IFM17335 - Condition C: Marketing requirements

‘Marketing’ for this purpose includes any activity that is designed to bring the fund to the attention of investors within the target market.

Where there are a substantial body of unconnected investors in a fund then HMRC will accept that it has been marketed in accordance with Condition C as the marketing would have had to be sufficiently wide to achieve this outcome. By contrast, where a fund has a small number of investors, it cannot be assumed that Condition C is satisfied. Such a fund can still satisfy Condition C, however the marketing activity undertaken will need to be considered on a case-by-case basis.

Marketing activity may be generic, including such activities as:

  • Advertisements mentioning the fund in relevant publications, online or on posters.

  • Direct mail packs sent to the target market and/or their advisers which specifically promote the fund.
  • Events for intended categories of investors and/or their advisers featuring content relating to the fund.
  • Active representation to independent financial adviser (IFA) firms and/or other distributors to add one or more individual funds/sub-funds to their fund offering for investors.

Marketing to institutional and sophisticated investors may be more narrowly targeted. For example, a fund may be aimed at a particular type of institutional investor, such as life insurance companies. Similarly, many types of ‘alternative’ funds (such as private equity funds) may be restricted by regulation as to investors they can market to. Any activity designed to attract the specified category of investor will constitute marketing for this purpose. This could include:

  • Direct contact such as presentations to or meetings with institutional or high net worth investors or their consultants.
  • Advertisements in specialist or financial publications to attract sophisticated investors or their advisers.

As best practice, the fund manager should retain contemporaneous records to show that such activity had taken place. HMRC recognises that marketing is not necessarily a continuous activity. For example:

  • it may not begin immediately on launch of a fund because, for example, there is a need to establish a short term performance record;
  • the fund’s marketing strategy may be more active when initially launched and then decline as the fund reaches maturity or decline stage;
  • while marketing activities have been undertaken, for instance in the form of meetings with high net worth individuals, there may be a period of no meetings because of a fall in the markets; or
  • investors may be admitted in certain fixed windows (a ‘first close’, ‘second close’ etc.).

However, where there is no continuous marketing activity then provided the fund has capacity to receive additional investment (see IFM17345) there must be a clear and continuing intention to make the fund available to its target market or to wind it up. A marketing plan that is documented or recorded may help to evidence this intention.

There is also a specific relaxation of Condition C in circumstances and at a time where there is no marketing activity because the fund has no capacity to receive additional investments (see IFM17345). This is likely to be particularly relevant to closed-ended funds following the end of their fundraising period (see IFM17370 for specific considerations relating to closed-ended funds).

HMRC would not seek to exclude a case where a fund starts out with a low number of investors (for example, cornerstone investors), as long as there is a clear intention to subsequently market and make available the fund to the intended categories of investors specified.

Some funds may not need to undertake any active marketing to attract the investors identified in the target market, for instance because of the reputation of the fund manager or the success of a prior fund launched by the same fund manager. In this situation, marketing which in practice consists only of discussions with existing investors is capable of satisfying Condition C, provided that there are commercial reasons for marketing in this way and it is not a deliberate attempt to ensure that only a pre-determined group of persons invest in the fund.

HMRC also recognises that the manager of the fund may not be able to accept investment for regulatory or legal reasons. For example, it may not have been possible to complete customer due diligence under the money laundering regulations. Exclusion of a particular investor in such circumstances will not cause Condition C to be failed.