What is a Collective Investment Fund (CIF)?

Published by Thomas Herold in Investments

'Collective Investment Fund (CIF)' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

A collective investment fund is a vehicles that manages a combined group of trust accounts. They are sometimes called collective investment trusts. Trust companies or banks operate these funds. The idea behind them is to pool together the funds and assets of organizations and individuals so that the managers can create bigger and better diversified portfolios.

Two types of these CIFs exist. A1 funds are combined together so that their operators can effectively reinvest or initially invest them. With A2 funds, trusts contribute assets that are not subject to any federal income taxes.

The main goal with a collective investment fund lies in utilizing superior economy of scale in order to reduce costs. The operators are able to combine together pensions and profit sharing funds to come up with a greater amount of assets. Banks then put these funds which are pooled together in a master trust account. The bank that controls the account then serves as executor or trustee of the CIF.

Banks that serve collective investment funds are the fiduciaries. This means that keep the legal title for the fund and all assets within it. The individuals or groups that participate in the CIF still own the results of the invested fund’ assets. This makes them the beneficial owners of the relevant assets. Those who are participating within the fund do not actually own any individual assets that the CIF holds. They do maintain an interest in the aggregated assets of the fund.

Banks designed these collective investment funds so that they could improve their investment management tactics. They do this when they pull together a number of accounts’ assets and merge them into a single fund with a common investment strategy. Pooling these assets into only one account allows the banks to dramatically reduce their administrative and operating costs for the fund. The investment strategy they come up with is structured to optimize the performance of the investments.

There are a number of different collective investment funds operating. Invesco Trust Company operates several of them. Examples of their funds are the Invesco Balanced Risk Commodity Trust and the Invesco Global Opportunities Trust.

Though comptrollers use the name collective investment funds, other names sometimes refer to these vehicles. Generally applied names for them include common funds, common trust funds, comingled trusts, and collective trusts. An important characteristic of CIFs is that they are not regulated by the Investment Act of 1940 (as with mutual funds) or the SEC Securities Exchange Commission. Instead the OCC Office of the Comptroller of the Currency regulates and oversees them.

Mutual funds and collective investment funds are both pooled funds with an important distinction. These CIFs are not registered investment vehicles. Instead they exist in a class that is similar to hedge funds.

In 1927, the world’s first collective fund began. Thanks to the stock market crash that occurred only two years later, CIFs became a scapegoat. They were believed to have contributed to the severe crash. This caused regulators to heavily restrict them. Banks could only provide them to trust clients or by utilizing employee benefit plans. They received a significant boost in the Pension Protection Act of 2006. This act chose them to be the standard option in defined contribution plans. Now 401(k) plans often feature them as an option for stable value.

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The term 'Collective Investment Fund (CIF)' is included in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.