIV) regime can boost exports of financial services and attract foreign investors who may have been reluctant to embrace the country's trust vehicles. The optimism is tempered, however, by concerns over tax treatment and the operation of sub-funds.

New vehicle to drive foreign investment

The CCIV regime is intended to address Australia's absence of a globally recognized fund management vehicle by introducing a company structure limited by shares which can be sold to investors across jurisdictions, similar to the European Union's UCITS fund regime. Despite boasting a retirement savings pool of AUD 2.7 trillion, Australia has struggled to attract offshore funds through its Managed Investment Schemes (MIS), which use trust structures that are unfamiliar to many foreign investors. Australia's proposed CCIV borrows elements from the United Kingdom's Open Ended Investment Companies regime, which has had success in attracting offshore investment. CCIVs will be passive investment vehicles with the ability to create sub-funds that do not need to be legal entities.

Legislation takes shape

Authorities have been refining the legislation to underpin the CCIV regime for over a year, with the Federal Treasury department making a number of updates in a revised exposure draft tabled in June 2018 following industry consultations. The draft contained a number of improvements related to sub-funds and depositories, the registration process and related party transactions, panelists told the CCIV session at the Financial Services Council 2018 Summit in Melbourne.

CCIVs will be passive investment vehicles with the ability to create sub-funds that do not need to be legal entities

"A second tranche of material, that landed in late July 2018, added further missing elements including more detail on licensing, Product Disclosure Statements and a regime for the liquidation of schemes," said panelist Glenda Hanson, special counsel for global law firm King & Wood Mallesons. There has been significant progress with the legislation, but there are some aspects which are yet to be refined, ranging from the need for provisions that allow the listing of sub-funds to the lack of flexibility over the roles of depositories.

“We need the legislation to facilitate the listing of a sub-fund even though it's not a separate legal person," said Hanson. “This is not new, this has been done in the case of an MIS, even though it's a trust and it doesn't have separate legal personality. In this case, we need some nuts and bolts in the legislation so that it's possible, if it's taken over, to move a sub-fund from being operated by one corporate director across to another corporate director, and that's not yet there."

The CCIV regime in its current iteration also does not permit cross-investment between sub-funds, unlike European-based vehicles. Regulators may be mindful of keeping sub-funds as “protected cells" with firewalls between them, but the inability to cross-invest may hinder their competitiveness, added Hanson.

Taxing debate

Tax experts have also raised concerns about the tax treatment of CCIVs, arguing that withholding taxes need to be eliminated across the board to make the regime more attractive. While non-residents investing through an Australian vehicle into foreign assets are not subject to withholding tax, there may be different levels of withholding tax levied for funds that invest in Australian assets or have Australian-sourced income or Australian taxable property. “It is complicated because there are many different rates, many different types of components to which the different rates apply in different circumstances," said panelist Ken Woo, a partner at PwC who has worked on submissions for the CCIV's tax regime.

Tax experts have raised concerns about the tax treatment of CCIVs

The CCIV regime has been developed along with the Asia Region Funds Passport, which aims to facilitate the cross-border marketing of funds across participating economies, which include Japan, South Korea, New Zealand and Thailand. The initiatives are seen as complementary, with the success of one expected to spur the other. Fund managers are reserved about the attraction of CCIVs in Asia, given the region has been well-served by UCITS funds and other corporate vehicles for many years. CCIVs are likely to be more appealing for asset managers who have not already built a platform for UCITS fund products, according to Andrew Cannane, Institutional Funds Executive at wealth advisor Evans Dixon. "Anecdotally we're hearing if you want to attract European investors, you need to have a UCITS vehicle for them to invest into. So, I don't think having a CCIV is going to solve that problem," he said. “Ultimately it's going to be a question of what are the preferred vehicles for the investors you want to attract?"

"Fund managers accustomed to unit trust vehicles in Australia's established MIS regime may also be reluctant to switch, particularly those invested in private equity, infrastructure, venture capital and real estate, along with other alternative investments," added Cannane. Hanson suggested Australia's regulators had indicated they were open to facilitating MIS users transitioning to CCIVs. “If you had proper tax transition arrangements so you can move from one vehicle to another it might provide the industry with an opportunity to really deal with some of the legacy products and create efficient structures where you just have one CCIV, which has a series of sub-funds beneath it," she said.

While the final shape of the CCIV regime is yet to materialize, the consensus is that it is unlikely to be an overnight success. “It's going to take time," said Cannane. “The UCITS regime has been going for over 25 years and it's up to its fifth iteration, so we also need to take a long-term approach with the CCIV regime and acknowledge that it will take time to bed down."