01 · Rationale
Reasons for an Australian feeder
Investing directly in an offshore private fund differs from buying a listed security. Many US private funds are limited partnerships that are transparent for tax purposes, so a direct investor can be treated as carrying on a trade or business in the United States.
That can bring US tax filings, US investor tests, institutional minimums and USD capital calls. An offshore Cayman feeder removes the US filings but changes the Australian tax outcome. An Australian feeder operated by Spire addresses both.
Illustration
44
US tax returns a year
A family trust with four beneficiaries invests directly in a US private real estate fund that owns properties in 10 states. Each beneficiary files a federal return and a return in each state, so the trust’s beneficiaries file 44 US tax returns every year.
Investing in a US private fund
| Directly in the US fund | Through an offshore Cayman feeder | Through a Spire Australian feeder | |
|---|---|---|---|
| Regulation and APIR code | US regulated, with no APIR code | APIR code available | Australian unit trust with an APIR code |
| US tax returns | Filed by the investor each year | Not required | Not required |
| Credit for US tax paid | Through the investor’s own US filings | Not available, so US tax can be paid twice | Foreign income tax offsets flow through to investors |
| Character of returns | Calculated by the investor | Treated as dividends, with no CGT discount | Capital account election, so the CGT discount can apply |
| Tax reporting | US K-1 statements at 31 December | Australian tax reporting at 30 June | AMMA statement at 30 June |
| Minimum investment | Set for institutions | Lower in some cases | Lower, set for the client group |
| Application forms | Complex US subscription documents | Complex subscription documents | Simpler Australian application forms |
| Investor eligibility | US tests, such as qualified purchaser status | US tests, such as qualified purchaser status | Australian tests in most cases |
| Currency | USD | USD | USD class, or AUD class hedged or unhedged |
| Capital calls | Managed by the investor | USD capital calls | Administered by Spire in the class currency |
General comparison only. Outcomes depend on the underlying fund, the investor’s circumstances and tax advice.
02 · Structure
Feeder fund structure
Each feeder is a new unit class of the Spire Capital Master Fund, referable to a dedicated sub-trust that invests in the offshore fund as a limited partner.
Where the underlying fund invests in the United States, a blocker that elects to be taxed as a US corporation can sit between the sub-trust and the fund. Investors then do not file US tax returns, and US tax paid can generate foreign income tax offsets.
The Master Fund and its sub-trusts are managed investment trusts within the attribution managed investment trust (AMIT) regime.
Clients of the private wealth firm
Wholesale investors
Spire Capital Master Fund
New unit class for the feeder
Dedicated sub-trust
Limited partner in the offshore fund
Blocker
Elects to be taxed as a US corporation
Offshore private markets fund
Selected by the firm
03 · Responsibilities
Responsibilities
Retained by the firm
- 1Selection of the underlying fund and confirmation of its terms with the manager
- 2Advice to clients, including suitability
- 3Coordination of client applications, including under power of attorney where agreed
- 4The ongoing client relationship
Carried by Spire
- 1Trustee and investment manager of the feeder
- 2Review of the fund’s offering documents and preparation of a term sheet
- 3Application forms, identity checks and anti-money laundering checks
- 4Subscription documents and side letters with the manager
- 5Capital calls and distributions in the class currency
- 6Currency management for AUD classes
- 7Australian and US tax structuring, and annual tax statements
- 8Quarterly reporting, including the manager’s commentary
- 9Confidentiality of client details, under a non-disclosure agreement where required
04 · Currency
Currency options
The firm chooses the class currency for its clients. Commitments to the underlying fund are always made in its own currency.
USD class
Investors commit and pay capital calls in USD, matching the currency of the underlying fund. Distributions are paid in USD.
AUD class
Investors commit and pay capital calls in AUD. Spire converts each call to USD and can hedge the exposure through its currency overlay program, managed by Rochford Group. The hedge ratio and term depend on the terms offered by hedging counterparties.
05 · Process
From mandate to first close
01
Scoping
The firm outlines the underlying fund, expected client demand and preferred currency. Spire provides indicative costings and a structure diagram.
02
Agreed terms
Spire and the firm confirm in writing the service, class terms, liquidity, distributions and reporting.
03
Document review
Spire reviews the fund’s offering documents and partnership agreement, and is introduced to the manager.
04
Term sheet and applications
Spire prepares the term sheet and application forms for the firm’s review. Existing Master Fund investors complete a shorter additional investment form.
05
Commitment
Applications close ahead of the fund’s dealing date to allow final checks, and the aggregate commitment is made in a single subscription.
06
Administration
Capital calls, distributions, reporting and tax statements run through the life of the investment. Further demand can be met through new unit classes on the same terms.
06 · Platform
Operating platform
Feeders sit on the Spire Capital Master Fund, which Spire has operated since 2019 and which also holds Spire’s Investment Solutions funds.
Fund accounting, unit pricing, custody, registry and audit are provided by independent firms with no common ownership with Spire. Each provides annual independent assurance over its controls, and Spire’s operations team reviews every unit price before release.
Service providers
Contact
Discussing a feeder fund
Fund Solutions is available to private wealth firms and family offices acting for wholesale clients, as defined in sections 761G and 761GA of the Corporations Act 2001 (Cth). To discuss a feeder for an offshore fund, contact the team at info@spirecapital.com.au.
Contact the team
This page contains general information only and does not take into account any person’s objectives, financial situation or needs. Each feeder is governed by its own term sheet and the offering documents of the underlying fund, which should be read in full before making an investment decision. Private markets investments should be considered high risk and are illiquid. Full disclaimer