809FZPSecondary funds(1)

Section 809FZC(5) (disregard of intermediate holdings and holding structures) does not apply to investments acquired for the purposes of a secondary fund in a collective investment scheme (and, accordingly, such an investment is regarded as an investment in the collective investment scheme itself).

(2)

Subsection (1) does not apply in relation to a secondary fund in relation to a collective investment scheme if it is reasonable to suppose that the main purpose or one of the main purposes of the making of any investment in any collective investment scheme for the purposes of the secondary fund is to reduce the proportion of carried interest arising to any person which is income-based carried interest.

(3)

Where by virtue of subsection (1) a secondary fund has a significant investment in a collective investment scheme (“the underlying scheme”)—

(a)

any qualifying investment acquired for the purposes of the fund in the underlying scheme after the time when the significant investment is acquired is to be regarded as having been made at that time, and

(b)

any disposal for the purposes of the fund of a qualifying investment in the underlying scheme after that time is to be regarded as not being made until a relevant disposal is made.

(4)

In subsection (3)(b) “relevant disposal” means a disposal which (apart from subsection (3)) has the effect that—

(a)

the secondary fund has (by virtue of disposals of its interest in the underlying scheme) disposed of at least 50% of the greatest amount invested for its purposes at any one time in the underlying scheme, or

(b)

the secondary fund's investment in the underlying scheme is worth less than whichever is the greater of—

(i)

£1 million, or

(ii)

5% of the total value of the investments held immediately before the disposal for the purposes of the secondary fund in the underlying scheme.

(5)

In this Chapter, “secondary fund” means an investment scheme in relation to which the condition in subsection (6) is met.

(6)

The condition is that when the scheme starts to invest it is reasonable to suppose that over the investing life of the scheme—

(a)

substantially all of the total value invested for the purposes of the scheme will be in the acquisition of investments in, or the acquisition of portfolios of investments from, unconnected collective investment schemes,

(b)

more than 50% of the total value invested for the purposes of the scheme will be invested in investments which are held for 40 months or more, and

(c)

more than 75% of the total amount invested in the scheme will be invested by external investors.

(7)

In determining whether subsection (6)(b) is met in relation to an investment scheme, apply the rule in subsection (3) to the scheme.

(8)

In this section, “significant interest”, in relation to a collective investment scheme, means—

(a)

an investment of at least £1 million in the scheme, or

(b)

an investment of at least 5% of the total amounts raised or to be raised from external investors in the scheme.

(9)

In this section, “qualifying investment” means an investment in a collective investment scheme (“the underlying scheme”) acquired for the purposes of a secondary fund where—

(a)

the investment acquired was originally made on the same terms as investments in the underlying scheme made by external investors,

(b)

the terms on which the investment was acquired or investments made in the underlying scheme were made by external investors have not significantly changed since the investment was acquired,

(c)

the secondary fund, together with any connected funds, does not hold more than 30% by value of the underlying scheme,

(d)

no person providing investment management services to the underlying scheme provides investment management services to the secondary fund, and

(e)

it is reasonable to suppose that the investment in the underlying scheme is not part of arrangements the main purpose or one of the main purposes of which is to reward any person involved in providing investment management services to the underlying scheme or a scheme connected with that underlying scheme.