The acronym arises from the publication of PS10/3 – ‘Funds of Alternative Investment Funds’.
A FAIF will allow (albeit indirectly) the marketing to, and investment by, retail clients in hedge funds.
A FAIF will fall within the NURS (‘non-UCITS retail scheme’) regime so it will be an authorised fund – and so will provide investors with the comfort of oversight by the FSA – but with much greater investment powers e.g. there is no maximum limit on the amount of scheme property which can be invested in unregulated collectives (a NURS is limited to 20% whilst for a UCITS this would not be a permissible investment). Another feature is that Master/Feeder structures will be allowed; the Master will not have to be based within FSA jurisdiction. Whilst there are spread requirements for FAIFs, this is waived for a feeder scheme which is dedicated to the units of a master scheme.
In reflection of the investments that a FAIF can invest in, COLL 6.2.19 is amended so that sales and redemptions of the FAIF need only be provided ‘at least once in every six months’. By the same token, a FAIF will have up to 185 days to pay redemptions.
The FSA acknowledge that FAIF rules may need to be amended in the future depending on the outcome of the Alternative Investment Fund Managers Directive.
The FAIF structure could provide alternative investment managers with new possibilities; either with FAIFs as being potential new investors or even setting up their own FAIF.
The changes to COLL came into force on 6 March.