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HMRC internal manual

Investment Funds Manual

Genuine Diversity of Ownership (GDO): Condition B

Condition B: Terms and conditions of the fund (authorised investment funds: Regulation 9A(4) & (5) SI2006/964 or offshore funds: Regulation 75(3) SI 2009/3001)

The purpose of Condition B is to exclude funds which (notwithstanding anything contained within the fund’s documents designed to meet condition A) are ‘private’ or only available to specific individual or corporate investors. Such a limitation may be achieved by a specific rule in the fund documentation or by imposing terms and conditions that would deter investors outside the limited group.

The terms and conditions of the fund should not be set in such a way as to limit investment to a select group within the stated categories of investors and they should not deter a reasonable investor within the target market from investing in the fund.

For example, Condition B may not be met where charges differ for particular investors and the charges are such that a potential investor within a target category could not reasonably be expected to invest. The condition is not intended to prohibit normal commercial variations in charges. It is aimed at situations where the target market is stated to include a particular category of investor but either the charges or the minimum investment are applied in a discriminatory way so as to effectively exclude all but a select few, such as quoting a reasonable market rate annual management charge for favoured persons but a much higher charge for another person within the same category of investor.

Fund documentation may cover possible future extension of the target market, but that will not be taken into account in determining whether Condition B is met: the test is by reference to the current position.