An entity will be an investment entity if it meets either one of the following two sets of criteria.
Investment Entity Conducting Business on behalf of Customers
An entity will be an investment entity if it primarily conducts as a business for or on behalf of a customer one or more of the following activities:
Managed Investment Entity
An entity will be an investment entity if it is investing on its own account, is managed by a financial institution AND meets the Financial Assets test as described below.
An entity is managed by a financial institution if that financial institution performs, either directly or through another service provider, any of the activities described in the section above (Activity Based Investment Entity) on behalf of the entity. An entity is not regarded as managed by a financial institution if that financial institution does not have discretionary authority to manage the entity’s assets either in whole or part.
An entity may be managed by a mix of other entities and individuals. If one of the entities so involved in the management of the entity is a financial institution within the meaning of the agreements, then the entity meets the requirements for being managed by a financial institution.
An entity meets the Financial Assets test if its gross income is primarily attributable to investing, reinvesting or trading in Financial Assets. This is a similar test to that in the section above requiring that at least 50% of its income is attributable to investing, reinvesting or trading in Financial Assets in the shorter of:
An entity would generally be considered to fall within one of the categories of investment entity if it functions or holds itself out as a collective investment vehicle, mutual fund, exchange traded fund, private equity fund, hedge fund, venture capital fund, leveraged buy-out fund or any similar investment vehicle established with an investment strategy of investing, reinvesting or trading in Financial Assets.
An entity that primarily conducts as a business investing, administering, or managing non-debt, direct interests in real property on behalf of other persons, such as a real estate investment trust, will not be an investment entity. This will include structures, where the interest in the property is held through a chain of entities provided the entity at the head of the chain, has absolute control over the entities below, for example, a parent company sitting at the head of a chain of wholly owned subsidiaries.