The UCITS IV Directive allows for the establishment of a "feeder" UCITS, which is defined in the Directive as a UCITS which has been approved to invest, by way of derogation from the existing limits on investment in other CIS, at least 85% of its assets in units of another UCITS (the "master fund"). Both the feeder and master fund must, therefore, be established as UCITS. The conditions for the establishment of a feeder UCITS, as set out in the UCITS IV Directive, are reflected in UCITS Notice 18.

Central Bank Approval

Investment of a feeder UCITS into a master fund is subject to prior approval of the Central Bank. Such approval will only be granted if the feeder UCITS, the master UCITS, the custodian / trustee and the auditors satisfy certain conditions and subject to submission of various documents to the Central Bank.

An application to the Central Bank for approval of a UCITS master / feeder must be accompanied by the following documents:

  1. the constitutional documents of the feeder and master;
  2. the prospectus and key information document of the feeder and master;
  3. the agreement between the feeder and master or the internal conduct of business rules;
  4. where applicable, the information to be provided to investors;
  5. where applicable, the information sharing agreement between the custodian / trustee of the feeder UCITS and the custodian / trustee of the master UCITS;
  6. where applicable, the information sharing agreement between the auditor of the feeder UCITS and the auditor of the master UCITS; and
  7. where applicable, an attestation from the competent authority of the master UCITS regarding the status of the master.

Prospectus Disclosure

The prospectus of a feeder UCITS must contain certain disclosures, to include a prominent statement that it is a feeder and the name of the master in which it invests 85% or more of its nets assets. The prospectus must also disclose certain information in relation to the underlying master UCITS, including information with regard to the investment objective and policy of the master, aggregate charges at the level of the feeder and the master and tax implications for the feeder arising from the investment in the master.

Other permissible asset types

Up to 15% of the assets of the feeder UCITS may be invested in other types of assets including ancillary liquid assets, financial derivative instruments (in which case, the global exposure of the feeder UCITS must be calculated taking into account global exposure at the level of the underlying master fund) and movable and immovable property (which is essential for the direct pursuit of the business, if the feeder UCITS is an investment company).

Monitoring Obligation

A feeder UCITS must monitor effectively the activity of the master UCITS. In order to do so, the feeder UCITS may rely on information and documents received from the master UCITS or, where applicable, its management company, custodian / trustee and auditor, unless there is reason to doubt their accuracy.

Conversion of non-feeder UCITS to a feeder UCITS or change of master UCITS

Where a non-feeder UCITS proposes to convert to a feeder UCITS or a feeder UCITS proposes to change the underlying master UCITS, then prior investor approval must be obtained. Certain information must also be sent to investors at least 30 days before the proposed investment, including the key information document of the feeder and the master, the date on which the changes take effect and a statement as to the investors' right of redemption within 30 days without charge.

Criteria for master UCITS

A master UCITS is a UCITS, or sub-fund of an umbrella UCITS, which (i) has among its investors at least one feeder, (ii) is not itself a feeder and (ii) does not hold units / shares of another feeder UCITS. Note that the requirement to raise capital from the public does not apply in the case of a master UCITS, which has at least two feeder UCITS as investors.

A master UCITS must also satisfy the following requirements:

  • it is obliged to provide its feeder with all documents and information necessary for the feeder UCITS to comply with its obligations;
  • it must immediately inform the Central Bank of the identity of each feeder UCITS which invests in its units / shares;
  • it may not charge subscription or redemption fees to its feeder UCITS; and
  • it must have arrangements in place in order to ensure the timely availability of all information the master is obliged to provide under the UCITS Regulations.

In the event that a master UCITS and its feeder UCITS have different accounting years, the auditor of the master must make an ad hoc report on the closing date of the feeder UCITS.

Provisions in the case of liquidation, merger or division of master UCITS

The following conditions apply in the case the underlying master UCITS is either liquidated or subject to a merger or division:

(i) Liquidation of master UCITS

In the event that the master UCITS is liquidated, the feeder UCITS must also be liquidated unless the feeder UCITS has obtained approval from the Central Bank to invest as a feeder in another master or to convert to a non-feeder. A feeder UCITS is also required to submit certain documents to the Central Bank within two months from the date on which the master UCITS informed it of the binding decision to liquidate. The nature of such documents will depend on whether the UCITS intends to (i) invest as a feeder in another master (ii) convert to a non-feeder or (iii) be liquidated.

(ii) Merger or Division of master UCITS

In the event that a master UCITS merges with another UCITS or is divided into two or more UCITS, the feeder UCITS must be liquidated unless the feeder UCITS has obtained approval from the Central Bank to continue as a feeder of the master or another UCITS resulting from the merger, to invest as a feeder in another master or to convert to a nonfeeder. A feeder is required to submit certain documents to the Central Bank within one month from the date on which it received information regarding the planned merger or division. Again, the nature of such documents will depend on whether the UCITS intends to (i) continue as a feeder of the same master (ii) invest as a feeder in another master (iii) convert to a non-feeder or (iv) be liquidated.

In either of the above circumstances, the UCITS is obliged to inform the master UCITS of its decision. In the event that a decision is taken to liquidate the feeder UCITS, it must inform investors of this intention without undue delay.

Common provisions for feeder and master UCITS

A feeder UCITS must enter into an agreement with a master UCITS prior to investment in the master. The agreement must be available on request and free of charge to all unitholders and must contain the following:

  1. Provisions for access to information relating to the master UCITS;
  2. Basis of investment and disinvestment by the feeder UCITS;
  3. Standard dealing arrangements;
  4. Events affecting dealing arrangements;
  5. Standard arrangements for the audit report;
  6. Changes to standing arrangements (for example, changes to the constitutional documents etc); and
  7. Choice of applicable law

Alternatively, where the feeder and the master are managed by the same management company, the agreement referred to above may be replaced with internal conduct of business rules, which must contain the matters outlined at (ii) - (iv) above, as well as measures to mitigate conflicts of interest.

A master UCITS and feeder UCITS must also take appropriate measures to co-ordinate the timing of their net asset value calculations and publications in order to avoid market timing and prevent arbitrage opportunities.

Custodians / Trustees

The custodian / trustee of a master UCITS must immediately inform the Central Bank, its feeder UCITS and the custodian / trustee of the feeder of any irregularities it detects (including NAV errors and breaches of investment objectives, restrictions and borrowing limits) with regard to the master UCITS which are deemed to have a negative impact on the feeder UCITS.

If a feeder and a master have different custodians / trustees, the custodian / trustee of the feeder UCITS must enter into an information sharing agreement with the custodian / trustee of the master UCITS prior to investment, to cover such matters as documents to be routinely shared, manner and timing of sharing information, the coordination of both custodians / trustees in certain operational matters, the coordination of accounting year end procedures, sharing of information with regard to breaches at the level of the master fund etc.

Auditors

The auditors of a feeder UCITS must report on any irregularities in the audit report of the master UCITS and on the impact on the feeder UCITS.

Likewise, if a feeder and a master have different auditors, the auditors of the feeder must enter into an information sharing agreement with the auditors of the master UCITS prior to investment.

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