Common Contractual Fund in Ireland Explained for Investors

In Ireland, a common contractual fund is a type of collective investment scheme that allows multiple investors to pool their money together to invest in a variety of assets.

It's a popular choice for investors because it's relatively easy to set up and manage.

A common contractual fund is a type of umbrella fund, meaning it can have multiple sub-funds each with its own investment strategy.

These sub-funds can be tailored to meet the specific needs of different investors, making it a versatile investment option.

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A Common Contractual Fund (CCF) can be established as a UCITS fund or a non UCITS fund, giving the promoter a choice of investment objectives and policies.

The CCF is set up through a deed of constitution, which is executed under seal by the management company and the custodian. The custodian will hold the assets of the CCF for safekeeping.

Each investor in a CCF holds an undivided co-ownership interest as a tenant in common with the other investors. This means they have a share of the assets, but no separate legal personality.

A CCF can be established as a single structure or an umbrella structure, with the latter allowing for different classes of units to be issued.

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The purpose of a CCF in Ireland is to provide a tax-efficient structure for pension funds and investment managers.

A CCF was created to address the issue of tax leakage, which occurs when an exempt Dutch pension fund invests in US equities through an Irish investment company and suffers a 30% withholding tax on dividends.

This tax leakage represents an annual tax loss of 60 basis points, which can add up to a significant underperformance over time.

In fact, a CCF can create an additional return of £57.5 million over a 10-year period, as seen in the example of a fund manager investing £1bn in the MSCI Euro index.

The primary advantage of a CCF for investment managers is the tax savings on investment returns, which can be passed on to clients to ensure a competitive pricing advantage.

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A CCF can be established as either a UCITS fund or a non UCITS fund, giving the promoter flexibility in choosing the investment objectives and policies.

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The CCF is created under contract law through a deed of constitution, which is executed under seal by the management company and the custodian.

The parties to the deed of constitution are the management company and the custodian, who will be responsible for the assets of the CCF.

The CCF will not have separate legal personality as an unincorporated body, meaning it will not be a separate entity from its investors.

Each investor will hold an undivided co-ownership interest as a tenant in common with the other investors, giving them a shared ownership of the CCF's assets.

A CCF may be established as a single structure or an umbrella structure, allowing for flexibility in its setup.

A CCF established in an umbrella structure will not be subject to cross liability between funds in the umbrella, providing protection for investors.

The CCF may issue different classes of units, giving investors a range of options for investing in the fund.

A custodian will be entrusted with the safekeeping of the CCF's assets in the same manner as for other funds authorized by the Central Bank of Ireland.

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Tax and legal considerations are crucial when setting up a common contractual fund. A common contractual fund is a type of investment vehicle that pools money from multiple investors to invest in a variety of assets.

In terms of tax, a common contractual fund is typically taxed as a partnership, meaning that each investor will be responsible for their own tax liability. This can be beneficial for tax-efficient investing.

The fund's legal structure is often established through a trust deed or a partnership agreement, which outlines the rights and responsibilities of the investors and the fund manager. This document is crucial in defining the fund's governance and decision-making processes.

The fund's tax status can impact the tax implications for investors, and it's essential to consider this when setting up the fund.

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